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The Commitments of Traders report (COT) is a weekly government report that is extremely valuable in knowing what the "smart money" is doing in various futures markets. That's OK, because it's timely enough to be valuable.

The column headings at the top of the report will be labeled NON-COMMERCIAL, COMMERCIAL, and NONREPORTABLE POSITIONS.

When an account is reported to the CFTC as holding positions above the specified reporting level number of contracts, the CFTC determines if the account is a commercial hedger or a large speculator.

Commercial - The CFTC classifies a futures account that meets the reporting level as a "commercial" when that account holder files a statement with the Commission that states it is commercially engaged in business activities hedged by the use of the futures markets.

The Commitments of Traders report (COT) is a weekly government report that is extremely valuable in knowing what the "smart money" is doing in various futures markets. There is a report for each futures market. in any event COT reports have been nearby for years, the mean investor not only doesn't know how to use it, but doesn't even know that it exists.

Here's what happens -- the government, specifically the Futures Trading rule (CFTC), requires all those who hold a number of futures contracts more a specified limit to report their positions. For example, the threshold limit for S&P futures is currently 1,000 contracts. So only the really big players have to report. But they hold 70% to 90% of all outstanding futures contracts.

Here is where to view the reports for the various markets...

http://www.cftc.gov/cftc/cftccotreports.htm

The report is released on Fridays (except for holidays) based on data as of the previous Tuesday. So the information is released three days in harmony with the fact. That's OK, insomuch as it's timely enough to be valuable.

The cenotaph headings at the top of the report will be labeled NON-COMMERCIAL, COMMERCIAL, and NONREPORTABLE POSITIONS.

When an the goods is reported to the CFTC as holding positions further the specified reporting level number of contracts, the CFTC determines if the evidence is a newscast hedger or a large speculator.

Commercial - The CFTC classifies a futures knowledge that meets the reporting level as a "commercial" when that sake holder files a statement with the give in charge that states it is commercially engaged in cartel labour hedged by the use of the futures markets. They're the ones that we're most interested in. For example, the network show traders of S&P futures are the largest institutional players like banks, pension funds, mutual funds, hedge funds and the trading arms of Wall Street firms.

Non-commercial - Those constituted as non-commercial are "large speculators." They don't deal with stocks as a part of doing business. An example of a large speculative allow for might be a large drug pool (a fund) that trades futures for speculative profit. Managed futures have grown into the billions of dollars and if they meet the reporting levels, their positions would be reported to the CFTC for monitoring.

Nonreportable positions - All traders, speculative and commercial, that have smaller positions than the reporting level are considered the "small speculators." In other words, they're everybody else who participates in the futures markets -- the proverbial "little guys."

To know how to use the COT data, it's important to take a closer look at the three types of players that are the report's focus -- the commercial program trader, the large speculator, and the small speculator. We want to know what makes each of them tick.

Commercial traders dominate the market. That fact really shouldn't be a surprise to anyone given the nature of who the commercials are. For example, in the S&P futures market they are banks, pension funds, mutual funds, Wall Street wholesaling houses and the like. They have vast research departments and have inside information that simply is not off duty to the vernacular investor in a timely manner.

They also dominate as long as of their sheer size. They are so large that they in all conscience get the market. So the network show traders are the ones that we're most interested in. We want to try to determine what they're doing and tag along. History has shown that the trading traders in most futures markets for that matter are right a great deal of the time. And when they're wrong, they are rarely wrong for very long. They will eventually end up on the right side of the market, whether it be on the upside or downside.

The large speculators tend to be trend followers. agreeable to the market has established a trend up or down, they will go the direction of the trend. It's interesting to know what they're doing in the market, but it shouldn't be critical to your decision making process.

The small speculators are usually on the wrong side of the market. In fact, it has been estimated that as many as 90% of small traders lose money in the futures markets. They tend to serve as "cannon fodder" for the big spot traders. rear all, the "smart money" has to have someone to take the opposite side of their trades. The small speculator is usually willing to view with favour that roll. Think of the Harlem Globetrotters vs. the Washington Generals. The commercials are the Globetrotters. The small speculators are the Generals -- the patsies who are demarcate to lose.

The merchant traders are the ones to follow. They're the smart money. When they have an extreme long or short position in relation to their positions in the past, it is a reliable indicator of market direction.

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