What is a Commercial Trader
Commercial trader can refer to any trader who trades on behalf of a business or institution. In the commodities market the Commodity Futures Trading Commission (CFTC) has a special classification for commercial traders and describes them as traders that use the futures market primarily to hedge their business activities.
BREAKING DOWN Commercial Trader
Commercial traders are traders that trade for the benefit of a business or institutionally managed portfolio. In the commodities market the CFTC has a designated classification for commercial traders primarily for trade tracking purposes. The CFTC produces a weekly report that provides a breakdown of activity from commercial and non-commercial traders.
Institutional Commercial Traders
Institutional commercial traders place trades in the interest of the business for which they have been hired to work. Generally there are two kinds of institutional traders. Traders may work for a portfolio management team, placing trades as directed by the team for a managed portfolio. Portfolios managed to different strategies will require commercial traders with different trading expertise. Managed portfolio funds may be available to institutional or retail investors for investment.
Corporate commercial traders are the second type of commercial trader active in the trading market. Corporate commercial traders will place trades to support the revenue and business operations of the firm for which they are employed. These traders may place trades in the energy market, such as oil traders who seek to identify the best selling price for oil produced by oil companies. Commercial currency traders are also used by corporations for managing currency exchange fluctuations and risk for businesses operating in multiple countries.
CFTC Commercial Traders
In the commodities market the CFTC pays close attention to the trades placed in the market and categorizes them by commercial and non-commercial for reporting purposes. The CFTC produces a weekly “Commitment of Traders” report which shows the number of trades placed by commercial traders and non-commercial traders. The “Commitment of Traders” report is provided through the CFTC’s website and can be found here.
Entities that make up the commercial trader classification can include futures commission merchants, foreign brokers, clearing members or even investment banks that buy index futures to hedge current long positions. The “Commitment of Traders” report can be used by a variety of different investment professionals as an investment resource for futures market investing. Commercial traders represent a large portion of the total futures market and as such are primary influencers of price. The Commitment of Traders reports can show the balance of long positions and short positions in different futures market sectors which can generally provide a great deal of insight on pricing trends.