What is the COT Report
There is an old saying that “you don’t get anything for free in this world”. Speculators will pay for premium market reports and signals but many are not aware of the COT Report from the CFTC (Commodity Futures Trading Commission). Traders can access the COT report, for a particular asset class, on a weekly basis whether it be currencies, commodities or many other instruments; this offers an overview of the positions held by large institutional traders (amongst others). This data is referred to as the “commitment of traders” report as well as the “COT”. Essentially, the COT report helps traders gain a view into just how big institutional traders are positioned on the various markets.
Volume data not available when trading forex
In spot FX, there is basically no centralised volume data available to study, due to the fact that market participants do not trade via a common exchange; however, we can make use of COT report information originating from the futures market. Reports are available in both a short and long format. The short report displays open interest separately, giving both reportable and non-reportable positions for futures trading.
The COT report is a valuable tool for people trading any of the covered markets. This is due to the fact that it supplies details around the prevailing supply and demand dynamics – and also the level of commitment large investors have in direction of this trend – for each of the associated markets. The COT report is additionally accessible for the the majority of actively traded futures contracts including currencies (forex) – which is the focus of this COT report article.
COT report trading groups
What are the different groups referenced in the weekly COT report? Let’s take a look:
1. Commercials: This category depicts organizations and institutions that make use of the futures marketplace to counterbalance exposure to the spot market. For example, a wheat producer may choose to short futures contracts in order to safeguard profits in the event of costs tumbling. We are not generally concerned with this category when running our forex weekly analysis updates.
2. Non-Commercial Traders: This classification consists of large institutional speculators, hedge-funds as well as other entities that will be dealing within the futures market for speculative investment purposes. This group is not typically associated with the production, supply or supervision of the root commodities or associated holdings. This group and the associated net position is our primary focus when conducting the weekly analysis. Have the big institutions moved into a net long or short position? Id there a significant change in positioning? Let’s not forget that this group of large speculators has the resources to move the market.
3. Non-Reporting Traders: This is actually the category for investors who are too small in order to be required to file their speculative positioning data to the CFTC. It is unknown just how many private traders there are or even what sort of traders they will signify since as the name suggests they are “non-reporting”. Many experts believe that a significant portion of this group are individuals/retail traders. This is not the group to follow and this group often bet in opposition to the underlying trend rather than go with it. We generally ignore this group when conducting our analysis.
So as we noted above, having an awareness of how the large traders (non-commercials) are positioned via this COT report data gives us an indicative overview of the underlying support for the asset class in question (or lack of support as the alternative scenario may be true…). We are able to make use of the CFTC COT report to observe just what the large futures traders are actually doing in the respective asset classes. This can be put to use to track large speculators within the forex market along with commodities and equities.
How to read the Commitment Of Traders data?
The report is provided in a format from the CFTC which does not lend itself to technical analysis. With this in mind, historical charts constructed from the COT report data as provided by the CFTC are our preferred analysis approach. A chart can be constructed in a spreadsheet for the asset class you intend on trading. The following example shows a line chart for the relevant COT groups. We can see from the chart below that the large speculators (-82594 in green) are cutting the net short position but still have an aggregate bearish position.
The CFTC comes out with the COT data on Fridays. However, the report covers positioning for the prior Tuesday. This makes the data more more suitable for longer-term trading strategies due to the inherent timing lag. The Commitment of Traders report is released on a weekly basis, each Friday, at 15:30 Eastern Time.
How do traders use the COT report?
The report essentially reveals the aggregate net long and short position, for each of the futures contracts pertaining to the three aforementioned unique groups. We typically look at the COT report in our blog analysis updates to note the following.
- We use the COT data as a general market sentiment indicator to complement our technical analysis.
- We look to see if the large speculators are building long or short positions in “size” and in a hurry…
- Looking for changes in the trend. If we see the large speculators are changing from net long to net short – and we have a price action reversal – it may be time to pay attention.
- Looking for reversals or scaling out of existing positions when sentiment extremes occur. If all of the large speculators are long on a currency, who is going to buy? Picking tops and bottoms is very difficult but it can sometimes be useful to note extreme positioning statistics.
How do we access the data?
The following is correct at the time of writing this COT report article:
- Go to the following URL. http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm
- Go to the section “CURRENT LEGACY REPORTS” and select the relevant market i.e. “Chicago Mercantile Exchange” . The short format report is the one we use.
- To find the relevant data do a Apple +F (Mac) or CTRL+F (Windows) and search for the instrument you are looking for. A search for “Australian Dollar” would bring you to this area of the report.
Additionally, there are quite a few sites that provide the COT report output in a more palatable format. Run a google search and see which one you prefer.
As ever, there is no such thing as a holy grail when it comes to trading. You should only paper/demo trade any strategy we cover on the blog to see how it complements your own analysis.