Commitments of Traders Report COT Definition Forexpedia by BabyPips com
Before we dive into how to use the Commitment of Traders report as a forex trader, you have to first know WHERE to go to get the COT report and HOW to read it. Although it looks disorganized, searching through the report is relatively easy. Use the ‘search function’ of your browser to bring up the ‘search box.’ Type the currency you want to analyze. The previous lesson covered what the Commitment of Traders report is.
How to Use the COT Report
- The strategies may involve taking outright positions or arbitrage within and across markets.
- That is, the total of all futures and/or option contracts entered into and not yet offset by a transaction, by delivery, by exercise, and so on.
- These contracts, sold in lot sizes that vary by currency, net out to have either a surplus of buy requests (positive values in the chart) or sell requests (negative values).
- COT reports are based on position data supplied by reporting firms (FCMs, clearing members, foreign brokers, and exchanges).
- In early October 2009, EUR futures net long positions hit an extreme of 51,000 before reversing.
The COT report can also be considered a sentiment indicator as traders adjust their positions in anticipation of an expected event such as FED interest rate announcements or major changes in the economic or political environment. The advantage here is that the sentiment data is representative of different market participant categories as well as for each specific instrument, hence providing detailed and broken-down sentiment data that many traders find useful. A major advantage of the COT report is that it provides us with historical extreme position levels. These extreme position levels, whether long or short, can be significant for traders as they may represent a turning point.
Where Do You Find a COT Report?
Speculators are not able to deliver on contracts and have no need for the underlying commodity or instrument, but buy or sell with the intention of closing their “sell” or “buy” position at a profit, before the contract becomes due. These are institutional investors, including pension funds, endowments, insurance companies, mutual funds and those portfolio/investment managers whose clients are predominantly institutional. Instead, use it in combination with your technical analysis tools to help you get the best out of it. As we always say, never rely on one tool or indicator to decide your trades.
Commitments of Traders (COT) Reports Descriptions
We can see that historical extreme positioning levels represented historical price turning points. Because the COT measures the net long and short positions taken by speculative traders and commercial traders, it is a great resource to gauge how heavily these market players are positioned in the market. The supplemental report is the one that outlines 13 specific agricultural commodity contracts. This report shows a breakdown of open interest positions in three different categories. These categories include non-commercial, commercial, and index traders. For example, traders are classified as non-commercial or commercial, and that holds for every position they have within that particular commodity.
We can also see commercials positioning for higher prices, which is the opposite of what to expect. Both cases represent negative divergence and reflect that both trader categories are supportive of the latest upside price action. Shortly after, the EUR/USD price entered a bear market, which lasted almost 18 months (in red). The argument here is that delayed data is also considered to be discounted by current market prices and therefore not useful.
Leveraged trading in foreign currency contracts or other off-exchange products on margin carries a high level of risk and may not be suitable for everyone. Market participants also look for divergences between different categories to identify potential short- or long-term reversals. The short format shows reportable open interest and week-to-week open interest changes separately by reportable and non-reportable positions. For reportable positions, additional data is provided for commercial and non-commercial holdings, spreading (in certain categories only), changes from the previous report, percent of open interest by category, and numbers of traders. It is a report that contains a weekly overview of how participants of the futures markets in the U.S. have traded.
The Barchart site’s data is then updated, after the official CFTC release. This is meant to provide a clearer picture of what the people with skin in the game—the users of the actuals—think about the market versus the people with profit motivations or speculators. The disaggregated COT report is, in part, a response to some of the criticism of the legacy COT. There have been recommendations to publish more detailed data on a delay as not to affect commercially sensitive positions, but that still looks unlikely. And, despite its limitations, most traders agree that even the questionable data of the COT is better than nothing.
This category includes the total positions for other market participants who don’t fall under the previously mentioned categories. This group is also another large segment of market participants and is also considered to be trend followers; however, their trading approaches towards different markets can vary significantly. The CFTC requires large speculators and commercial traders, or hedgers, to report their net positions twice each month.
When trading with OANDA you can access a range of powerful analysis tools to identify potential opportunities and build a stronger strategy. Each Friday, the CFTC (US Commodity Futures Trading Commission) commitment of traders forex reports the COT (Commitment of Traders) report. Remember, since spot forex is traded over-the-counter (OTC), transactions do not pass through a centralized exchange like the Chicago Mercantile Exchange.
Before we discuss how to trade the forex market using the COT Report, you should know why the COT Report is important for forex traders. It is also worth noting that the only trader category that was supporting and following the price action were the small speculators. The number “non-reportable” positions are derived from subtracting the number of large spec and commercial positions from the total open interest. That is, the total of all futures and/or option contracts entered into and not yet offset by a transaction, by delivery, by exercise, and so on.
Examples of large investors can be hedge funds, institutional investors, and other types of large financial firms that specialize in trading specific instruments as investments. This category of traders are usually trend followers and, in some cases, can also be considered a well-informed group. In many cases, traders can identify the strength of a specific trend and use it as a confirmation tool through changes in position levels for different market participants. For example, in an ideal world, we can expect that if the price is rising, large speculators are buying while commercials are selling, and we can consider it a representation of a healthy trend.
