C.O.T Report: How to read

The Commitments of Traders (COT) is a weekly market report issued by the Commodity Futures Trading Commission enumerating the holdings of participants in various futures markets in the United States

The Traders in Financial Futures (TFF) provides a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. This report is published in futures-only and futures-and-options combined formats.

Traders in Financial Futures (TFF) Report are classified into the following categories:

Dealer/Intermediary

These participants are what are typically described as the “sell side” of the market. Though they may not predominantly sell futures, they do design and sell various financial assets to clients. They tend to have matched books or offset their risk across markets and clients. Futures contracts are part of the pricing and balancing of risk associated with the products they sell and their activities. These include large banks (U.S. and non-U.S.) and dealers in securities, swaps and other derivatives.

The rest of the market comprises the “buy-side,” which is divided into three separate categories:

Asset Manager/Institutional: These are institutional investors, including pension funds, endowments, insurance companies, mutual funds and those portfolio/investment managers whose clients are predominantly institutional.

Leveraged Funds: These are typically hedge funds and various types of money managers, including registered commodity trading advisors (CTAs); registered commodity pool operators and some multi-service or multi-functional organizations .

The strategies adopted by the market participants may involve taking outright positions or arbitrage within and across markets. The traders may be engaged in managing and conducting proprietary futures trading and trading on behalf of speculative clients.

Other Reportables or Unclassified

Reportable traders that are not placed into one of the first three categories are placed into the “other reportables” category.

The traders in this category mostly are using markets to hedge business risk, whether that risk is related to foreign exchange, equities or interest rates. This category includes corporate treasuries, central banks, smaller banks, mortgage originators, credit unions and any other reportable traders not assigned to the other three categories. So-called “hedge funds” are included in this category, regardless of whether they are registered.

In short, every group can provide valuable information about future trends. Knowing the positioning of the primary counterpart to most speculative transactions depending on the market is helpful. Dealers within the TFF report aren't market-makers nor are they just counterparts to speculative traders. They have business to run and with that comes the need of properly hedging their exposure.