Commitment Of Traders Report
Updated: Aug 30
How to use COT reports to push your forex trading skills further
Hey traders, today we’re looking at COT reports, as usual, we first define the terms around the topic will be looking at.
COT is an abbreviation actually, and it stands for Commitments of Traders.
Below I will break down the groups mentioned in COT reports
This section is divided into three parts:
Commercial Non commercial Non reportable
The commercial Traders: This category is made up of large and sometimes multi-national corps that have commercial hedging, here’s an example an Australian company may be interested in hedging their exposure towards the fluctuations in the AUD/USD
Non commercial Traders: This group is associated with the large speculators that usually are commodity trading advisors along with large institutions that speculate in specific futures markets.
Non-reportable Traders: They don’t fall into either of the above two categories hence this is a catch-all category these traders aren’t required to report to the CFTC (Commodity Futures Trading Commission) for example these are traders without deep enough pockets and they’re usually leveraged or over leveraged who then easily get shaken out during big moves
Below are some terms you should be familiar with to understand the report:
Long: The total number of long (buy) contracts known by the CFTC.
Short: The total number of short (sell) contracts known by the CFTC.
Open Interest: These are the contracts that haven’t been delivered or exercised.
Number of Traders: The total number of traders who are required to report their options and futures contract positions to the CFTC.
Net Position: The difference between those holding long contracts and those holding short contracts.
COT reports below was taken from: www.onepercenttradinggroup.com
Importance of the COT Report for FX Traders
A large percentage of the spot FX market is traded over-the-counter (OTC), and transactions are not recorded on a centralized exchange, like the New York Board of Trade (NYBOT).
No volatility indicator is available on the forex market hence keeping an eye on the currency and commodity futures allocations by large institutions and smaller speculators, in simpler terms traders can use the COT report as a volume indicator.
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 aggregate of all long open interest is equal to the aggregate of all short open interest.
Open interest held or controlled by a trader is referred to as that trader’s position. For the COT Futures-and-Options-Combined report, option open interest and traders’ option positions are computed on a futures-equivalent basis using delta factors supplied by the exchanges. Long-call and short-put open interest are converted to long futures-equivalent open interest. Likewise, short-call and long-put open interest are converted to short futures-equivalent open interest.
For example, a trader holding a long put position of 500 contracts with a delta factor of 0.50 is considered to be holding a short futures-equivalent position of 250 contracts. A trader’s long and short futures-equivalent positions are added to the trader’s long and short futures positions to give “combined-long” and “combined-short” positions.
Open interest, as reported to the Commission and as used in the COT report, does not include open futures contracts against which notices of deliveries have been stopped by a trader or issued by the clearing organization of an exchange.