The Commitment of Traders Report, often referred to as the COT report is published by the CTFC every Friday at 2:30pm EST. The report released by the CTFC measures the long and short positions held by speculative and commercial traders in a variety of futures and options markets, with the report reflecting the commitments of traders on the prior Tuesday. The Commitment of Traders report can be a very useful indicator as it provides traders with an indication of how different markets participants are positioned in the futures market. This not only of interest to those trading the future markets, with many spot traders actively following the futures in order to get an idea of where the spot market will head.

The report provides a breakdown of the aggregate positions held by market participants who are placed into three groupings. Understanding the difference between these three grouping is important in understanding and reading the COT report.

• Commercial Traders (aka ‘Hedgers’): The largest positions are held by commercial traders who may actually provide a commodity or instrument to the market or alternatively have bought futures contract to take delivery of a particular commodity or instrument. In the currency market commercial traders are typically big international businesses who use currency futures to hedge and protect themselves from exchange rate fluctuations. Typically these commercial traders hold more than half of the current outstanding contracts.
• Non-commercial traders (aka ‘Speculators’): Unlike commercial traders, non-commercial traders do not take part in the futures market with the intention of delivering or receiving a particular commodity or instrument. Rather these speculators buy and sell futures contracts in the hopes that they can exit their position at profit before the contract is due.
• Non-reportable (aka ‘Small speculators’): This final group consists of all traders whose total position size doesn’t require reporting to the CTFC.  This group generally consists of small or retail-traders who are trading in small enough size that they do not need to report their positions to the CTFC.

Reading the Report

The COT reports can be accessed by anyone and are available on the CTFC’s website .  Here you will find the all the available COT reports, from here those interested in the currencies should head over to the CME’s Futures only short form report found here . Simply use CTRL+F to search for the report you are looking for.

For those not accustomed to reading such reports, the COT data can look pretty confusing. We have already outlined the different categories of market participant. Below we’ll explain the other important categories.

• Long: The number of long contracts reported to the CTFC.
• Short: The number of short contracts reported to the CTFC.
• Number of Traders: The number of traders who were required to report positions to the CTFC.
• Open Interest: The number of contracts which are open; contracts which have neither been exercised nor delivered.
• Reportable Positions: The number of positions made by commercial and non-commercial traders.

COT Trading Strategies

Extreme Net Long or Short Positions  

As the COT comes out only once a week its use as an indicator is more suited to those who enter into longer term positions.  One popular way in which the COT reports are used by those who trade the spot markets is to identify extreme net long or short positions.

Some believe finding these positions can signal the possibility of reversal. If everyone is long the currency, who is there left to buy? Likewise if everyone is short, who is there left to sell? It is argued that these extreme net long or short positions foreshadow a possible price reversal.

While you’ll like find a number of cases where such net long and short positions do in fact foreshadow a reversal, there is also the possibility that speculators and commercial traders will continue to pile into extreme net long or short positions.

Trade against Small Speculators and With the Commercial Traders

One theory is that as small speculators are generally wrong, therefore the best position to take is one contrary to the net non-reportable position.  So if the non-reportable traders were net long in the Russian ruble, it would be wise to take a short position. Similarly some belief that commercial traders have the best understanding of the market since they are ultimately the ones delivering or receiving the instrument or commodity. So some have suggested traders consider following the net position held by these commercial traders.

The example below shows commercial traders building a significant net long position in the EUR while small speculators remained net short. The top half displays the price of the EUR/USD which rose significantly after commercial traders went net long on the EUR.

COT Chart

TimingCharts is a great tool for anyone wishing to trade using data from the COT report.

The COT reports released every Friday can be a very useful indicator and can help a trader identify overriding market sentiment. COT report data is only released weekly and thus will be only be suitable for those who are taking a longer term approach to trading. While useful COT data is not foolproof and traders should be careful when using COT data to inform their trading decisions.