What is 'Small Trader'

Small trader is 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, or CFTC. The term can also refer to traders or small institutions whose trading volumes are quite low, comparatively speaking. In certain jurisdictions, the term small trader can refer to businesses and suppliers whose sales do not exceed a certain level in each taxation year.

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. 

BREAKING DOWN 'Small Trader'

A small trader holds or trades a group of futures are options that are less than the point at which regulatory agencies require them to be reported. The applicable regulatory agency that holds authority in that particular location or jurisdiction determines this specific threshold.

 For example, in Canada, a business whose sales do not exceed the C$30,000 threshold for four consecutive calendar quarters may be classified as a small trader, which may make it exempt from collecting and remitting the Canadian Goods & Services Tax. 

Observers or analysts may also use this term in a comparative sense, to indicate that an individual or entity has a trading or holding activity level that is considerably less than average when compared to a larger group.

Unlike a large trader who buys or trades at a higher volume and dollar level, the small trader is unlikely to be able to corner a market or have a noticeable impact on it. On the other hand, a small trader may have more flexibility and agility, and may be able to move in and out of trades more quickly and make rapid adjustments.

Small traders and the COT report

The CFTC establishes reporting thresholds that vary for option and futures contracts on different assets and commodities. The CFTC releases a report called the Commitments of Traders, or COT, every Friday. This COT report 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. 

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