Every Friday, the CFTC publishes something called the Commitment of Traders (COT) report and most retail traders skip right past it.
What the Report Actually Shows
The COT basically splits traders into three groups:
Commercials (hedgers): Big businesses that use futures to protect themselves from price moves. Think airlines hedging fuel prices or exporters hedging currency risk.
Non-Commercials (speculators): Hedge funds, asset managers, and other big money traders who are in it to profit.
Non-Reportables: Smaller traders (yes, that’s us retail folks), but their impact is so small they’re grouped together.
By looking at these positions, you can see who is leaning bullish, who is leaning bearish, and where the extremes are.
Why Traders Still Use It Today
The COT isn’t a magic “buy or sell” signal, but it can be a great tool for context:
Spotting extremes: If hedge funds are extremely short AUD futures, like we’ve seen recently, it can often signal a potential reversal. Crowded trades eventually run out of fuel.
Understanding sentiment: If hedge funds are consistently reducing longs and increasing short positions, it tells what the smart money is doing.
Timing big moves: Markets often turn when positioning hits an extreme not because of the report itself, but because the positioning leaves little room for new traders to push the move further.
Current Extreme
The latest CoT report highlights the extreme long position held by large speculators on the EUR futures markets (EURUSD).
This extreme has been forming over the past few weeks, with the price contained within a moderate trading range.
An extreme such as this one could highlight a potential reversal, but we need a fundamental catalyst. At the moment we don’t have it, so the price could continue to move higher in the short term.
Remember CoT reports is not a great timing tool, but can help sport opportunities for reversals.