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An Introduction to the Commitments of Traders Report for Futures Traders (Part II) —by Robert James Deadman |
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Commitments of Traders data is futures data NOT related to price. The Commitments of Traders is data that is collected by the Commodity Futures Trading Commission (CFTC), that tracks what different groups of futures traders are doing. Each week, the CFTC collects 'reports' from the various brokerages as to the activities of their traders. The traders are broken into three different categories: The Commercials: The commercial traders are individuals or groups that actually deal with the commodity being traded. In the case of grains, they would be the grain farmer, or the people who purchase the grain to use (like General Mills). Their purpose is to lock in prices to either protect from future financial loss (for the farmer) or to protect from exorbitant future pricing (for the user). Whatever their purpose, the Commercial trader has a commercial or business use with the commodity. The Non-Commercials/Large Speculators: These are typically "hedge funds" or institutional traders. They are large groups purchasing or selling futures contracts for a portfolio with the purpose of making a profit off of the price movement. The Small Trader/Small Speculator: This is the individual trader that could be anyone on the street. Like the Non-Commercial trader, they are trying to make a profit off of the price movement, but they are doing it for their own personal account, not for the accounts of others. The Commercial and Non-Commercial groups are both required to register themselves as the type of trader they are when they open their futures accounts. The CFTC relies on each trading group to report their status accurately. Unfortunately, this is not always the case. Occasionally, a Commercial will register themselves as a Non-Commercial, and Non-Commercial traders will register themselves as a Commercial. And if they feel that their trading levels are insignificant, then they may decide not to register themselves at all, putting them by default into the Small Trader category. There can also be a situation where a trading group has two purposes. For example, a bank may have registered themselves as a Non-Commercial trader for all of their grain and energies futures trading, but when they trade currencies, they become a Commercial trader trying to protect themselves from international price fluctuations. The bank only registers themselves once, so whatever they register as is what they stay registered as, regardless as to if some of their activity is for a different purpose. While this does reduce some of the accuracy in reporting of some Commitments of Traders information, it does not make it useless. In fact, COT data provides a very large advantage to price data alone. These advantages include:
For more information, check out our COT articles. |
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