Commitments Of Traders Report

The Commitments of Traders (COT) report is a published data set that shows weekly aggregates of holdings held by participants in the U.S. futures markets. Its primary purpose is to guide traders on market dynamics and provide weekly data on futures and options traded.

The COT report is provided by the Commodity Futures Trading Commission (CFTC) every Friday at 3:30 p.m. ET. It details historical patterns and trends of industry professionals in a publicly accessible format. Although it is published on Friday, the report contains trading data from the previous Tuesday.

The Commitments of Traders Report offers a snapshot of the futures positions held by trading groups every Tuesday of that week. It provides a detailed breakdown of the futures and options positions held by at least 20 or more traders. The CFTC prepares these reports using data supplied by futures commission merchants (FCMs), clearing members, foreign brokers, and exchanges. These entities submit data electronically, listing participants’ positions for that week. The CFTC receives the data on Wednesday and then reviews and edits it for the report published on Friday.

The history of the COT report dates back to early versions published in 1924. The U.S. Department of Agriculture's Grain Futures Administration (USDA) introduced rules and guidelines for hedging and speculation activities in the futures market. Initially, this report was released annually. Later, in 1962, the report became available to the public monthly.

In 1995, the CFTC incorporated trade positions for options contracts. By the late 20th century, the report was released biweekly until 2000, when it began to be published weekly on Fridays. This data includes traders holding positions that exceed reporting levels set by the CFTC.

The CFTC provides four major types of COT reports for market participants:

1. Legacy: The legacy COT report covers F&O positions and is divided into futures-only reports and combined futures-and-options reports. Based on open-interest positions, traders are classified as commercial or non-commercial. This report helps traders predict trends in respective instruments. For example, a rising trend of long positions among commercial traders may signal a bullish market pattern.

2. Supplemental: This report covers 13 agricultural commodity contracts for both futures and options positions, classified by non-commercial, commercial, and index traders based on reportable open-interest positions.

3. Disaggregated: The disaggregated COT report classifies data into categories such as agriculture, natural gas, petroleum, metals, electricity, and other physical contracts. It divides open-interest positions into four categories:

• Producer/Merchant/Processor/User
• Swap Dealers
• Managed Money
• Other Reportables

4. Traders in Financial Futures (TFF): The TFF report covers securities in the futures market, including financial contracts such as currencies, stocks, Eurodollars, U.S. Treasury securities, VIX, and the Bloomberg Commodity Index. It categorizes participants into four groups:

• Dealer/Intermediary
• Asset Manager/Institutional
• Leveraged Funds
• Other Reportables

The COT report contains many rows and columns, offering detailed information both horizontally and vertically. Traders and organizations typically use weekly Commitments of Traders charts to better understand the futures market. Correctly interpreting the report can enhance the prospects of trade positions:

• Market Participants: Depending on the type of report, the CFTC categorizes traders into different groups, such as commercial traders (hedgers) and non-commercial traders (speculators). A large group of commercial traders holding long positions may signal a bullish bias, while a significant number of short positions from speculators could indicate a bearish signal.
• Open Interest: Open interest refers to the total number of outstanding contracts in the market. A rise in open interest accompanied by an increase in long positions may signal an upward price movement.
• Analyze Trends Over Time: Traders can observe trends in net positions to better understand market dynamics. For example, if there is a consistent increase in long positions for a commodity, the COT chart may indicate a potential rise in future prices.
• Look for Positions: In the rows section, positions are typically categorized as long positions, short positions, and spreading. After offsetting spreading trades, the remaining positions reflect net long and short positions.
• Statistical Categories: Other important segments of the report include the number of contracts, contract size, the percentage of open interest held by each trading group, changes in trade positions, and more.

Let us look at some examples of how traders use COT reports for their use:

Example #1

Clevin is a trader who trades commodities daily and has been involved in futures trading for the past four years. With the help of the COT report, his analysis and trading have become much easier. Recently, he analyzed the report for soybean oil futures contracts. Clevin reviewed the latest release from the CFTC and noticed that commercial traders had significantly decreased their net short positions. Meanwhile, non-commercial traders (speculators) had doubled their net long positions.

As a result, Clevin suspects that commercial traders might hoard more inventory or sell less. Similarly, hedgers and speculators could anticipate a significant rise in prices. Based on this analysis, Clevin decided to take a long position.

Example #2

Recent news reported an increase in the net long positions held by currency speculators in Pound futures. The latest COT report indicated that the total net long position comprises around 93,765 contracts. Additionally, a weekly increase of 6,773 net contracts was increased compared to the previous week's release.

The following are the advantages and disadvantages of COT reports usually experienced by traders in the market:

Advantages:

• The COT report provides valuable analysis and insights into the futures market.
• Traders can use this analysis to develop upcoming trading strategies.
• The report signals market trends and summarizes various indicators in one place.
• It offers sufficient historical position data and shows changes over time.
• The COT report serves as an indicator for predicting market sentiment surrounding news.

Disadvantages:

• Interpreting the report’s outcomes can sometimes be challenging.
• Despite valuable insights, there are some limitations in the data.
• Since the report is publicly available, there is a risk of market manipulation.
• Certain factors can strongly influence trends predicted by historical data.