The Commitment of Traders (COT) report is one of the most valuable free resources available to traders. Published weekly by the Commodity Futures Trading Commission (CFTC), this report reveals how different categories of traders are positioned in futures markets. Understanding COT data can give you insight into institutional sentiment and help identify potential market turning points.
What is the COT Report?
The COT report is a weekly publication that shows the aggregate positions of different trader categories in US futures markets. It covers commodities, currencies, interest rates, and equity index futures. The report is released every Friday at 3:30 PM ET and reflects positions as of the previous Tuesday.
Key insight: The COT report lets you see what big money is doing. While it has a three-day lag, the positions of commercials and large speculators tend to change slowly, making the data still relevant for position trading and swing trading decisions.
Trader Categories Explained
The COT report classifies traders into distinct categories based on their primary business activity:
Commercial Traders (Hedgers)
Commercials are businesses that use futures to hedge their core operations. In commodity markets, these include producers, processors, and merchants. For example, a corn farmer selling corn futures or an airline buying oil futures to lock in fuel costs. Commercials are considered the smart money because they have intimate knowledge of their markets.
Non-Commercial Traders (Large Speculators)
Large speculators include hedge funds, commodity trading advisors, and other institutional traders who speculate for profit rather than hedging business risk. These traders must report positions above certain thresholds. They are trend followers and momentum traders in aggregate.
Non-Reportable Traders (Small Speculators)
Small speculators are traders whose positions fall below reporting thresholds. This category includes retail traders and small funds. Historically, small speculators have been considered the dumb money because they tend to be wrong at market extremes.
Types of COT Reports
The CFTC publishes several versions of the COT report:
- Legacy Report: The original format with commercial, non-commercial, and non-reportable categories
- Disaggregated Report: Breaks down commercials into producers and swap dealers, non-commercials into managed money and other reportables
- Traders in Financial Futures (TFF): Specific to financial futures with dealer, asset manager, leveraged funds, and other categories
For most traders, the disaggregated report or TFF report provides the most useful breakdown of positioning.
How to Read the COT Report
The report shows long positions, short positions, and spreading positions for each category. Key metrics to track include:
Net Position
Net position equals long contracts minus short contracts. A positive net position means that category is net long (bullish). A negative net position means net short (bearish). Track how net positions change over time to identify shifts in sentiment.
Reading Example
If commercial traders hold 100,000 long contracts and 150,000 short contracts in gold futures, their net position is -50,000 (net short). If last week they were -30,000, commercials have become more bearish by adding 20,000 to their short position.
Changes from Previous Week
The report includes changes from the prior week, showing whether each category is adding or reducing positions. Large changes can signal important shifts in sentiment or the beginning of new trends.
Open Interest
Total open interest shows overall market participation. Rising open interest with rising prices confirms bullish trends. Rising open interest with falling prices confirms bearish trends. Declining open interest suggests trend exhaustion.
Trading Signals from COT Data
Experienced traders use COT data to identify potential turning points and confirm trends:
Extreme Positioning
When any trader category reaches extreme positioning, it often signals a potential reversal. For example, if large speculators are at their most bullish in years, the trade may be crowded with limited buyers remaining. Similarly, extreme bearish positioning can signal capitulation and a potential bottom.
Commercial Positioning
Commercials are considered smart money because they know their markets intimately. When commercials reach extreme positions contrary to the current trend, it often precedes reversals. Watch for commercials becoming aggressively long during downtrends or short during uptrends.
Divergences
When price makes new highs but speculator net longs decrease, it shows weakening conviction. Similarly, new price lows with decreasing speculator shorts suggest selling exhaustion. These divergences often precede trend changes.
COT Index: Normalizing the Data
Raw COT numbers are difficult to interpret because position sizes vary over time. The COT Index normalizes data to show where current positioning ranks historically:
COT Index = (Current Net Position - Lowest Net Position) / (Highest Net Position - Lowest Net Position) x 100
This creates a 0-100 scale where:
- Above 90: Extremely bullish positioning (potential top)
- Below 10: Extremely bearish positioning (potential bottom)
- 50: Neutral positioning
Pro tip: Calculate the COT Index using the past 52 weeks of data for meaningful context. Some traders use 26 weeks for faster signals or 156 weeks (3 years) for longer-term perspective.
COT Analysis for Different Markets
Commodities
In commodity markets, commercial positioning is particularly valuable because producers and consumers have genuine business reasons for their positions. When farmers are heavily hedged, they expect lower prices. When they reduce hedges, they expect higher prices.
Currencies
For currency futures, large speculator positioning works well as a contrarian indicator at extremes. The COT report covers major currencies like the euro, yen, pound, and emerging market currencies.
Equity Index Futures
For S&P 500 and Nasdaq futures, asset manager positioning shows institutional investment sentiment. Leveraged fund positioning shows hedge fund speculation. Dealer positioning often reflects market-making activity.
Limitations of COT Analysis
While valuable, COT data has important limitations:
- Three-day lag: Positions reflect Tuesday, but report is released Friday
- Weekly frequency: Not useful for day trading or short-term trading
- Futures only: Does not capture options or cash market positioning
- Aggregate data: Individual trader positions are not revealed
- Classification issues: Trader categories can be imprecise
Building a COT Trading Strategy
Here is a framework for incorporating COT data into your trading:
- Calculate COT Index for your target markets weekly
- Flag markets where any category reaches extreme positioning (above 90 or below 10)
- Wait for price action to confirm the potential reversal (do not fight the trend)
- Enter positions aligned with smart money (commercials) against dumb money extremes
- Use COT data for position sizing: larger positions when COT confirms, smaller when it diverges
Track Your Position Trading Performance
Pro Trader Dashboard helps you analyze your swing and position trades to identify what works in different market conditions.
Summary
The Commitment of Traders report is a powerful free resource that reveals how different trader categories are positioned in futures markets. Commercial traders (hedgers) are considered smart money, while small speculators are often wrong at extremes. By tracking positioning extremes and divergences, you can identify potential market turning points. The COT Index normalizes the data for easier interpretation. While the three-day lag limits its use for short-term trading, COT analysis is excellent for swing trading and position trading decisions.
Learn more: Smart Money Tracking and Volume Analysis in Trading.