THE COMMITMENT OF TRADERS (C.O.T)
The Commitments of Traders (COT) tool provides a comprehensive and highly configurable graphical representation of the CFTC's report on market open interest released each Friday afternoon based on positions held during the prior Tuesday. Markets are only included if 20 or more traders hold positions equal to or above the reporting levels established by the CFTC and the respective exchanges.
Information is presented by client segment, categorized as follows:
Physical Commodities: Producer, Swap Dealer, Managed Money and Other Reportable
Financial Products: Dealer, Asset Manager, Leveraged and Other Reportable.
Trustable Banks: HSBC, DUKASCOPY, SWISSQUOTE BANK, BOA, and so on
We would always want to go with the mass since these are the market movers as there will be long & shorts with trades worth in billions.
For full definitions of these groups, please refer to the CFTC’s Explanatory notes.
Unlike most COT reports, this tool also breaks out the non-reportable information, which includes all traders that fall below the reporting threshold.
What you want to do is create an index that will help you gauge whether the markets are at extreme levels.
Below is a step-by-step process on how to create this index.
Decide how long of a period we want to cover. The more values we input into the index, the less sentiment extreme signals we will receive, but the more reliable it will be. Having less input values will result in more signals, although it might lead to more false positives.
Calculate the difference between the positions of large speculators and commercial traders for each week.
The formula for calculating this difference is:
Difference = Net position of Large Speculators – Net position of Commercials
Antecedents of the Commitments of Traders (COT) reports can be traced all the way back to 1924. In that year, the U.S. 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.
Beginning as of June 30, 1962, COT data were published each month. At the time, this report for 13 agricultural commodities was proclaimed as "another step forward in the policy of providing the public with current and basic data on futures market operations." Those original reports then were compiled on an end-of-month basis and published on the 11th or 12th calendar day of the following month.
Over the years, the CFTC has improved the Commitments of Traders reports in several ways as part of its continuing effort to better inform the public about futures markets.
The COT report is published more often—switching to mid-month and month-end in 1990, to every two weeks in 1992, and to weekly in 2000.
The COT report is released more quickly—moving the publication to the sixth business day after the "as of" date in 1990 and then to the third business day after the "as of" date in 1992.
The report includes more information—adding data on the numbers of traders in each category, a crop-year breakout, and concentration ratios in the early 1970s; data on option positions in 1995; and a Supplemental report in 2007 showing positions of Index Traders in selected agricultural markets.
The report also is more widely available—moving from a subscription-based mailing list to fee-based electronic access in 1993, and, beginning in 1995, becoming freely available on CFTC.gov.