Legacy Commitments of Traders Net Positions
In this example, we will use gold futures COT and compare it to EUR/USD prices. The 252-day correlation currently stands at 0.58, although not very high but still meaningful. As a quick reminder and as mentioned earlier, as markets grow and more participants enter the markets, extreme positioning levels can be broken and new all-time levels are created. A «money manager,» for the purpose of this report, is a registered commodity trading advisor (CTA); a registered commodity pool operator (CPO); or an unregistered fund identified by CFTC. These traders are engaged in managing and conducting organized futures trading on behalf of clients.
How to Read the COT Report
Different types of traders and businesses utilize the futures market to hedge their risk or lock in a specific market price. Examples of commercials or hedgers can be a crop producer looking to hedge the risk of any potential decline in price in the future; an airline looking to take advantage of or lock in a low price on oil is also another example. Since commercials are hedging, their positions are usually against the market. This means that if prices are rising, commercial traders are expected to be selling, and if prices are declining, commercial traders are expected to be buying.
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Likewise, short-call and long-put open interest are converted to short futures-equivalent open interest.
It is also worth noting that the only trader category that was supporting and following the price action were the small speculators.
The report provides investors with up-to-date information on futures market operations and increases the transparency of these complex exchanges.
Long-call and short-put open interest are converted to long futures-equivalent open interest.
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.
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COT reports can be obtained from the CFTC website and can be downloaded in several file formats.
What is the Commitments of Traders Report?
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.
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.
Although markets grow and do break and create new position levels, the existing historical position levels have proved to be significant many times in the past. This category includes the total positions for other market participants who don’t fall under the previously mentioned categories. This group is also another large segment of market participants and is also considered to be trend followers; however, their trading approaches towards different markets can vary significantly. Generally, the data in the COT reports is from Tuesday and released Friday. The CFTC receives the data from the reporting firms on Wednesday morning and then corrects and verifies the data for release by Friday afternoon. It aggregates the holdings of participants in the U.S. futures markets (primarily based in Chicago and New York), where commodities, metals, and currencies are bought and sold.
The report includes data such as open position data changes, volume, and open interest changes for outright futures contracts and options on futures. The report is released in different formats and provides extensive information on historical position changes, which some traders use as part of their trading arsenal. We will focus here on the three main categories; however, there is more data and other categories available on the COT report. COT reports are based on position data supplied by reporting firms (FCMs, clearing members, foreign brokers, and exchanges).
Open interest held or controlled by a trader is referred to as that trader’s position. For the COT Futures-and-Options-Combined report, option open interest and traders’ option positions are computed on a futures-equivalent basis using delta factors supplied by the exchanges. Long-call and short-put open interest are converted to long futures-equivalent open interest.
The legacy COT simply shows the market for a commodity broken into long, short, and spread positions for non-commercial traders, commercial traders, and non-reportable positions (small traders). These are typically hedge funds and various types of money managers, including registered commodity trading advisors (CTAs); registered commodity pool operators (CPOs) or unregistered funds identified by CFTC. The strategies may involve taking outright positions or arbitrage within and across markets. The traders may be engaged in managing and conducting proprietary futures trading and trading on behalf of speculative clients. The disaggregated COT report is another one that is commonly known by traders. It provides a deeper breakdown of the market participants, splitting commercial traders into producers, merchants, processors, users, and swap dealers.
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.
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.
When graphically shown on charts, you actually see what is referred to as the Net Traders Positions which is the actual difference between the number of long positions held by each group minus the number of short positions. Thus a positive number means they hold more long positions than short and vice versa. The long and short open interest shown as «Nonreportable Positions» is derived by subtracting total long and short «Reportable Positions» from the total open interest. Accordingly, commitment of traders report forex for «Nonreportable Positions,» the number of traders involved and the commercial/non-commercial classification of each trader are unknown. It is also worth noting that the only trader category that was supporting and following the price action were the small speculators. One of the main problems that traders face when using various trading tools is that many indicators are based on price data, and therefore, in many cases, the different indicators end up duplicating the same message.
The CFTC requires large speculators and commercial traders, or hedgers, to report their net positions twice each month. Forex commitment of traders reports are based on the corresponding futures contracts traded on the Chicago Mercantile Exchange. The COT provides an overview of what the key market participants think and helps determine the likelihood of a trend continuing or coming to an end. If commercial and non-commercial long positions are both growing, for example, that is a bullish signal for the price of the underlying commodity.
The Commodity Futures Trading Commission (Commission or CFTC) publishes the Commitments of Traders (COT) reports to help the public understand market dynamics. Specifically, 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. The CFTC releases the weekly COT reports in static format to support the historical usage patterns of industry professionals viewing and accessing each week’s data. Each historical report is viewable with the data for the respective reporting week, along with all historical data compressed within an annual file. In October 2022, CFTC began publishing weekly and historical report data within a public reporting environment to support industry professionals needing to customize, search, filter, and download report data for analysis and trends. Commercials are traders who are primarily involved in trading a specific commodity or a financial instrument due to the nature of their business.
Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading in foreign currency contracts or other off-exchange products on margin carries a high level of risk and is not suitable for everyone. We advise you to carefully consider whether trading is appropriate for you in light of your personal circumstances. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. The chart below is for Euro futures with its COT data applied; the blue line on the price chart shows prices making higher highs while large speculator positions are making lower highs. We can also see commercials positioning for higher prices, which is the opposite of what to expect.
The larger the net short position of the small trader (relative to history) and the extent that small traders are holding a position “against” the trend are factors that will add to the bullishness of the report. The COT report’s results can be used as a tool to give traders a better understanding of the psychology of the marketplace, the net position of the commercials in the market, and the net position of the large traders. This group of traders is generally thought to be small speculators and hedgers who are not holding a position large enough to report to the CFTC.
Information that is included in the report is compiled on Tuesday and verified on Wednesday before being released every Friday. The report is intended to help people understand the dynamics of the market. Commodity Futures Trading Commission, «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.» The COT reports are based on position data supplied by reporting firms (FCMs, clearing members, foreign brokers and exchanges). 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 Form 40 and is subject to review by CFTC staff for reasonableness.
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.
It is important to remember that correlations change over time; however, since the Euro, British Pound, and Gold are all priced in USD, the correlation is expected to remain close to its averages unless a major change happens. The Legacy and Disaggregated reports are available in both a short and long format. These contracts, sold in lot sizes that vary by currency, net out to have either a surplus of buy requests (positive values in the chart) or sell requests (negative values). Before we dive into how to use the Commitment of Traders report as a forex trader, you have to first know WHERE to go to get the COT report and HOW to read it. This article is for general information purposes only, not to be considered a recommendation or financial advice.
CFTC staff does not know specific reasons for traders’ positions and hence this information does not factor in determining trader classifications. Note that traders are able to report business purpose by commodity and, therefore, can have different classifications in the COT reports for different commodities. For one of the reports, Traders in Financial Futures, traders are classified in the same category for all commodities. Clearing members, futures commission merchants, and foreign brokers (collectively called reporting firms) file daily reports with the Commission. Those reports show the futures and option positions of traders that hold positions above specific reporting levels set by CFTC regulations.
There have been recommendations to publish more detailed data on a delay as not to affect commercially sensitive positions, but that still looks unlikely. And, despite its limitations, most traders agree that even the questionable data of the COT is better than nothing. Ignore the commercial positions for now, since those are mainly for hedging while small retail traders aren’t relevant. Barchart Premier Members can choose from a Detailed Report where you can page through the last 52 reported weeks of data, or a Summary Report, showing just the last reporting period. The number “non-reportable” positions are derived from subtracting the number of large spec and commercial positions from the total open interest. That is, the total of all futures and/or option contracts entered into and not yet offset by a transaction, by delivery, by exercise, and so on.
The COT Public Reporting Environment (PRE) provides an application programming interface (API) to allow users to customize their experience with the COT market report data. The API allows users to search and filter across columns for each of the datasets, including reporting date or week, commodity groups, subgroups, or name, and contract market name. Customized data report results can be downloaded to available formats — CSV, RDF, RSS, TSV, or XML. Large traders (funds) are typically trend-followers and will add or liquidate their positions depending on the technical action of the market since the release date of the report. The Open Interest represents the total number of contracts, including both buy and sell positions, outstanding between all market participants.
The noncommercial participants are split between managed money and other reportables. The short format shows reportable open interest and week-to-week open interest changes separately by reportable and non-reportable positions. For reportable positions, additional data is provided for commercial and non-commercial holdings, spreading (in certain categories only), changes from the previous report, percent of open interest by category, and numbers of traders.
This is where COT stands out, as it relies on a different type of data that doesn’t take prices into account; the data is simply driven from the total number of open positions and has nothing to do with instrument pricing. As a result, a classic bullish set-up for a given market would be when large traders are net long and small traders are net short. Keep in mind that the small trader’s net position is usually vulnerable to either long liquidation or short-covering if the market starts to move against them. These are institutional investors, including pension funds, endowments, insurance companies, mutual funds and those portfolio/investment managers whose clients are predominantly institutional.
It is a core data source for traders and for most academic research on pricing trends in the futures market. That said, it does have its critics and their issues with the report are justified. The biggest weakness with the COT is that, for a document meant to promote transparency, the rules governing it are not transparent. Department of Agriculture’s Grain Futures Administration issued an annual report outlining hedging and speculation activities in the futures market. In the 1990s, the report moved to a bi-weekly publication before going weekly in 2000. One way to use the COT report in your trading is to find extreme net long or net short positions.
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.
As always, all trading tools are vulnerable to criticism and can be scrutinized. Read on as we can summarize some of the main advantages and disadvantages of using the COT report as a trading tool. Each Friday, the CFTC (US Commodity Futures Trading Commission) reports the COT (Commitment of Traders) report. Remember, since spot forex is traded over-the-counter (OTC), transactions do not pass through a centralized exchange like the Chicago Mercantile Exchange. By watching the behavior of these players, you’ll be able to foresee incoming changes in market sentiment.
Both cases represent negative divergence and reflect that both trader categories are supportive of the latest upside price action. Shortly after, the EUR/USD price entered a bear market, which lasted almost 18 months (in red). The COT report can also be considered a sentiment indicator as traders adjust their positions in anticipation of an expected event such as FED interest rate announcements or major changes in the economic or political environment. The advantage here is that the sentiment data is representative of different market participant categories as well as for each specific instrument, hence providing detailed and broken-down sentiment data that many traders find useful. The report history provides historical positioning thresholds or extremes that were previously reached.
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