Commitment of Traders (COT) Report
The Commitments of Traders Report is issued by the Commodity Futures Trading Commission (CFTC), detailing the positions of traders in most of the futures markets located primarily in Chicago and New York.
Commitments of Traders Report (COT)
The Commitments of Traders Report is issued by the Commodity Futures Trading Commission (CFTC), detailing the positions of traders in most of the futures markets located primarily in Chicago and New York. The Commodity Futures Trading Commissionreleases a new report every Friday afternoon, and the report reflects the commitments of traders on the prior Tuesday. The weekly Commitments of Traders report is often referred to as "COT."
The Commitment of Traders Report considers three types of traders: “commercial traders,” “non-commercial traders” and “nonreportable.” “Commercial traders” are often called “hedgers”, “non-commercial traders” are often known as “large speculators,” and the “nonreportable” group is often called “small speculators.”
The largest positions, more than half the open interest in most markets, are held by commercial traders that actually intend to take delivery of the commodity or instrument or provide a commodity or instrument to the market. Speculators, unlike commercial traders, have no need for the underlying commodity and are not able to take delivery on the contract. Speculators buy or sell only to achieve a profit, and do not hold until the contract comes due. In most markets the majority of the open interest held by speculators have positions large enough to meet reporting requirements.
The third type of trader is referred to by the CFTC as “nonreportable.” They don’t hold the position size that requires reporting to the CFTC and are thus referred to as “small speculators.” The “nonreportable” open interest in a futures market is determined by subtracting the open interest of the “commercial traders” plus “non-commercial traders” from the total open interest in that market. As a rule, the aggregate of all traders’ positions reported to the CFTC represents 70 to 90 percent of the total open interest in any given market.
The Commitments of Traders report includes holdings of options as well as futures contracts since 1995.
Application of Commitment of Traders Report
Many speculative traders use the Commitments of Traders Report as a sentiment indicator. The theory is that "small speculators" are wrong most of the time and that the best position is contrary to the small speculator. Another theory is that commercial traders understand their market best and siding with them has a better chance of profit.