Small Trader

DEFINITION of 'Small Trader'

An options or futures trader holding or controlling positions that are below the required reporting thresholds specified by the relevant exchange or Commodity Futures Trading Commission (CFTC). A small trader also refers to traders or small institutions whose trading volumes are quite low. In certain jurisdictions, the term "small trader" refers to businesses and suppliers whose sales do not exceed a certain level in each taxation year.

BREAKING DOWN 'Small Trader'

For example, in Canada, a business whose annual sales do not exceed C$30,000 may be classified as a small trader, which may make it exempt from collecting and remitting the Canadian Goods & Services Tax (GST).

Reporting thresholds set by the CFTC differ for option and futures contracts on various assets and commodities.

The Commitments of Traders (COT) report released every Friday by the CFTC groups the size and direction of all positions taken in a particular commodity by three categories of futures traders - commercials, non-commercials and non-reportable. Commercial traders hold positions in the underlying commodity, and use futures or options contracts to hedge their exposure. Non-commercial traders do not own the underlying commodity, and only hold positions in futures or options contracts, presumably for speculation.

The non-reportable category combines positions of small traders; this figure is derived by subtracting total long and short reportable positions from total open interest. As such, the total number of small traders grouped in this category and their classification - whether commercial or non-commercial - remains unknown.

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