In the previous lesson, we discussed market sentiment in Forex. Since you already know how the sentiment comes along, in this lesson, we will discuss how the forex market sentiment is measured.
What is the Commitment of Traders Report?
The commitment of traders (COT) report is how you measure forex market sentiment. One of the primary determinants of market sentiment in forex is the demand for a currency. The COT report tracks how commercial and non-commercial traders are positioned in the forex market.
As the name suggests, the COT report gives data about commitments made by big players in the forex market to conduct future trades. The report shows the totality of futures and options contacts in the forex market, which have not yet been settled. Thus, these future transactions can impact the price movement of the currency pairs in the spot market where most retail traders participate.
How does the Commitment of Traders Report work?
The COT report is published by the US Commodity Futures Trading Commission (CFTC). The publication is released every Friday at 3.30 PM ET. This report shows the total outstanding open positions in the forex futures market as of Tuesday of that week. The data in the COT report includes futures of the major currencies and most of the minor currencies.
According to the CFTC, the COT report is a breakdown of the futures and options market positioning of at least 20 traders. These are traders whose futures and options positions in the forex market are above or equal to the reporting levels set by the CFTC. In our subsequent lessons, we will further explain the type of traders included in the COT reports and the reporting levels.
It is worth noting that the majority of the transactions in the interbank forex market are private and are not made public. For this reason, the retail traders do not have a lot of knowledge about the significant transactions that occur daily in the forex market. Therefore, the COT reports play a significant role in publicizing the futures positioning in the forex market.
The forex market portion of the COT report shows the totality of the long and short futures position adopted by traders. These are speculative traders; whose primary objective is to anticipate future price changes and place their bets regarding a currency. Therefore, monitoring how these market players have positioned their future trades might increase your analysis of future trends in the forex market.[wp_quiz id=”89646″]