COT Report in Forex helps traders to weigh the positions of large speculators and commercial traders in the market.

The Commodity Futures Trading Commission (CFTC) releases the Commitment of Traders report (COT) data  every Friday, around 2.30 pm EST.

It shows the positions of the two largest players in the market. That is; the long and short positions held by large speculators and the commercial traders in the market.

The large speculators include the hedge funds and bankers while the commercial traders include corporations and retail traders.

Why is the COT important to forex traders

The COT helps traders to weigh the positions of large speculators and commercial traders in the market. Traders compare the top investors’ net long and short positions.

They usually look at the extreme long or short positions in order to pick the market tops or bottoms.

The Market Tops

These show that traders are extremely long. This implies that the currency is overbought and the prices are very high.

As a result, no one is willing to buy the currency for any additional increase in price. This may lead to a future fall in prices hence causing a panic in investors to sell off.

The Market Bottoms

These show that traders are extremely short. The currency is oversold and the prices fell very low.

An additional fall in prices, investors won’t sell off their currency. As a result more traders will buy to take advantage of the low prices hence future price increase.

As more buyers get in the market the value of the currency appreciates hence increase in its demand and rise in prices

How to find the report

 You can find The COT report online, just visit their web page below.

(http:/www.cftc.gov/marketreports/commitmentsoftraders/index.html)

Load the page to open

Then, go to current legacy report under futures only.

Click on the short format on the Chicago mercantile exchange

Then scroll to look for the currency of your interest and check the current position of traders.

For instance if I want to find a Canadian dollar;

When I click on the short format, it brings me a list of different items.

But i am only interested in  CAD.

So I just scroll down till the a table shows the names of the Canadian dollar-Chicago Mercantile Exchange Futures only position with a date shows up.

The format can be as shown below.

The table shows both commercial and non-commercial traders with their respective positions in the market.

Commercial. Traders who use future contracts to hedge against risks and protect themselves from too much exchange rate fluctuations

Non commercial . These are market speculators; hedge funds, individual traders and financial institutions.

Long: Number of long positions reported to the CFTC.

Short: Number of short positions reported to CFTC.

Open interest:  Represents the number of future contracts that have not been delivered.

Number of traders: Total traders required to report positions to the CFTC.

Reportable positions: Number of futures or option positions that are required to be reported according to CFTC regulations.

Non reportable positions: The number of open interest positions that do not meet the reportable requirements of CFTC like retail trades.

 How to use COT report for trading

 Compare the long or short positions with the previous weeks reports to see if more shorts or long positions are added.

A sudden shift in the position could also bring a sign of market reversal.

You can also use the COT report in forex indicator to spot trends reversals points in the market.

It indicates the market tops and bottoms.