TE09 - Commitment of Traders Report - Introduction

"When you trade the financial markets, you will come across some key reports. These reports can vary depending on the type of markets and the instruments that are being traded. Among the many reports, the Commitment of Traders report is one such report that traders closely watch on a weekly basis. Released on a Friday, the report shows how the large money is positioned in the general markets. This data is reported by some of the biggest firms in the U.S. and the positions are reported as of the previous Tuesday. Despite the lag in the reporting, the CoT report holds its ground. The Commitment of Traders based trading was made popular by Larry Williams. Williams’ published a book talking about how he was able to make millions by building a trading strategy around this report. No doubt, the book was a hit and it also made the CoT based trading strategies very popular."

The Commitment of Traders report is something that you might have come across while trading forex. Many websites and blogs talk about the commitment of traders report. In some aspects, there are entire trading strategies that are designed around this report. So you might be thinking that there is something mystical or magical about this report.

The truth of the matter is that the commitment of traders report isn’t anything fancy, but merely a report. But of course, the information it contains can be quite valuable. This is the reason why that many forex traders quote or look to the commitment of traders report.

There are also various technical indicators that are available which plots the commitment of traders report directly on your charts. This is in order that you can understand what is going on in the markets.

What is the commitment of traders report?

The Commitment of traders report or CoT report for short is a weekly report that is released by the U.S. based Commodities and Futures Trading Commission, or CFTC for short.

You might be wondering what a report from the CTFC will help with forex trading. But there is a close relation to this report.

Firstly, the report is released on a Friday, after the markets are closed. It is a weekly compilation of the biggest positions in the markets. The report is released by a one week delay, as of the previous Tuesday. The report comes out at approximately 1530 Eastern Standard Time.

You can access the link to the CFTC’s CoT report from here:

What does the Commitment of traders report comprise of?

The CoT reports are based on the total positions data that are reported by the various firms made up of Futures Clearing Merchants, Foreign Brokers and Exchanges). There are three main types of categories that are reported in the CoT.

These are depending on what the role of the category is. For example, you can have an actual producer who reports on their positions. This is followed by the consumer, or the actual beneficiary of the commodity in question.

Typically, the producers and consumers are in opposite directions of the trade. For example, if you are a potato farmer, your primary action is to sell your inventory. Therefore, you are short.

On the other hand, if you are a consumer such as a factory that is responsible for making potato chips, your primary action is to buy. Therefore, you are on the long side.

Between the producers and consumers, you also have speculators and the institutional positioning. These institutional positions are there for purely speculative purposes. They are not interested in actual trading of the underlying commodity.

Thus, the CFTC publishes this weekly report and tells you the net positions based on each of these three categories.

What markets do the Commitment of traders report cover?

The CoT report is primarily comprised of the commodity futures markets. But because it also covers the futures markets, other instruments such as financial futures, currency futures are also reported upon.

Unlike the forex markets where you have currency pairs such as the EURUSD and the EURAUD, in the futures markets, the currencies are traded only against the U.S. dollar.

Therefore, you will find the Euro FX futures, which is basically the EUR against the U.S. dollar. Likewise, you will find the AUD futures which is the positions for the Australian dollar against the U.S. dollar.

Based on this primary or major currencies, investors then drill down the data to see how the information can be used to reflect in the spot FX markets.

The general rule of thumb is that traders use the information to see how the positioning in the market is. This is generally evident when the sentiment in the CoT report reaches its extreme.

By comparing the current levels to that of the previous and historical data, investors can get an idea of what the large institutional money is doing. Typically, when the positioning is extreme on a historical basis, you can expect to see a major reversal in the price of the assets being tracked.

Do not forget that the CoT report comes with a long delay. Therefore, what you see is not the current positioning but investor position as of the previous Tuesday. Despite this lag, the CoT report is often used because it takes time for institutional money to be unwinded, just as it takes a lot of time for positions to be built up.

Thus, by looking at the reports, traders can get an idea on whether the investor or the institutional money is being bullish or bearish on the asset being traded.

Read 914 times Last modified on Friday, 26 July 2019 17:46