Introduction to Commitments of Traders (COT) Report – Part 1

Introduction to Commitments of Traders (COT) Report – Part 1

Reading time: 8 minutes

Although technical and fundamental analysis are the cornerstones of research for many traders and investors, gauging market sentiment can be equally vital and a worthy addition to one’s trading toolbox. 

The Commitments of Traders (COT) report remains a go-to sentiment gauge for many market professionals, published every week on Friday at 3:30 pm ET by the Commodity Futures Trading Commission (CFTC). COT data were initially published each month in the early 1960s, and to increase transparency about the futures markets, it switched to a bimonthly report in 1990 and subsequently a weekly release in 2000.

Market participants in the futures and options markets, such as clearing members, foreign brokers, traders, and futures commission merchants (FCMs), are required under current regulations to provide daily position information, which is consequently logged up until the close of trading every Tuesday and then distributed by the CFTC through the COT report on Friday. The CFTC uses open interest data to record positioning; open interest is the number of outstanding futures contracts for a specific asset – we can think of this as the number of contracts yet to be settled and committed to risk. The markets included within the COT report are those in which more than 20 traders hold positions equal to or above the reporting levels, according to the CFTC. Types of markets covered, for example, are commodities, currencies, and other financial instruments.

It is important to understand that although we receive the data on Friday, the updated positioning will only be available until Tuesday of that week hence it is lagged data by three days. For example, the latest report, as per this post, was released on 26 April 2024, but that data is only relevant up until 23 April 2024. Consequently, with this report, we have a snapshot of the classified trading groups as of Tuesday of that week. 

Types of Reports

The COT release includes four reports: ‘Legacy’, ‘Supplemental’, ‘Disaggregated’ and ‘Traders in Financial Futures’. 

Legacy Report: 

The Legacy report is one of the most widely followed reports in the COT release and contains reportable open interest of commercial and non-commercial traders and nonreportable positions; these are also classified into long and short-form formats. 

While the overall COT report is largely futures-based, some of the following reports include a ‘combined futures and options’ report. The Legacy report, for example, has both a ‘futures-only’ report and a combined futures and options report that are identified by their respective exchanges, such as the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT).

(Commitment of Traders Report [Legacy Long Format] British Pound Futures)

Commercial Traders –

These traders use the futures and options market to hedge risk against unforeseen price fluctuations. Commercial traders are large ‘producers’, which are companies that use the underlying commodity or asset in their primary operations. 

Non-Commercial Traders –

As its name implies, a non-commercial trader pertains to large speculators, such as hedge funds and large investors, who seek to profit from speculation in the futures or options markets. So, unlike a commercial trader who looks to hedge risk exposure, a non-commercial trader assumes risk in an attempt to profit.

Nonreportable Positions –

Traders who fit into this category are not deemed large enough to have reportable positions by the CFTC, found by subtracting the number of long and short positions for commercial traders and non-commercial traders (these are reportable positions) from the total open interest. This can encompass many traders, such as pension funds, insurance companies and local banks.

Supplemental Report:

The supplemental report focuses on 13 agriculture markets for combined futures and options positions. The data targets three categories: non-commercial, commercial and index traders. The latter are traders who engage in futures and options markets to trade indexes. 

The Supplemental report is only available in short format.

Disaggregated Report:

The Disaggregated report, first published in 2009, extends the information provided in the legacy report by further separating reportable open interest for the following categories: ‘Producer/Merchant/Processor/User’, ‘Swap Dealers’, ‘Managed Money' and ‘Other Reportables’. This report is also available in a futures-only report and a combined futures and options report in long and short format.

Producer/Merchant/Processor/User –

This category represents organisations that produce and process a physical commodity and use the futures market primarily to hedge out risk exposure.

Swap Dealers –

Traders in this category deal in swaps with various counterparties to hedge/manage risk. 

Managed Money –

As its name implies, traders in this category manage money for clients and trade (assume risk) in the futures market. 

Other Reportables –

The ‘Other Reportables’ category lists all the traders who do not fit into any of the three above-noted categories. 

Traders in Financial Futures Report:

The final COT report is ‘Traders in Financial Futures’, launched in 2010 and introduced to extend information on the futures market from the Disaggregated report.

This report is available only in long format and provides a futures-only report and a combined futures and options report in the following reportable open interest categories: ‘Dealer intermediary’, ‘Asset Manager/Institutional’, ‘Leveraged Funds’ and ‘Other Reportables’.

Dealer Intermediary –

This category deals with the sell-side of the financial markets, intermediaries that issue and sell financial instruments to help businesses raise equity capital and debt, which consist of the buy-side of the market: the three remaining categories in this COT report (below).

Asset Manager/Institutional –

Institutional investors include large pension funds and mutual funds, as well as insurance companies. 

Leveraged Funds –

Hedge funds, Commodity Trading Advisors (CTAs) and other money managers. 

Other Reportables –

These are reportable traders not in the above-noted categories. According to the CFTC, these are traders using markets to hedge ‘business risk’ related to foreign exchange, equities or interest rates, and includes traders in small banks, corporate treasuries and credit unions. 

Commitment of Traders Report FAQs

1. What is the COT Report?

The COT report breaks down reportable open interest every Tuesday in different trader categories across different markets.

2. How many reports are available in the COT Report?

There are four types of reports in the COT Report:

• Legacy
• Supplemental
• Disaggregated
• Traders in Financial Futures

3. What is the difference between commercial and non-commercial traders?

The primary difference between commercial and non-commercial traders is that the former engages in hedging activity, while the latter is a large speculator seeking profit. An easy way to think about the two is that commercial traders transfer risk (hedging), while non-commercial traders assume risk (speculation). 

4. What is the difference between long formats and short formats?

Part 2 covers this in detail.

5. Where can I learn more about the COT Report?

Part 1 was designed to introduce the report. Parts 2 and 3 explain the COT report in more detail and how you can use the report in your trading.