As retail traders, we don't have a lot of insight into what goes on behind the scenes, in the markets. Things are getting better with advances in technology, but transparency is still low.
But one source of market information has been around for a long time is the Commitment of Traders Report. Also known as the COT Report, for short.
This blog post will show you how to get it, how to read it and how it can help you find profitable trades.
What is the COT Report?
The Commitment of Traders Report comes directly from the U.S. Commodity Futures Trading Commission (CFTC). The raw data can be found here.
It is released every Tuesday and shows the open futures and options trading positions of traders that fall into certain classifications.
Here's an example of the Wheat report:
In the previous version of the report, traders were only classified into three categories:
- Commercial: These companies use the futures markets to offset, or hedge, their business dealings. For example, a wheat farmer might short some wheat futures close to harvest, in case prices fall.
- Non-commercial: These are the hedge funds, large institutional investors and other entities that enter the futures market for speculation and investment. They are usually not involved with physical goods or manufacturing.
- Non-reporting traders: This category is a catch-all for smaller traders that do not fit into the other classifications.
This is a graph from a third party service that makes it easier to see this data. The primary value of this data is being able to see when the non-commercial or “spec index” is at an extreme.
The overall net position of the non-commercial traders can be a big clue as to where the markets are going.
The current version of the report classifies traders into five categories:
- Producer/Merchant: This is an entity that engages in production of a physical commodity and uses the futures market to hedge risks associated with their business.
- Swap Dealers: An entity that primarily deals with swap transactions. They use the futures markets to hedge their swap dealings.
- Managed Money: This includes Commodity Trading Advisors (CTA), Commodity Pool Advisors (CPO) and other similar money managers.
- Other Reportables: These are the entities and people who do not fall into the previous three categories, but still report positions.
- Non-Reportable: The remaining positions fall under this category. This includes small traders.
Now let's break down the report, starting with the top. The first part of the report shows the market (wheat) and the exchange that it is traded on (Chicago Board of Trade).
Dissaggregated shows that the positions are broken out by type of trader and not added together. Then it shows the instrument (futures) and the date of the report.
The left side of the first column shows the total open interest, which are the number of open contracts in that futures market.
- All: The number of total contracts out there.
- Old: This is for commodities that have a crop “year.” For example, if the wheat futures were from a previous harvest, this would be the old harvest.
- Other: If there were any other harvests, then that would fall into this category.
- Changes in Commitment: The total change in contracts out there.
Next, let's take a look at the Producer/Merchant/Processor/User section. This shows the contract size, in this case 5,000 bushels of wheat. From there, the positions are broken down by long and short.
Each of the other sections is the same for each type of trader.
After that, then next row of data shows the percentage of open interest for each type of trader. In this screenshot, the largest positions are held by the long swap dealers.
It is just a simpler way of seeing who is holding the biggest positions.
The next row after that shows the number of traders in each category. It doesn't really mean much to us traders, but the CFTC may have reasons to put it in.
Number of traders doesn't matter so much because one trader holding 20,000 contracts is the same as 10,000 traders holding two contracts each. It may give you an idea of how many people are involved, but what is important is how many total contracts are out there for that position.
This stat is not shown for “non-reportable” positions because they are not officially reported. They are simply calculated by subtracting the total from the reported positions.
Finally, the last section shows how much of the open interest is controlled by large traders. This is more useful than the statistic above because it shows you if the total open interest is owned by a few traders or a larger population.
Yeah, that's all pretty confusing, right? Luckily, there are better ways to see this information.
Where Else Can I Get COT Data?
There are quite a few places where you can get COT data, that are a little more user friendly. Here are just a few.
If those aren't for you, then these options might help. They are from Forex focused sites, so they can be a little more useful to us because they are more focused on FX.
COT Indicator for MT4 (Free Download)
Wouldn't it be great to get COT data for free, inside MT4? This can be another easy way to see the COT data next to a chart.
A MT4 plugin by Boeing737 can be an easy way to get this convenience.
COT Forex – Data for Each Major Currency
If a MT4 indicator is too confusing, then there are easier ways to do it. For example, you can use a site like Oanda's COT page.
Here's an example chart of the Euro.
This chart only shows positions of the non-commercial (speculative) traders. It also shows a price chart.
A chart like this is probably quite a bit different from what you are used to seeing when it comes to COT reports.
That is how to read the Commitment of Traders Report and get a few alternatives. It's not for everyone, but if you find it useful, learn more and practice it.