In this article, We learn about "Commitment of Traders Report (COT)".Let's Go!
The Commitment of Traders (COT) report is a weekly publication showing the aggregate open interest of various participants in the US futures markets.
Every Friday, the CFTC (Commodity Futures Trading Commission) reports the COT (Commitment of Traders) report.
This report shows the changes in the positions of futures traders, including commercial, small speculators,big speculators.
Traders follow COT reports to identify extreme levels of long or short positions in currencies
, which may signal a trend reversal.
This report helps them determine whether they should enter a short or long position on a trade.
How to read the COT report
Commitment to Traders (COT) is a report published by the Commodity Futures Trading Commission (CFTC).
It aggregates the holdings of participants in the U.S. futures markets, primarily located in Chicago and New York, where commodities, metals, and currencies are bought and sold.
COT is released every Friday at 3:30 ET, reflecting traders' commitments from the previous Tuesday.
COT provides a breakdown of the total positions held by three different types of traders:
- "commercial trader" (in FX, usually a hedger)
- "non-commercial trader" (usually a large speculator)
- "non-reportable" (usually small speculators).
Net non-commercial positions are contracts held by large speculators, primarily hedge funds and banks that trade currency futures for speculative purposes.
Speculators who cannot fulfill the contract and do not need the underlying commodity or instrument, but can buy or sell the contract before it expires in hopes of closing out the position for a profit.
The sell lot size of these contracts varies by currency, net of buy request surplus (positive value in the chart) or sell request (negative value).
Open Interest represents the total number of contracts open across all market participants, including buy and sell positions.
is the sum of all futures and/or options contracts that have been signed and have not been offset by trade, delivery, performance, etc. These numbers are not equity but show overall trading volume (i.e. interest).
How to use the COT report
Commitment of Traders (COT) reports can sometimes give traders a good look at major future moves in the market.
CFTC requires large speculators and commercial traders or hedgers to report their net positions twice a month.
In general, the Large Speculators category represents fund traders and professional traders with large positions. Commercial traders also report their net positions to the CFTC.
The number of "non-reportable" positions is derived by subtracting the number of large speculative and commercial positions from the total open interest.
This group of traders is generally considered small-scale speculators and hedgers who do not hold positions large enough to report to the CFTC.
COT report results can be used as a tool to give traders a better understanding of market psychology, net positions advertised in the market, and net positions of large traders.
Large traders (funds) are usually trend followers, adding to or closing out positions based on the technical movement of the market since the date of the report.
There are many ways to analyze the report, but in most cases, the net position of large traders and the "position change" over a two-week period are the most interesting data.
Remember that small traders' net positions are often vulnerable to long liquidation or short covering if the market starts moving against them.
Thus, the classic bullish pattern for a given market is that large traders are net long and small traders are net short.
If the two-week trend in large trader positions is down, or in other words, if funds are liquidating their net-long positions, the market will be in a weakening bullish pattern. This is a warning sign.
Larger net short positions by small traders (relative to history) and the degree to which small traders hold positions "contrarian" are factors that add to the report's bullishness.
If large traders are net short (more bearish if they added to their position in the past two weeks) and small traders are net long (more bearish if they were net long) in the market, then the market There will be a classic bearish pattern relatively large, and the trend will decline decisively).
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