Therefore, traders always look for different types of indicators to incorporate into their strategies. Every other reportable trader that is not placed into one of the other three categories is placed into the “other reportables” category. The market will be in a weakened bullish set-up “if” the two-week trend in the large trader position is down, or in other words, if the funds are in the process of liquidating their net long position. There are many different ways to analyze the reports, but for the most part, the large traders’ net position and “change in position” over a two week period are the most important numbers to watch.
Market Data & Economic Analysis
Of these, 14,320 were longs held by dealers and 10,875 shorts sold by institutional traders. The long version of a COT report, in addition to the information in the short report, groups the data by crop year, where appropriate, and shows the concentration of positions held by the largest four and eight traders. Traders can use the report to help them determine which positions they should take in their trades, whether that’s a short or a long position. One thing the report does not do is categorize individual traders’ positions because of legal restraints. This is part of confidential business practices, according to the commission.
What is the Commitments of Traders Report?
The reports are read as tables, which each row and column labeled appropriately (see the example above). The information in the report indicates how much interest there is, both long and short, in various derivatives contracts, and which type of market actor is involved. This is meant to provide a clearer picture of what the people with skin in the game—the users of the actuals—think about the market versus the people with profit motivations or speculators. The disaggregated COT report is, in part, a response to some of the criticism of the legacy COT.
Commitments of Traders (COT) Reports Descriptions
Reportable traders that are not placed into one of the first three categories are placed into the “other reportables” category. The traders in this category mostly are using markets to hedge business risk, whether that risk is related to foreign exchange, equities or interest rates. This category includes corporate treasuries, central banks, smaller banks, mortgage originators, credit unions and any other reportable traders not assigned to the other three categories.
How to use the COT in forex trading
The Commitment of Traders Report is a breakdown of each Tuesday’s open interest in the major futures markets as reported by the US Commodity Futures Trading Commission (CFTC). Leveraged trading in foreign currency contracts or other off-exchange products on margin carries a high level of risk and may not be suitable for everyone. Trading in digital assets, including cryptocurrencies, is especially risky and is only for individuals with a high risk tolerance and the financial ability to sustain losses.
OANDA Corporation is not party to any transactions in digital assets and does not custody digital assets on your behalf. Any positions in digital assets are custodied solely with Paxos and held in an account in your name outside of OANDA Corporation. Paxos is not an NFA member and is not subject to the NFA’s regulatory oversight and examinations. The Commitment of Traders (COT) report is a weekly publication that shows the aggregate holdings of different participants in the U.S. futures market. As we all know, financial markets are highly correlated, and the COT report can sometimes provide insights from other markets different from the one we are trading in.
The remaining three categories (“asset manager/institutional;” “leveraged funds;” and “other reportables”) represent the buy-side participants. These are essentially clients of the sell-side participants who use the markets to invest, hedge, manage risk, speculate or change the term structure or duration of their assets. The category called “dealer/intermediary,” for instance, represents sell-side participants. The COT reports provide a breakdown of each Tuesday’s open interest for futures and options on futures markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. In this case, traders can see what market participants in other markets are doing and compare it to the instrument they are trading using intermarket analysis techniques.
- There is no magical indicator that will tell us where the market is headed; however, using different types of indicators that are independent from each other can help a trader make a more informed decision.
- Open interest is the total of all futures and/or option contracts entered into and not yet offset by a transaction.
- Both cases represent negative divergence and reflect that both trader categories are supportive of the latest upside price action.
Looking at forex trading, the chart below shows GBP/USD with its COT net positions applied. The focus here is on the position levels when it reaches its all-time extreme and the price action development afterwards. We can see that historical extreme positioning levels represented historical price turning points. Market participants also look for divergences between different categories to identify potential short- or long-term reversals. The supplemental report is the one that outlines 13 specific agricultural commodity contracts.
While the position data is supplied by reporting firms, the actual trader category or classification is based on the predominant business purpose self-reported by traders on the CFTC. As the name suggests, this category represents large institutions and traders looking to speculate on different commodities and market instruments with the goal of making a profit on their speculative positions. Traders fall into this category once they exceed a specific number of traded contracts set by the CFTC for each commodity or instrument. Examples of large investors can be hedge funds, institutional investors, and other types of large financial firms that specialize in trading specific instruments as investments. This category of traders are usually trend followers and, in some cases, can also be considered a well-informed group.
This report shows a breakdown of open interest positions in three different categories. Because the COT measures the net long and short positions taken by speculative traders and commercial traders, it is a great resource to gauge how heavily these market players are positioned in the market. For example, traders are classified as non-commercial or commercial, and that holds for every position they have within that particular commodity. This means that an oil company with a small hedge and a much larger speculative trade on crude will have both positions show up in the commercial category.
These figures are not netted, but instead show overall volume (that is, interest). Speculators are not able to deliver on contracts and have no need for the underlying commodity or instrument, but buy or sell with the intention of closing their “sell” or “buy” position at a profit, before the contract becomes due. We commitment of traders report forex introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. In early October 2009, EUR futures net long positions hit an extreme of 51,000 before reversing.
Open interest, as reported to the Commission and as used in the COT report, does not include open futures contracts against which notices of deliveries have been stopped by a trader or issued by the clearing organization of an exchange. In many cases, traders can identify the strength of a specific trend and use it as a confirmation tool through changes in position levels for different market participants. For example, in an ideal world, we can expect that if the price is rising, large speculators are buying while commercials are selling, and we can consider it a representation of a healthy trend. On the other hand, a divergence between the above can signal the opposite. The Commitment of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. It breaks down the open-interest positions of all major contracts that have more than 20 traders.
Open interest is the total of all futures and/or option contracts entered into and not yet offset by a transaction, by delivery, by exercise, etc. The aggregate of all long open interest is equal to the aggregate of all short open interest. Open interest is the total of all futures and/or option contracts entered into and not yet offset by a transaction.
Likewise, short-call and long-put open interest are converted to short futures-equivalent open interest. For example, a trader holding a long put position of 500 contracts with a delta factor of 0.50 is considered to be holding a short futures-equivalent position of 250 contracts. A trader’s long and short futures-equivalent positions are added to the trader’s long and short futures positions to give “combined-long” and “combined-short” positions.
There is no magical indicator that will tell us where the market is headed; however, using different types of indicators that are independent from each other can help a trader make a more informed decision. The fact that COT report data is independent of price action makes it a different type of indicator when compared to the many and mostly used ones, and therefore it may add value to a trading plan. The legacy COT report separates reportable traders only into “commercial” and “non-commercial” categories. The long report, in addition to the information in the short report, groups the data by crop year, where appropriate, and shows the concentration of positions held by the largest four and eight traders. Due to legal restraints (CEA Section 8 data and confidential business practices), the CFTC does not publish information on how individual traders are classified in the COT reports. Looking at the COT example in the table above, we can see that Nasdaq 100 futures, traded on the Chicago Mercantile Exchange (CME) had an open interest of 57,779 contracts on June 15, 2021.
The Commitments of Traders is a weekly report published by the Commodity Futures Trading Commission (CFTC). The report provides details on traders’ positions in a categorized format according to trader type. The report is released every Friday afternoon, and its data covers up to the end of the trading day on Tuesday of the same week.
Traders follow the COT report to identify extreme levels of long or short positions in a currency, which may signal a trend reversal. This report shows the changes in open positions of futures traders, including commercials, small speculators, and large speculators. Forex traders may use currency derivatives COT reports to find large net long or net short positions. The report provides investors with up-to-date information on futures market operations and increases the transparency of these complex exchanges.
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Many traders and analysts use this tool and have developed custom indicators driven by COT.
In general, the large speculator category represents fund traders and professional traders who carry large positions. The Commitments of Traders (COT) reports can sometimes give traders a good idea of future significant moves in the market. The CFTC then corrects and verifies the data for release by Friday afternoon. The Barchart site’s data is then updated, after the official CFTC release.
COT reports can be obtained from the CFTC website and can be downloaded in several file formats.
Simply put, even the disaggregated data is too aggregated to be said to accurately represent the market. As the value of the net short positions of non-commercial traders (the green line) dropped, so did EUR/USD. The argument here is that delayed data is also considered to be discounted by current market prices and therefore not useful. A major advantage of the COT report is that it provides us with historical extreme position levels. These extreme position levels, whether long or short, can be significant for traders as they may represent a turning point.
The aggregate of all traders’ positions reported to the Commission usually represents 70 to 90 percent of the total open interest in any given market. From time to time, the Commission will raise or lower the reporting levels in specific markets to strike a balance between collecting sufficient information to oversee the markets and minimizing the reporting burden on the futures industry. The category called “dealer/intermediary,” for instance, represents sellside participants. Typically, these are dealers and intermediaries that earn commissions on selling financial products, capturing bid/offer spreads and otherwise accommodating clients.
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