Commitment of Traders The COT Reports

Access Weekly Commitments of Traders Reports, as well as trade analysis and recommendations for various markets, daily fundamental and technical market overviews, future price outlooks, and more through our Insider Market Advisory. If a major currency has a net long or short of 100,000 contracts, that would generally be viewed as being extended. Similarly, if the six major currencies all showed that non-commercial accounts had sizable net currency longs (implying they were short US dollars), that might also raise a red flag. This reveals the size of outstanding positions for various players as of the preceding Tuesday.

• For an example of a Forex COT report, you can refer to the following image.
• Non-reportable traders don’t have the heavy bank accounts of commercial and non-commercial traders.
• The report contains data collected each Tuesday and if there was a giant move on Wednesday and Thursday, by the time you get the report on Friday, the information could well be stale and not a good guide.
• References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c).
• 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.

To get better results, you can use the data from the COT report to complement your technical analysis from other forex trading tools. The CFTC publishes beforehand the release schedule for the COT report. Others suggest that small speculators, devoid of the tools and knowledge of the bigger participants, are usually wrong, and act on this assumption by doing the opposite of what the non-reporting group does. Traditional trading lore has it that the way to use COT data is to “follow the commercials.” In FX, this is not always the best advice. Traders tend to look at the seven major currencies (yen, euro, Swiss franc, sterling, Aussie, New Zealand, and Canadian dollars) both individually and as a whole.

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. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c).

Futures

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). 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. 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.

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. The first place to start with is a clean understanding of ‘net positioning’ which is shown clearly on the report itself, as well as the week over week differential of major market bias (circled above). Every other reportable trader that is not placed into one of the other three categories is placed into the “other reportables” category. Notice how the non-commercial’s long positions increased by 2100 while their shorts reduced by 20.

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. The other method involves noting where the non-commercial traders are accumulating their positions.

Commitments of Traders (COT) Charts

As you can see, the currency pair just came from a downtrend and is making a reversal to the uptrend at about the same time. There are two ways to use the COT report to spot potential reversals in the forex market. If you started trading in the last two decades, you’ve only known a world in which the euro is worth more than the US dollar. You’d have to go all the way back to 2002 to find data points representing the EUR/USD conversion rate that start with a zero to the left of the decimal point. Although it looks disorganized, searching through the report is relatively easy.

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. If the commercial traders are going heavily bullish while the non-commercials are heavily bearish, the market could experience a reversal to the uptrend. And if commercials are going short while non-commercials are going long, a reversal to the downtrend may occur. The report provides investors with up-to-date information on futures market operations and increases the transparency of these complex exchanges. It is used by many futures traders as a market signal on which to trade.

How Do You Use a COT Report in Forex Trading?

The COT report can serve as a powerful forex volume indicator when you use it rightly. Since CFTC releases the weekly report every Friday for all trades recorded before Tuesday, you can only use it for long-term trades. 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.

However, the original COT reports are text based and the CFTC does not provide any data analytics tools. COT reports can be obtained from the CFTC website and can be downloaded in several file formats. Remember, since spot forex is traded over-the-counter (OTC), transactions do not pass through a centralized exchange like the Chicago https://g-markets.net/ Mercantile Exchange. By watching the behavior of these players, you’ll be able to foresee incoming changes in market sentiment. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. As we always say, never rely on one tool or indicator to decide your trades.

THE COMMITMENT OF TRADERS (COT) REPORT

The disaggregated COT report is, in part, a response to some of the criticism of the legacy COT. With these general definitions in mind, traders can then decide how to use this information. The image below depicts an extract from the COT report with the three main groups as outlined above.

Because of this, they like to look at the positioning data by CFTC as well as reports released by the Tokyo Financial Exchange. When the new form report first came out, analysts thought it would be an improvement. However, many analysts still have commitment of traders report forex not abandoned the old legacy version. They figure it is better to look at what the non-commercials are doing as a whole, rather than bother to look at the breakdown and have to add up two numbers that are available elsewhere as a single one.

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. 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. Of these, 14,320 were longs held by dealers and 10,875 shorts sold by institutional traders. The COT also delineates the number of contracts involved in spreads. There have been recommendations to publish more detailed data on a delay as not to affect commercially sensitive positions, but that still looks unlikely.

The CFTC requires large speculators and commercial traders, or hedgers, to report their net positions twice each month. In general, the large speculator category represents fund traders and professional traders who carry large positions. The number “non-reportable” positions is derived from subtracting the number of large spec and commercial positions from the total open interest. 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. While the volumes seen in futures are just a drop in the bucket in the $7.5 trillion per day traded in spot foreign exchange, the COT report offers rare insight into positioning. If X percent of traders hold a long in a currency on the Chicago Mercantile Exchange (CME), then logic follows that those in the spot market may have a similar position.

Selecting the Right Report

So, it is difficult to accurately track the volumes behind all forex trades. It is also harder to know what the big banks, the large speculators, and other market drivers, are doing. But with the COT report, forex traders can have an insight into these pieces of info.