What is the Commitments of Traders?—by Robert James Deadman

While Commitments of Traders data has been around for over a decade, its use in futures among the casual trader is almost non-existent. There are two primary reasons for this; because the major data providers don't supply the information and the few who do don't supply it in a readily useable form. As time progresses, this factor will change. The second reason is that there is little information on what the Commitments of Traders even is, let alone how to use it. This series of articles will try to alleviate this problem.

Starting in 1962, the Commodity Futures Trading Commission (CFTC) started requiring all significant traders meeting certain criteria to report the futures positions they were holding. Due to its infrequency and delay in reporting to the public (only once a week and at least three days late) it doesn't have much value in day-trading use, but provides valuable information on the daily, weekly, or monthly scale.

Reading the COT report.

The COT reports contain far too much information for a detailed explanation here. A shorter version will be explained. Below is a sample of the COT Short Form.

There is a lot of information here, but lets focus on only a few areas.

The first part is the identifying line. It lists Non-Commercial, Commercial, Total, and Non-reportable positions. The Nonreportable positions would be the small trader or speculator positions. The first thing to note is that the 'Total' is not the total for all positions, but only the total for the Non-Commercial and Commercial positions. The Nonreportable positions have been excluded from that value.

Second is the line identifying the position holdings. Each position has Longs and Shorts available, except the Non-Commercial which also has spreading. Since Commercial traders are hedging against an actual commodity, they are not perceived to be spread traders. The Small Traders may spread a position, but the individual positions are reported since spreading in this group is relatively small.

The last line of this focus is the 'Commitments' line. These are the actual reported values for each group. The first values that we see are the longs, shorts, and spreading of the Non-Commercial group. What needs to be derived is the "Net Position" of the Non-Commercial group. To derive this, take the difference between the longs and the shorts. In this case, 62,103 - 25,983. The result is 36,120. What this means is that the Non-Commercial traders are positioned to the long side by 36,120 more contracts more than they are to the short side (a primarily bullish position). There is no need to add the spreading positions in since it would result in the same net value. If they were added in, then 48,106 would be added to both the long and short positions since a spreading position has a contract held on both sides.

There is no need to add the spreading positions in since it would result in the same net value. If they were added in, then 48,106 would be added to both the long and short positions since a spreading position has a contract held on both sides.

We perform the same netting process on the Commercial positions: 199,216 long positions minus 217,567 short positions results in -18,351 net short. Commercial traders are positioned on the short side by 18,351 contracts more than they are to the long side-they are bearish.

The process would finally be performed on the Nonreportable positions: 78,599 long positions minus 96,368 short positions results in -17,769. The Nonreportable positions (small traders) are positioned to the short side by 17,769 more contracts than they are to the long side (a primarily bearish position).

Note that all of the respective positions, when added together, cancel each other out. All of the long positions combined for the 3 groups, when added together, will match all of the short positions combined.