Commitment of Trader Report & Analysis

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Commitment of Trader (COT) Report: Every Friday the CFTC releases data about futures/options trading activity by market segment in various markets including currencies.  Positions for each currency are classified into 3 groups: large speculators, small speculators, and commercial traders.  If interpreted correctly this data can be useful in forecasting price trends in the spot forex market. 

The table below contains a condensed version of currency trader’s collective market votes.  Interpretation of this data is definitely an art rather than a science.  With that caveat, you may view the latest COT analysis for each currency in the analysis fields of the table below.  *See below for definitions and additional information about the COT Report and analysis

Data and Analysis for Most Recent Release (June 19 2009):

Legend:	Net Long	Net Short	Changed Net Position

Overview: Most markets were in a liquidating phase as the June futures contracts expired.  The CAD was the exception with OI going up with commercial buy and sell activity.  Commercials are short all currency contracts, meaning the specs are long, except for the pound and the yen.  The speculators are then short the dollar versus the AUS 45,400 contracts, CAD 36,651, Euro 24,670,  NZ$ 17,050 and SF 13,833.  Specs are also short 9.954 Dollar Index Contracts.  Commercials were long only the yen, 11,950 contracts and the Pound 6,728 Contracts.

			(1) Large Traders		(2) Small Traders		(3) Commercial
		Total OI	Long	Short	Long	Short	Long	Short
USD Index	Contracts:	21,880	3,909	12,484	2,600	3,981	12,566	2.612
	Change:	-21809	-8,441	-1,903	283	-486	-12,746	-18,515
	% Open Interest:		17.1%	57.1%	11.9	18.2%	57.4%	11.9
	Analysis:	(Ralph)Massive liquidation corresponding with the expiration of the June contract.  Commercials covered a huge amount of shorts and are now 4.8 to 1 long.  Large specs bailed out of a net 6538 long positions and now favor short position by a 3.1 ratio.  With a set up of big spec short and big commercial long who will liquidate first?
EUR	Contracts:	125,473	39,208	26,008	45,143	33,674	28,710	53,380
	Change:	-43,673	-9,609	-7,535	-1,246	4,264	-32,445	-40,029
	% Open Interest:		31.2%	20.7%	36.0%	26.8%	22.9%	42.5%
	Analysis:	(Ralph) Hearty liquidation by large specs and commercials with expiration of the June contract.  Only the small spec increased  position by adding 4264 shorts.  Specs both large and small are long the euro and the commercial remains a big short.  Like the $Index, the commercial is again long the dollar.
GBP	Contracts:	92,503	24,367	31,662	22,204	21,636	39,299	32,571
	Change:	-18,402	2,839	-4,369	-1,949	-490	-20,370	-14,621
	% Open Interest:		26.3%	34.2%	24.0%	23.4%	42.5%	35.2%
	Analysis:	(Ralph)  Commercials were big sellers of both long and short positions.  Commercials remain long this market while the large spec is still short.  All groups moved toward a net even position indicating a lack of consensus.  Net commercial long is also a short USD position.
JPY	Contracts:	70,909	17,801	26,534	16,665	19.982	31,822	19,872
	Change:	-30.326	-6,932	-696	697	-1,117	-24,047	-28,468
	% Open Interest:		25.1%	37.3%	23.5%	28.2%	44.9%	28.0%
	Analysis:	(Ralph)  Very big liquidation by the commercials covering both their long and short positions.  They remain big on the long side of the yen.  The large spec reduced a big part of his long but remains a yen short.  Likewise the small spec is a net short.  Very heavy commercial liquidation was probably handled by cash exchanges and offsets, with little market impact.
CHF	Contracts:	34,352	16,220	8,300	13,681	7,719	2,541	16,424
	Change:	-17,475	1,206	1,544	-2,200	-1,530	-15,314	-16,321
	% Open Interest:		47.2%	24.2%	39.8%	22.5%	7.4%	47.8%
	Analysis:	(Ralph) Very big commercial liquidation of both long and short positions probably represents the offset of existing positions and give ups.  The commercial ends up only a miniscule long and a net 6.4 to 1 short, leaving the large and small specs long the swiss franc.
CAD	Contracts:	132,352	30,595	14,366	35,216	14,794	54,238	90,889
	Change:	22,978	-1,729	-5,482	-2,538	2,062	22,674	21,828
	% Open Interest:		23.1%	10.9%	26.6%	11.2%	41.9%	68.7%
	Analysis:	(Ralph) Contrary to expectations the OI was sharply higher during the reporting period with big commercial buying and selling.  The large spec is 2.1 long to short and the small spec is 2.3 to 1 long all of which means the commercial remains entrenched as the big short in this market.
NZD	Contracts:	20,666	16,325	865	2,260	670	2,081	19,131
	Change:	-14,094	613	-74	-121	-153	-14,586	-13,867
	% Open Interest:		45.2%	2.7%	6.8%	2.4%	47.9%	94.9%
	Analysis:	(Ralph) Large spec remain a huge 16.7 to 1 ratio long, while commercials are short almost 95% of the market.  This small futures market is dominated by some very big players on both sides.  There are 12 very big spec longs and 10 big commercial shorts.  Commercials were the biggest players getting out of 14,586 long and 13,867 shorts.  If a few members of either group changes their positions this market can get jerked around big time.
AUD	Contracts:	78,880	41,585	8,574	21,950	9,651	12,404	57,804
	Change:	-33,003	448	-278	-1,890	822	-32287	-34273
	% Open Interest:		52.7%	10.9%	27.8%	12.1%	15.7%	73.3%
	Analysis:	(Ralph)  Commercial liquidation was the feature of this period, probably lots of offsets and give ups prior to expiration.  Large specs remain 4,8 to 1 long.  The small specs reduced some of their commitment to the long side but remains 2.3 to 1 long.  Measured by total contracts, commercials are short more AUD contracts than any other futures.

*Source: CFTC (Commitments of Traders with Delta-adjusted Options and Futures Combined) Actual Report

What is the COT (Commitment of Trader) Report: Every Friday the CFTC releases data about futures/options trading activity by market segment in various markets including currencies.  The CFTC breaks open futures contracts into reportable positions and non reportable positions.  Reportable positions are further broken down into commercial and non-commercial positions.  Though commercial reportable positions may be a very large portion of the open interest, the commercials activity in the futures market is an adjunct to other business activity.  There may indeed be speculating in some cases, but they may also be responding to many factors such as manufacturing, purchase and sales of products, or investment overseas, or repatriation of capital or profits from abroad.  Or they may be banks hedging their overseas loans or currency positions.  As hedgers they may be more concerned with futures as an insurance policy than a profit center.

While price movement is not the major concern of the commercial user, it is the lifeblood of the large and small trader.  It is for that reason that we analyze the activities of the speculators in detail and ignore the commercials positions.

Reportable positions are usually held by the wealthy experienced successful traders and or a combine of participants.  That does not mean that their every trade is a winner. However to hold a reportable currency position is not for the faint of heart and requires a well funded account and probably a friendly banker.  Non reportable positions are those of the smaller trader.  Conventional wisdom says the little guy is generally on the losing side of the market.  Naturally there are exceptions to all rules, but both groups are responsive to price action.

How to use COT Report:  There are 3 main ways the COT report is used to forecast price trends in the spot forex market.

1)  Extreme Positions:  If everyone is already long or short it is a strong indication price may reverse because there is no one left for buyers to buy from and no one left for sellers to sell to.

2)  Changes in Market Positions: When large speculators change their position and go from net long to net short or vice versa, there typically is a good reason they do this.

3)  Changes in Open Interest: Rising or falling open interest may reflect directional commitment or lack thereof and therefore indicate strength or potential reversal of a particular price trend.

Terminology & Types of Traders:

a)  Non-Commercial Reportable Traders: (Large Traders) Large speculators, also referred to as large spec, whose position size requires reporting to the CFTC

b)  Nonreportable Traders: (Small Traders) Typically smaller speculators, also referred to as small spec, whose position size does not require reporting to the CFTC.

c)  Commercial Reportable Traders: (Commercial Traders) Traders engaged in business activities hedged by the use of the futures or option markets.

d)  Open Interest (OI):  Open interest, also referred to as OI for short, is a trade, long or short, that has not yet been offset or closed out.  For every long, there is a short.  Every buyer must find the price at which a seller will sell.  Day traders who get in and out on the same day do not add to the OI.

e)  Net Short and Net Long: In the case of Net Long, a particular market segment (i.e. large speculators) has more long positions with open interest than short positions.  The opposite applies to Net Short.

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