The Commitments of Traders (COT) report

Background: The Commitments of Traders (COT) report was first published in 1962 and is now released weekly by the Commodity Futures Trading Commission on Friday afternoons, reflecting positions held by various categories of traders as of the previous Tuesday (unless it is a holiday week). The report has been expanded and modified over the years as trading activity has evolved.

The COT reports break down the open interest for U.S. markets in which 20 or more traders hold long or short positions equal to or above the reporting levels established by the CFTC. These larger traders are required to report how many long contracts and how many short contracts they are holding and fall into one of several categories:

• Producer/Merchant/Processor/User - generally companies involved in the commercial business of that market who typically use the market to hedge.
• Swap dealers - other large traders including commodity investment traders (CITs sometimes described as "the funds") whose position size requires them to report.
• Managed money - also sometimes described as the funds or large speculative traders.
• Other reportables - smaller individual traders and hedgers whose positions are large enough to require a report.

The COT report is available at www.cftc.gov each week.

Purpose: Volume and open interest statistics
provide factual information about the level of activity and the interest in a market at various price levels, but they don't reveal who is responsible for producing that activity. The COT report identifies the portion of the open interest being held by traders in each of the categories and gives traders an idea about the participants and the extent of their involvement in U.S. markets. The report does not indicate the size of positions held by individual companies or traders.

Basic signals: The primary value of the COT report is showing what the "smart money" is doing in a market - that is, the commercials and companies who are engaged in a market and should be the best informed about developments in that market and what might be expected for future prices based on their own business activities.

These merchants/users/commercials are the "elephants" or "big money" in the market, and the COT report reveals their tracks. In general, traders usually like to be on the same side of the market as the smart money and can use the COT report to gain this insight.

Pros/cons: This public report provides some transparency into a marketplace for all to see. It gives individual traders information about large market participants and how they view a market. The absolute numbers indicate shifts in their positions and opinions from week to week.

However, there is no guarantee that commercials are always correct, and if they are forced to capitulate, it can produce volatile price reactions. The key to the COT report is interpreting the data because a large commercial number in one market may not mean the same as in another market. It takes time and experience to get the most out of these reports.

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