Reading the COT
The Commitment of Traders report can look overwhelming at first. It is filled with so many numbers and jargon terms that it will make the uninitiated’s head spin. If you know what to look for though, this report can be a powerful weapon in your trading arsenal. Let’s take a look at how best to approach this document.
The COT is issued by the Commodity Futures Trading Commission and shows traders where professionals and institutional traders think the forex market is headed. You can find this report every Friday at 2:30 on the CFTC’s website under the Chicago Mercantile Exchange’s heading. This exchange monitors the futures market, including currency futures.
The chart can be broken down into a few categories, making it much easier to read. There are both long and short positions accounted for, by looking at the difference between these two, you can get a feel for the discrepancies that exist between the buying and selling of a currency’s futures.
Commercial and non-commercial movements are recorded here as well. Commercial traders are the big banks that trade currencies on a daily basis in order to regulate their profit margins. Since these banks have specialists who sit around all day and analyze where they think currencies are headed, you can rest assured that these positions have merit. By looking to see where the banks have their money, you can stay ahead of the curve with your own money.
Non-commercial traders consist of private investors, hedge funds, and individuals who trade smaller amounts, either as hobbies or as a profession. These traders too are predicting where they think prices are headed, but they don’t usually trade in the same quantities that the commercial traders do, thus their positions do not carry as much weight.