How to read the COT Report – Positioning of market participants

The CoT Report contains a list of all open futures and options contracts of the market participants, which is also called Open Interest.

Since each buyer is matched by a seller, the sum of open interest across all market participants is always zero. Despite this zero-sum game, the positioning of the various market participants can provide important and useful information.

Which market participants are included in the Commitments of Traders Report?

There are basically three large groups of market participants whose open trading positions are published with the CoT data. The most important traders and traders are the commercials, non-commercials and non-reportables, although there is now also an extended CoT report that lists other market participants.

Let’s see what functions these market participants perform in detail:

Commercials

Commercial operators are the group of best informed operators, as they are involved in the production, processing or marketing of the traded product. These large traders generally use futures contracts to hedge (hedge their physical inventories and expected deliveries of goods) and thus hold the corresponding offsetting positions. These “insiders” are therefore also referred to as “smart money”.

Non-Commercials

These market participants are also known as large speculators and, as the name suggests, are large speculators. They include, for example, hedge funds that operate on the futures market with speculative intentions. The background here is therefore exactly the opposite of that of the commercials. Non-commercials have a speculative background and largely pursue an intention to make a profit with their stock exchange transactions (in contrast to the commercials, which generally conduct hedging transactions).

Non-Reportables

Non-reportables are the group of market participants for which there is no reporting obligation. This is because they do not reach the notifiable trading volume. Therefore, these are usually smaller market participants, also known as “dumb money”. The volume of this group of market participants is the difference between the total open interest minus the notifiable positions of the commercials and non-commercials.

Which markets are included in the CoT Report?

The CoT data can be displayed for around 50 markets. These are currently the following markets:

Currencies:

  • Australian Dollar – Australian Dollar
  • Pound sterling – British Pound
  • Canadian Dollar – Canadian Dollar
  • Euro
  • Japanese Yen – Japanese Yen
  • Swiss Franc – Swiss Franc
  • US Dollar Index – USD Index
  • Mexican Peso – Mexican Peso
  • New Zealand Dollar – New Zealand Dollar

Energize:

  • Oil (WTI) – Crude Oil
  • Petrol – RBOB Gasoline
  • Heating Oil
  • Natural gas – Natural Gas

Grain:

  • Corn – Corn
  • Soybeans – Soybean
  • Soybean Oil – Soybean Oil
  • Soybean flour – Soybean Meal
  • Wheat (Chicago) – Wheat (Chicago)
  • Wheat (Kansas) – Wheat (Kansas)
  • Wheat (Minneapolis) – Wheat (Minneapolis)
  • Oats – Oats
  • Rice – Rough Rice

Cattle:

  • Live Cattle – Live Cattle
  • Fodder cattle – Feeder Cattle
  • Lean pigs – Lean Hogs

Metals:

  • Gold
  • Silver – Silver
  • Copper – Copper
  • Palladium
  • Platinum – Platinum

agricultural markets:

  • Cocoa – Cocoa
  • Cotton – Cotton
  • Coffee – Coffee
  • Sugar – Sugar
  • Orange juice – Orange Juice
  • Construction timber – Lumber

Stock indices:

  • S&P 500
  • Nasdaq 100
  • Dow Jones
  • Russell 2000
  • S&P 400

Government bonds/interest rates:

  • Fed Funds
  • Eurodollars
  • 2-Year Note
  • 5-Year Note
  • 10-Year Note
  • 30-Year Note

The extended CoT report

The extended CoT report has been published since September 04, 2009. This CoT data reflects 22 commodity markets and the reportable market participants are divided into four groups:

  • Producer
  • swap dealer
  • money manager

Other Reportables

The Producer and Swap Dealer correspond to the Commercials of the traditional report. Both groups thus use the futures markets for hedging. The only difference is that the producers hedge the risks arising from the operational business in connection with the physical commodity. The swap dealers hedge against risks from swap transactions.

Money Managers pursue speculative interests on behalf of clients.

A further special feature is that in the extended CoT report, the opposing positions in a market are no longer offset but reported separately.

Other types of CoT report

In addition to the classic and the extended CoT report, there are other forms of how CoT data is published.

Asset Manager/Institutional: Institutional investors such as funds, insurance companies etc.
Leveraged Funds: Hedge funds including CTAs and proprietary traders.
Other Reportables: Larger traders that do not fall into any of the categories listed above, such as smaller banks, central banks and group treasury, etc.
The Commodity Index Traders (CIT) shows the positioning of the index tracking funds.

The history of the CoT report

The predecessor of the Commitment of Traders (CoT) can be traced back to 1924. In that year, the U.S. Department of Agriculture’s Grain Futures Administration (predecessor of the USDA Commodity Exchange Authority) published its first comprehensive annual report on hedging and speculators in the futures markets. The USDA is now the Commodity Futures Trading Commisions (CFTC).

From 30 June 1962 onwards, the CoT data was published monthly. At that time, the CoT report contained 13 agricultural commodities and was a further step by politicians to increase transparency on the futures markets. It provided the public with up-to-date and fundamental information on the positions on the futures market.

Over time, the CFTC then continued to increase transparency and improve the information available to the public regarding the futures market. Whereas the CoT report was initially published only monthly and then every two weeks in 1992, it has been published weekly since 2000.

In 1993, there was a change from a mailing list subject to charges to electronic access subject to charges. Since 1995, the CoT Report has been available free of charge on the CFTC website.

The information in the CoT-Report has also been expanded over time, so that more and more markets have been provided with more information on the positioning of the respective market participants. Other forms of the CoT-Report have also been added.

Read the CoT-Report – explained in detail using gold as an example

Listed below is the CoT report for Gold. I will now explain it to you in detail.

In the top line we can see which market it is. In this case it is the gold. This contract is traded on the COMEX. Next we see that this is the CoT report Futures only. This means that only the futures positions are included.

There is also the possibility to display the CoT-Report Futures-and-Options Combined. There is also a long and short format for both reports. The long format is correspondingly more detailed and gives a detailed insight. The report is dated 26 February 2019.

This is when the three market participants and their positions will appear. The listed market participants are the Non-Commercial, Commercial and the Nonreportable Positions.

The Open Interest is the sum of all open futures contracts. In this case 501,268. the Non-Commercials have 236,835 long and 101,139 short positions. Positions based on spreads amount to 65,402. In the case of the commercials, an overhang can be seen on the short side. Here, 146,042 long vs. 305,887 short positions are held. The total number of long positions of reportable market participants (reportable positions) amounts to 448,279. The total number of shorts is 472,428. Non-reportable positions show an overhang on the long side: 52,989 vs. 28,840 contracts.

The following column shows the changes to the previous week’s report dated February 19, 2019. Here it can be seen that the market participants subject to reporting requirements have reduced positions overall, while those not subject to reporting requirements have slightly increased their positions.

Next, the Open Interest is displayed. The total must always be 100%, which can also be seen in the left column. The open interest is then broken down by percentage to the respective market participants.

Finally, the number of traders in the respective category is shown.

For comparison I have added the short version of the CoT report. Here, for example, the changes to the previous report are not shown and the previous positions are not displayed. This makes the report much clearer and easier to read.

CoT Report for Forex and the EUR/USD

CoT data is also available for the Forex market. Most people may wonder how this is possible, since the Forex market is an OTC market. This means that most of the trading is done over the counter. However, the CoT data only covers the futures contracts traded in the USA by the respective market participants. But there are also futures in the foreign exchange market. For example, there is a future on the EUR/USD (6E) or AUD/USD (6A) currency pair. For these, the positions of the market participants are published accordingly.

However, I think that the CoT data should be given less attention in the Forex market than in the commodity markets, for example. This is because, as I mentioned earlier, most trading takes place over the counter and the volume of futures contracts is very small in comparison. One can accept these as a supplement, but to trade the currency markets only on the basis of the CoT data, I think it is very reckless.

The CoT Index – Indicator for the CoT Report

The CoT Index compares the net positions of the three market participants with the high or low of a selected period. This is calculated as follows:

  • COT index = 100 x (current Net – Minimum Net) / (maximum Net – Minimum Net)

This results in an oscillator which oscillates around the zero line between two extreme ranges.

In the chart below you can see how the CoT index would have provided good buy and sell signals using the example of the cocoa future. If it is trading in the overbought area, the probability of falling prices is good. If it is quoted in the oversold area, there is a correspondingly good probability of rising prices. However, as with all indicators, the CoT index also provides false signals and one should not take a trading position based on it alone. But to confirm an existing signal, the CoT-Index can be a good supplement.

Own experience with trading the CoT data

I have also used the CoT data for my own trading on several occasions. However, due to the multitude of possible uses and interpretations, it is difficult to give 1:1 instructions for the use of the CoT data.

At a trading house we traded a lot of commodity options and futures and accordingly included the CoT data in our trading. Although we were a rather small team of 17 proprietary traders, each had their own style of interpretation and use of CoT data.

Above I have already presented the CoT Index. I have also oriented myself to this index and added the seasonalities to the CoT data. For example, I have looked for extreme points regarding the positioning in order to identify possible turning points.

But you also have to keep in mind that you shouldn’t simply assume a possible turning point just because the positioning is at a historical extreme. This is only interesting if other factors are added, such as the start of a seasonality, or other fundamental data confirm this, etc.

In addition to the positioning and CoT data, I have always looked at open interest.

CoT trading with open interest, price and ratios

Increased open interest and a rising price signal that the bull market has a good chance of continuing. The opposite is true for the bear market. If, on the other hand, open interest decreases and the price continues to rise, this is a first indication that the upward trend may have come to an end for the time being. There are also extreme points in open interest, which can be helpful for trading. If the open interest is at an extreme point, this can also be an indication that the trend is about to reverse.

I have also constructed various ratios based on the data contained in the CoT report and have thus often been able to derive interesting trading ideas. With the help of the ratios important information can be derived, which goes far beyond the simple observation of the CoT-report. Interesting are also always the changes of the ratios and the resulting market movements. There are also many approaches and possibilities here and in the end every trader has to decide for himself how he wants to involve the CoT data in his trading and what exactly he wants to use. The ratios based on the CoT data in connection with the open interest have shown the best result for me.

Larry Williams – The master of CoT trading

Larry Williams is one of the most famous traders in the world. He has been actively trading on the stock exchange since 1966. He achieved fame when he achieved a performance of 11.376 percent at the World Cup Trading Championship in 1987. The World Cup Trading Championship is a real money trading competition and is one of the most famous trading competitions in the world. Larry Williams turned $10,000 into over $1,000,000 in one year, and his daughter Michelle Williams also won the World Cup Trading Championship in 1997 with a performance of 1,000%.

His trading approach is based on CoT data. Due to the performance achieved, interest grew in learning how to trade from Williams and the CoT data. Thus Larry Williams was decisive for the interest in the CoT data and made sure that the CoT data became well known among retail traders. He is therefore often referred to as the master of CoT trading. Also many participants who were very successful at the World Cup Trading Championship are former students of him or have been inspired by him. In Germany, for example, two well-known traders are Max Schulz and Adrian Kömel. Both were able to achieve a good performance at the World Cup Trading Championship. They also use the CoT data for their trading and have also enjoyed an education by Larry Williams.

Surfing Investment

Wellenreiter is a German stock exchange letter, which among other things is specialized in CoT data. This market letter is published daily and gives a comprehensive overview of the markets. The website also provides a tabular overview of the CoT data. If you would like to have a detailed insight into the tabular presentation of the CoT data, a subscription gives you access to it.

The extended table also shows the long and short positions of the commercials, their change from the previous week and their respective share of open interest. There are also additional charts, such as the commercials and price long-term, open interest and price etc.

In addition to the tabular display, the positioning of the market participants can also be displayed as a chart. This further simplifies the presentation. Below is an example of a graphical representation of CoT data for silver.

Suricate Trading

Suricate Trading is also specialized in CoT data. This is a team of proprietary traders who have enhanced the CoT data with other elements such as the Volume Profile, thus creating a highly profitable trading approach. This approach is also taught in seminars, so that even beginners are able to achieve an above-average return. That the approach is also proven to be profitable has already been proven by several real money account statements, such as the participation in the Worldcup Trading Championship.

On the website the CoT data is also very clearly presented. In addition to the tabular form, it is also possible to display them graphically.

Tools for the CoT data

There are many good sites and sources on the Internet that provide the CoT data and have prepared them visually accordingly. The following tools or websites are useful:

  • CFTC website with CoT data
  • https://www.suricate-trading.de/cot-daten/
  • https://www.barchart.com/futures/commitment-of-traders
  • https://freecotdata.com/
  • https://www.tradingster.com/cot
  • https://www.cotbase.com/

Training in CoT-Trading

There is good literature on the subject. The three most important books in my opinion are the following:

  • The Commitments of Traders Bible: How To Profit from Insider Market Intelligence
  • Trade Stocks and Commodities with the Insiders: Secrets of the COT Report
  • Commitments of Traders : Strategies for Tracking the Market and Trading Profitably
  • Conclusion of this article about CoT data and the CoT Report
  • CoT data have recently been experiencing a great deal of “hype” and are becoming increasingly popular. This is justified, but one should also be aware of the “difficulties”.

On the one hand, the CoT reports only show the futures transactions, whereas the transactions implemented in over-the-counter trading are not shown.

On the other hand, the data only refer to the futures contracts traded in the USA.

The last showdown in the USA showed that the data are not always reliably published. At that time and for some weeks no CoT data was published. As a result, many traders lacked important information for their trading decisions.

On the other hand, it has to be said that CoT data works well, especially in the commodity markets, and thus allows for early identification of trends. Furthermore, the data is available free of charge and therefore has an unbeatable price/performance ratio. Therefore, every trader should know about the CoT data and how it works and should have dealt with this topic at least once.


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