COT Report Explained

Let’s look at how the COT report is presented every Friday, and I will explain all the terms and details for you – one thing I should say at this point is that you do not need to be an expert in futures trading in order to understand the content of the report, but it helps if you understand a little!  If you would like an overview of the futures market in general and how it works, please take a look at one of my other sites which explains futures trading in more detail. This is available in the sidebar.

If we start by taking a look at a typical extract from the COT report, I will try to explain both the content and the terms. The CFTC do not make it easy for us to interpret as the information provided is not consolidated for us, but reported by each exchange separately, of which there are 9! I have taken a typical report for Wheat from the CBOT and it’s shown below:

WHEAT – CHICAGO BOARD OF TRADE                                       Code-001602
FUTURES ONLY POSITIONS AS OF 02/03/09                         |
————————————————————–| NONREPORTABLE
NON-COMMERCIAL      |   COMMERCIAL    |      TOTAL      |   POSITIONS
————————–|—————–|—————–|—————–
LONG  | SHORT  |SPREADS |  LONG  | SHORT  |  LONG  | SHORT  |  LONG  | SHORT
——————————————————————————–
(CONTRACTS OF 5,000 BUSHELS)                         OPEN INTEREST:      283,752
COMMITMENTS
58,975   69,066   49,514  149,108  116,872  257,597  235,452   26,155   48,300

CHANGES FROM 01/27/09 (CHANGE IN OPEN INTEREST:      4,879)
-611   -2,986    4,597    1,192    1,752    5,178    3,363     -299    1,516

PERCENT OF OPEN INTEREST FOR EACH CATEGORY OF TRADERS
20.8     24.3     17.4     52.5     41.2     90.8     83.0      9.2     17.0

NUMBER OF TRADERS IN EACH CATEGORY (TOTAL TRADERS:      304)
56      121      125       67       83      228      260

As I said earlier, it isn’t very pretty, and can be confusing when you first start, but once you understand the basic layout and what the figures actually mean, it soon begins to make sense. Firstly, this is one report for one exchange, on one contract, and this is the shortened form. The CFTC provides this report in both a long and short format, and also for both futures, and future and options combined. Personally I only use the short form for futures only, which is what you are looking at in the above example. Secondly, each report will contain all the futures products promoted by the exchange, so each exchange report will include the above details for each contract whether this is commodities, equities, indices, or currency, so it is can be time consuming to collect all the information we need.

The report provides open interest contract volume on three ‘groups’ of traders, namely commercial, non commercial and non-reportable, and these groups are explained below, along with the other terms in the above contract. These are as follows:

  • COMMERCIAL means traders who are involved in futures trading because they are involved in the production, processing or selling of the commodity, and therefore use futures contracts primarily to hedge future prices. A simple example would be the farmer hedging against falls in the future price of cattle or corn.
  • NON COMMERCIAL in effect means speculators, and typically these would be the large institutions and hedge funds, who are purely buying and selling contracts for speculative profits both long and short.
  • NON REPORTABLE means in essence – everyone else! – this includes all the small traders buying one or two contracts – in other words you and me!
  • LONG means the number of contracts which are long – expecting prices to rise
  • SHORT means the number of contracts expecting prices to fall
  • SPREAD means the extent to which a non-commercial trader holds equal long and short futures positions, in other words a spread trade where the trader is long one contract and short another.
  • OPEN INTEREST is the total number of futures or options contracts not yet offset by a transaction, by delivery or exercise .
  • NUMBER OF TRADERS is the total number of traders who are required to report positions to the CFTC

Now let’s see how the numbers are arrived at in the report.

Let’s start by looking at the total column for the non-commercial (NC) and commercial traders (C), which is the sum of these plus the spreads (SP) :
Long: 257,597 = 58,975 ( NC) + 149,108 (C) + 49,514(SP)
Short: 235,452 = 69,066 ( NC) + 116,872 (C) + 49,514(SP)

OK – now the non reportable (NR) positions are actually derived from the above by deducting them from the Open Interest (OI) figures to arrive at the totals as follows :

Long: 26,155 = 283,752 (OI) – 257,597 ( from above )
Short:48,300 =283,752 (OI) – 235,452 ( from above )

On the next line we can see the changes week on week, so for example we can see that the OI volume has gone up by 4,879, and the changes from the previous week for both long and short contracts and for all the various groups. The percentage figures on the next line simply convert the numbers to – percentages!

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