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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 Commodity Futures Trading Commission (CFTC).

Commitment of Traders (COT) charts are updated each Friday at 3pm CST. Forex commitment of traders reports are based on the corresponding futures contracts traded on the Chicago Mercantile Exchange.

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.

Three main groups mentioned in the COT report

Commercial Traders – These are most often large multi-national corporations with commercial hedging interest in their respective futures markets. For example, a large Japanese manufacturer may want to hedge their exposure to fluctuations in the USD/JPY exchange rate.

Non-Commercial Traders – This data most often relates to large speculators such as Commodity Trading Advisors and similarly large institutions speculating in specific futures markets. For example, a major commodity fund believes that the US Dollar will appreciate against the Euro and, as such, place bets on Euro forex futures.

Non-Reportable Traders – Non-Reportable Traders are traders who don’t fall into either group. Most often seen as small speculators, these are arguably less significant and do not frequently figure into COT report analysis. For example, these traders refer to the leveraged players without deep pockets who are shaken out on big moves

How can we use COT?

There are generally two typical approaches to applying COT data. The first is to attempt to follow the positioning of these larger groups – follow the money. The second is determine whether the market is at extremes – is it a consensus trade and may reverse?

Net Position is the difference between those holding long contracts to those  holding short contracts. So if it is negative they are Net Short; there are more traders holding short contracts than long contracts and therefore the group has an overall bearish outlook. And if the net position is positive they are Net Long; they are holding more long contracts than short and have a bullish outlook.