How to use CFTC Commitment of Traders COT report to trade forex

When an anomaly occurs, and we spot a dropping market that finds no increase in the total net exposure of dealers, that is a clue that their need to hedge against products they allocated is more limited. Hence, sending a signal that the market could be on the cusp of a turnaround. Since 1995 the Commitments of Traders report includes holdings of options as well as futures contracts. Short Noncommercial Positioning represents the short open interest of noncommercial traders. The Open Interest represents the total number of contracts, including both buy and sell positions, outstanding between all market participants.

The Commitment of Traders (COT) reports provide a breakdown of each Tuesday’s open interest, based on the Futures-Only reports, for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. What’s more, the price context is also important and we must always reflect on whether the market is on a trend or trapped in range conditions. When the latter applies, the insights that may be obtained from the CoT might not be as actionable as when analyzing trends, given that the change in positioning tends to be less committal and more short term in nature, with algos and intraday traders more dominant. That said, the CoT is nonetheless a great weapon, even during times of non-bias conditions, to gauge what side is most at risk or alternatively, whether or not, a potential breakout of the range gets validated by an increase in open interest.

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Weekly Close Price represents the price action of the underlying currency pair. If you are ready to improve your COT data strategy, sign up with your email at InsiderWeek and enjoy free access to the latest COT report, in-depth COT report analysis, and samples of COT index charts. Keep in mind that the small trader’s net position is usually vulnerable to either long liquidation or short-covering if the market starts to move against them.

1. That said, the CoT is nonetheless a great weapon, even during times of non-bias conditions, to gauge what side is most at risk or alternatively, whether or not, a potential breakout of the range gets validated by an increase in open interest.
2. Forex trading is a zero-sum game, for every winner, there has to be a loser.
3. The exchanges that trade futures are primarily based in Chicago and New York.
4. The Supplemental report is published for Futures-and-Options-Combined in selected agricultural markets and, in addition to showing all the information in the short format, shows positions of Index Traders.

Department of Agriculture’s Grain Futures Administration (predecessor to the USDA Commodity Exchange Authority, in turn the predecessor to the CFTC), published its first comprehensive annual report of hedging and speculation in regulated futures markets. The Commodity Futures Trading Commission (CFTC) sets specific thresholds for reporting positions. These thresholds vary depending on the commodity being traded and are designed to capture the activity of the major players in the market. These are like minimum requirements for a trader’s holdings to be included in the Commitments of Traders report. Looking at the COT example in the table above, we can see that Nasdaq 100 futures, traded on the Chicago Mercantile Exchange (CME) had an open interest of 57,779 contracts on June 15, 2021.

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. Large Speculators – trading firms and hedge funds who speculate on the markets to gain profits. These tend to be right most of the time, but there are some exceptions to that. The long and short open interest shown as “Nonreportable Positions” is derived by subtracting total long and short “Reportable Positions” from the total open interest. Accordingly, for “Nonreportable Positions,” the number of traders involved and the commercial/non-commercial classification of each trader are unknown.

1. Commercial traders often have deeper knowledge of the markets they trade, as they interact directly with the supply and demand forces driving price movements.
2. By watching the behavior of these players, you’ll be able to foresee incoming changes in market sentiment.
3. These reports have a futures-only report and a combined futures and options report, the latter the one we want to use.
4. The COT reports are based on position data supplied by reporting firms (FCMs, clearing members, foreign brokers and exchanges).
5. Due to legal restraints (CEA Section 8 data and confidential business practices), the CFTC does not publish information on how individual traders are classified in the COT reports.

Long vs. Short

What this means is that by the time the data is received, it doesn’t capture the prior three days’ changes in positioning, and because of that, a widely common assumption is to think that the data is barely useful or actionable and very much lagging in nature. Our experts are dedicated to simplifying the complexities of COT data and providing clear explanations for you to accurately interpret the data and fully understand the COT reports. Ritika Tiwari is a freelance content writer and strategist at Blueberry, specializing in forex, CFDs, stock markets, and cryptocurrencies. She has over 10 years of experience building content for FinTech and SaaS B2B brands. 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. Remember, since spot forex is traded over-the-counter (OTC), transactions do not pass through a centralized exchange like the Chicago Mercantile Exchange.

Other Available Formats

The aggregate of all long open interest is equal to the aggregate of all short open interest. Open interest is the total of all futures and/or option contracts entered into and not yet offset by a transaction, by delivery, by exercise, etc. The spread number needs to be added to be both long and short sides, respectively. If you are doing these calculations on the Combined file, the sum of the long and or short positions may be +1 or -1 Open Interest, due to option delta calculations.

Since their main activity consists to allocate investment products to institutional clients, they act as liquidity providers via their need to constantly have matched books. Another powerful combination is to analyze how extreme commercial positions are vs their historical references, as well as the percentage rate of changes from week to week. You will notice that when commercials reach certain extremes based on historical data if combined with a significant variation in the number of new business added, it tends to accurately pinpoint turning points in the market. So, ideally, what we want to pay attention to is the bundle of commercials at significant extremes — a lookback of 3y is a good rule of thumb — and sudden changes in positioning.

The Nonreportable Positions are just the difference between the positions of reported traders and the long and short open interest of a future. The subtraction of the net long and short positions of commercial and non-commercial traders results in the nonreportable positions. The classifications in commercial or non-commercial traders of these positions are unknown, as well as the number of traders. The COT Legacy Report is provided as a futures only report and a futures and options report.

The Commitments of Traders (COT) reports are an essential tool for anyone involved in the futures market. These represent transparency and create a solid commitment of traders forex foundation for developing effective strategies. With InsiderWeek, you can learn to read the COT report properly and use a COT report trading strategy to achieve your trading goals. The larger the net short position of the small trader (relative to history) and the extent that small traders are holding a position “against” the trend are factors that will add to the bullishness of the report.