Commodity traders have an open access to a distinctive market report each week, which details the position of major corporate speculators and small investors in various future markets. This information is popularly known as Commitment of traders report. The report is an important analytical tool for traders since it offers up-to-date information concerning the trends in every commodity markets. It is also available on future contracts like interest rates, stock indexes, and currencies.
The information available in this weekly report enables private speculators to invest wisely. It helps them to make decisions on whether or not to settle for short or long positions. Positions of small-scale speculators are rarely followed; the law does not require them to present a report of their trading activity. Commercial investors have an amazing mastery of market trends hence much attention is paid to their report. The positions of these investors are highly profitable. Successful investors know how to interpret the COT information and make smart investment decisions.
The COT report gives a snapshot of positions of three groups of traders. The positions are either long or shot. If the speculators are massively long or focusing on expanding their long positions, a firm bias on the future market is anticipated. A bearish bias on the commodity market arises when the short positions increase tremendously.
Understanding the different type of traders who exist in the commodity market is one-step towards mastering and interpreting the report correctly. The commercial group represents firms and institutions who utilize futures markets to balance out risks in either the cash or spot market. For instance, a corn producer may use shorting of corn futures contracts as way of protecting his or her profits in case the prices decrease in the near term.
Non-commercial trader comprises of major institution investors, hedge funds, as well as entities that are trading for both investment and growth. This group of speculators does not participate actively in creating, distributing, and managing underlying commodities and assets. Non-commercial investors have ability to navigate through the market shifts. Therefore, analyzing their investment strategies and their performance can give a hint concerning a specific 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.
There are different categories of COT reports ranging from equity investors (stock prospects), currency traders, and commodity traders comprised of oil and gold. Relying on raw data from CFTC might be confusing. Therefore, it is imperative to view the changes within the information for a significant period instead of a single snapshot.
Changes within open interests can be used to gain an insight on how the price of a given commodity is behaving. Understanding the changes can be helpful in devising long-term growth and investment plans. A decline or a balance of long-term market downtrend or uptrend is a confirmation of an ending trend.
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