for futures and forward contracts makes the overlay implementation of GTAA possible. The initial margin on futures is generally 2 to 10 percent, and the initial collateral on forward and swap contracts is equally small. But use of these derivative instruments offers another advantage: high liquidity and low transaction costs. The liquidity in futures markets today is immense. Liquid futures exist in all of the major global markets and asset classes, and are commensurate in size with trading in underlying cash instruments. Table 25.2 reports average trading volumes in futures and cash markets around the world today. Liquidity in global currency forward markets is similar in magnitude, making it possible to trade significant positions quickly with minimal market impact. On average across all major global equity markets, traded futures market volume is 83 percent that of cash market volume, amounting to approximately $90 billion a day. Average daily global bond futures market volume amounts to over twice this. While market volumes in bond cash markets are tougher to measure, in the U.S. 10-year and 30-year markets, futures market volume is about 50 percent higher than cash markets. While the overall trading volume in futures is similar to that in cash instruments, futures transaction costs are considerably lower. The one-way transaction cost is the sum of commissions and fees, one-half of the bid/ask spread, and the anticipated market impact from trading a given size order. Figure 25.3 depicts the relative round-trip transaction costs for a $5 million trade in stock index futures versus underlying stocks, on average across 15 developed equity futures markets. The results are striking. Because the average futures contract size is more than 1,000 times the price of the average stock, the commission rates for futures are approximately 90 percent less than for stocks. The bid/ask spread and market impact are also much smaller in futures, about one-fifth the level in stocks. Two elements drive the spread and market impact costs: liquidity and the potential for traders to hold private information that is not reflected in prices. The liquidity impact simply means that to trade in larger sizes over short horizons, prices must move adversely to entice additional liquidity on the other side. The larger the trading volume in a given market, the smaller will be the liquidity impact. This suggests the liquidity impact of futures is similar to, if not a bit smaller than, stocks. The private information problem, on the other hand, is much more pronounced in individual stocks. This is because private information is firm specific by its very nature, and the value of that information is many times greater when trading the specific firm's stock than when trading a stock index in which the stock represents only a small fraction. This causes the bid/ask spread and market impact cost for underlying stocks to greatly exceed that for stock index futures. And while we've shown the difference between market impact in stocks and futures for a moderately sized order, trades in larger sizes further increase the cost of trading stocks relative to stock index futures. The most obvious disadvantage of using futures to implement GTAA is that the completion portfolio cannot track the benchmark as well as the underlying cash