BeginnerEarly Stages for Beginners8 Topics
Forex Terminology11 Topics
- Major and Minor Currency Pairs
- Basic Forex Terminology
- Pips & Ticks
- The Broker & The Spread
- What is a Lot?
- Stop Loss & Take Profit
- Margin & Leverage
- Retracement & Reversal
- When Can I Trade Forex? Sessions - Market Open and Close
- 3 Types of Analysis (Technical, Fundamental, Sentiment)
- 3 Ways a Market Can Go (Up, Down, Sideways)
Margin & Leverage2 Topics
Personal Psychology Questions2 Topics
Psychology for Beginners7 Topics
IntermediateIdentifying Scams2 Topics
Brokers for Beginners5 Topics
Technical Analysis13 Topics
- Types of Charts
- Understanding Japanese Candlesticks
- Candlestick Patterns For Beginners
- Single, Double & Triple Candlestick Patterns
- Support and Resistance
- Confluences w/ Candlesticks & Support & Resistance
- Counter Trend Trading/ Counter Trend Lines
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- Consolidation Trading (Breakout, Retest, Continuation)
Market Structure5 Topics
CompletionRisk Management for Beginners8 Topics
Fundamental Analysis9 Topics
AdvancedUsing Indicators6 Topics
Technical Analysis (Part 2)8 Topics
The Commitments of Traders Report (COT) is an extensive weekly publication released by the US Commodity Futures Trading Commission (CFTC) every Friday at 3:30 PM EST. The report shows the aggregate positions of several categories of traders with exposure to the US futures market. The COT is a snapshot of the net longs and shorts as of Tuesday of that week.
Since the COT report reflects the positions taken by large speculators, hedgers, and retail traders, it is used by many investors to assess the general sentiment of the market. As the name suggests, the report displays the commitments of the three groups of traders:
These are big institutions that are getting exposure to the futures market to hedge against risks. As a rule, their goal is to reduce their risks rather than aim for profits. For example, let’s say that a US car manufacturer requires exclusive auto parts from Europe, and they can pay only in euros. If the EUR/USD pair increases, reflecting a stronger euro, that’s a problem for the manufacturer. To offset the potential loss caused by a weakening dollar, the company can buy EUR futures. If the pair increases, the company gains from the EUR futures. Still, the company cannot profit in the case when the pair drops, as any gain in the USD is offset by the loss of the EUR futures contract.
These are large speculators who want to make more profits in the futures market. Think about hedge funds, large financial institutions, or trading advisors – they are included in this group, which usually follows the trend by going long during uptrends and shorting in a downtrend. Nevertheless, sometimes these traders define the trends.
These are speculators with smaller bank accounts. This group includes retail traders.
Where to Get the COT Report?
The COT report is free to access on the CFTC’s website. You can click this link and scroll down until you find the “Current Legacy Report.” Next, you should click on “Short Format” under “Futures Only” in line with “Chicago Mercantile Exchange” to read the most recent COT report. If you expected some kind of infographic, beautiful chart of well-structured text, you may be disappointed because it looks like a giant notepad text with a bunch of figures. However, there is nothing complicated about it. Use the CTRL+F function to search for any currency you need. For example, you can type GBP and will end up on the pound futures table.
Each table related to a currency has several categories for non-commercial, commercial, and non-reportable traders, which I explained above.
Here is what each category means:
Long – it shows the number of long futures contracts on the currency reported to the CFTC.
Short – it shows the number of shorts.
Open interest – this is the number of futures contracts that are still open; i.e., they haven’t been exercised or delivered.
Number of traders – this column includes the total number of traders who are required to share positions with the CFTC.
Reportable positions – it’s the number of contracts that the CFTC requires to be reported.
Non-reportable positions – it is the number of open interest positions that the CFTC regulation doesn’t require to be reported.
How to Use the COT Report in Trading?
To begin with, you should know that Forex trades are carried out over-the-counter (OTC); i.e., there is no central authority like the New York Stock Exchange to handle all the trades, so it is difficult to assess the global volumes. Still, the COT report gives you precious insights into what big banks, hedge funds, and large speculators are doing.
Here is how you can interpret the report:
The report provided by the CFTC can act as a great Forex volume indicator. Given that the report is released once per week, it can’t be used by intraday traders. It can improve your decisions if you’re a swing or position trader. One way to use the report is to check the open interest number of a currency. If it increases, it suggests more people are buying the futures contract related to the pair and thus are bullish on it. For example, if the open interest in GBP increases, you may maintain your longs on GBP/USD.
Another strategy to leverage the CFTC report is to anticipate potential reversals. One way to do this is to check the spreads data. The reversal may happen when the spread between commercial and non-commercial traders is wide. For example, if commercial traders are bullish on a currency while non-commercial traders are bearish, the market can go through a reversal to the uptrend, and vice versa. There is another way to anticipate reversals. With this method, you have to observe where the non-commercials are accumulating their positions. If you figure out that their positions on a certain contract are reversing, you may expect this to be reflected in the market. In other words, you should try to mimic non-commercial traders since they’re the big institutions that are interested in making profits.
Some online chart tools are displaying the moves of the three groups of traders below the main chart. All in all, the COT report is a great tool to assess the market sentiment at any given time. This is really a great report providing relevant insights for swing traders. However, you should never rely on a single indicator but combine several tools and follow their confluence.