What Is the Commitments of Traders Report?
The Commitment of Traders (COT) report is a weekly publication that shows the aggregate holdings of different types of participants in the U.S. futures market. The Commitment of Traders report is published every Friday by the Commodity Futures Trading Commission (CFTC) at 3:30 Eastern time and is a snapshot of the commitment of the classified trading groups as of the Tuesday that same week. The Commitment of Traders report seeks to provide investors with up-to-date information on futures market operations and increase the transparency of these complex exchanges. It is used by many futures traders as a market signal on which to trade.
Understanding the Commitments of Traders Report
The Commitment of Traders (COT) report traces its history back to 1924 when the U.S. Department of Agriculture’s Grain Futures Administration issued an annual report outlining hedging and speculation activities in the futures market. In 1962, the report began being published monthly. In the 1990s, the report moved to bi-weekly and then weekly in 2000.
Understanding the Commitment of Traders (COT) Report
The Commitment of Traders report has continued to evolve and actually contains the legacy COT which traders are most familiar with as well as a disaggregated COT. The legacy COT breaks down the open-interest positions of all major contracts that have more than 20 traders. The legacy COT simply shows the market for a commodity broken into long, short and spread positions for non-commercial traders, commercial traders and non-reportable positions (small traders). The total open interest is given as well as changes in open interest. The COT provides an overview of what the key market participants think and helps determine the likelihood of a trend continuing or coming to an end. If commercial and non-commercial long positions are both growing, for example, that is a bullish signal for the price of the underlying commodity.
The disaggregated COT report provides a deeper breakdown of the market participants, splitting commercial traders into producers/merchants/processors/users and swap dealers. The non-commercial participants are split between managed money and other reportables. This is meant to provide a clearer picture of what the people with skin in the game – the users of the actuals – think about the market versus the people with profit motivations (speculators). The disaggregated COT report is, in part, a response to some of the criticism of the legacy COT.
Limitations of the Commitment of Traders Report
The importance of the COT cannot be overstated. It is a core data source for traders as well as the data source for most academic research on pricing trends in the futures market. That said, it does have its critics and their issues with the report are justified. The biggest weakness with the COT is that, for a document meant to promote transparency, the rules governing it are not transparent.
For example, traders are classified as non-commercial or commercial and that holds for every position they have within that particular commodity. This means that an oil company with a small hedge and a much larger speculative trade on crude will have both positions show up on the commercial category. Simply put, even the disaggregated data is too aggregated to be said to accurately represent the market. There have been recommendations to publish more detailed data on a delay as not to affect commercially sensitive positions, but that still looks unlikely. And, despite its limitations, most traders agree that even the questionable data of the COT is better than nothing.