Commitments of Traders Report (COT)

The Commitment of Traders (COT) report is a weekly publication that details the total holdings of various participants in the U.S. futures market. Released every Friday by the CFTC (U.S. Commodity Futures Trading Commission), the report highlights changes in the open positions of futures traders, which include commercials, small speculators, and large speculators. Traders monitor the COT report to spot extreme levels of long or short positions in a currency, which may indicate a potential trend reversal. This information aids them in deciding whether to take short or long positions in their trades.

The Commitments of Traders (COT) report, issued by the Commodity Futures Trading Commission (CFTC), aggregates the holdings of participants in the U.S. futures markets, primarily located in Chicago and New York, where commodities, metals, and currencies are traded. The COT is published every Friday at 3:30 ET and reflects the commitments of traders as of the previous Tuesday.

The report provides a breakdown of aggregate positions held by three categories of traders: “Commercial traders” (typically hedgers in forex), “Non-commercial traders” (usually large speculators), and “Nonreportable” (generally small speculators). The Net Non-Commercial Positions represent contracts held by large speculators, mainly hedge funds and banks trading currency futures for speculative purposes. Speculators do not intend to deliver on contracts and have no need for the underlying commodity or instrument; instead, they buy or sell with the goal of closing their positions at a profit before the contract expires.

These contracts, sold in varying lot sizes by currency, result in either a surplus of buy requests (positive values in the chart) or sell requests (negative values). Open Interest indicates the total number of contracts, encompassing both buy and sell positions, that remain outstanding among all market participants. This figure represents the total of all futures and/or option contracts that have been entered into but not yet offset by a transaction, delivery, or exercise, showing overall market volume.

The Commitments of Traders (COT) reports can provide traders with insights into potential significant market movements. The CFTC mandates that large speculators and commercial traders, or hedgers, report their net positions twice a month. Generally, the large speculator category includes fund traders and professional traders with substantial positions, while commercial traders also report their net positions to the CFTC.

The “non-reportable” positions are calculated by subtracting the number of large speculator and commercial positions from the total open interest. This group typically consists of small speculators and hedgers who do not hold positions large enough to report to the CFTC. The results of the COT report can serve as a tool for traders to better understand market psychology, the net position of commercials, and the net position of large traders.

Large traders (funds) often follow trends and will adjust their positions based on the market's technical movements since the report's release. There are various methods to analyze the reports, but the net position of large traders and the “change in position” over a two-week period are generally the most critical figures to monitor. It is important to note that the net position of small traders is usually susceptible to long liquidation or short-covering if the market moves against them.

A classic bullish scenario occurs when large traders are net long while small traders are net short. Conversely, the market may be in a weakened bullish setup if the two-week trend in the large trader position is declining, indicating that funds are liquidating their net long positions, which serves as a warning sign. The larger the net short position of small traders (relative to historical data) and the extent to which they hold positions against the trend will contribute to the bullishness of the report.

A classic bearish setup exists when large traders hold a net short position (more bearish if they have increased this position in the past two weeks) while small traders are net long (more bearish if their net long position is relatively large and the trend is decisively downward).