Thursday, September 15, 2016

A Review Of Commitment Of Traders Report

By Ronald Ellis


Each week, commodity traders obtain a special report that offers them a highlight of positions held by bigger institutions and speculators. The commitment of traders report can be utilized as a sentiment indicator to capitalize on the market and profit from it. The report offers detailed information about the performance of every commodity available in the futures market. Aggressively traded future contracts like currencies, stock indexes, and interest rates have their special COT reports.

Many speculators utilize the COT report in deciding whether or not to pick a long or short position. One assumption is that small speculators are usually wrong and the ideal position is dissimilar to the net non-reportable position. Another notion is that commercial merchants have a clear mastery of their market, and therefore their positions attract more profits.

The COT report outlines both the net long and short positions for the available futures contract for three types of merchants. If the traders are enormously long or they are just escalating their long positions, a robust bias on the market is expected. Increase of short positions result in a bearish bias on the future market.

Understanding who the key players in the futures market are and the positions they hold in it, is an important strategy for gaining advantage in the market. The data is classified into three categories: commercial speculators, non-commercial traders, and non-reporting traders. Commercial ones represent institutions and corporations who take advantage of futures markets in offsetting risks in the spot or cash market. For example, a corn producer can decide to short corn futures contracts as a tactic for safeguarding his or her profits in case value lowers in the foreseeable future.

Non-commercial merchants consist of large corporate investors, hedge funds, and other notable entities, which are trading for investment and growth. They are indirectly involved in the production, supply, and management of the basic commodities and assets. A special attention is paid to this group due to their mastery of futures markets and ability to make calculated guesses. Keeping track on the activities of non-commercial merchants gives investors some insight about the trend for a certain asset class.

Non-reporting traders are known for their unique investment style. Their bets are usually against trends. Therefore, no attention is paid to these traders. Additionally, they do not present their report to the CFTC. This category consists of small private investors who invest in diverse type of commodities in the market.

COT report exists in different categories such as equity investor consisting of stock futures, commodity traders (gold and oil) and currency traders. It is better to deal with the report itself rather than dealing with raw data released by CFTC. The best strategy for deciphering the report and understanding the market trends is being consistent in seeing how the information is changing for some time.

Changes within open interest are an instrumental tool in mastering the price behaviour of a certain market and tactics for profiting from long-term trends. These changes can be utilized to gauge the general strength as well as the weakness of the trend. For instance, if a market has been experiencing long-term downtrend or uptrend with growing open interest levels, a decrease or balance would be a sign that the trend is approaching its end.




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