COMMITMENT OF TRADERS REPORT (COT): a weekly report issued by the Commodity Futures Trading Commission (CFTC) enumerating the holdings of participants in various futures markets as of Tuesday’s positions and released every Friday at 3:30pm Eastern Time (or Monday if Friday is a holiday).
COMMERICIALS or HEDGERS: A corporation or entity that purchases or sells futures contracts to control its costs. When a corporation or entity uses a commodity in the creation of its product or service, a long hedge or purchasing of a commodity contract to hedge future price increases can help to keep that commodity affordable. Also, if a corporation or entity produces a commodity for sale, a short hedge or selling of a commodity contract to hedge future price decreases can help lock in a price to help maintain profits and protect against price decreases. For example, a cereal company could be called a commercial hedger if it purchased corn futures to control its production costs. Another example is an airline company that purchased crude oil futures to balance its fuel costs. Another example is a farmer who sells wheat futures to lock in prices that are at the time he/she plans to harvest. Commercial hedging is a way for companies or entities to reduce price risk by locking in price of production goods. This practice can be used in any type of business but is common in agricultural and banking. Companies or entities also commonly hedge against interest-rate risk and foreign-exchange risk. Hedging does not eliminate the possibility of a corporation or entity being negatively impacted by changing prices, but it can soften the effect.
LARGE SPECULATORS or HEDGE FUNDS: Individuals or entities that trade large amounts of futures contracts, that are reportable to the Commodity Futures Trading Commission (CFTC), to speculate in the price movement of a particular commodity or financial product. These types of traders or investors are looking to make a profit based on price movements in either direction. They tend to be more technical in nature and either buy or sell futures contracts based on price direction. They historically tend to take the other side of the Commercials or Hedgers positions.
SMALL SPECULATORS or PUBLIC: Individuals that trade small amounts of futures contracts and are not required to report their position size to the Commodity Futures Trading Commission (CFTC). These type of traders speculate in the price movements of a particular commodity or financial product and are looking to make a profit based on price movements in either direction. Historically, these type of traders are usually on the wrong side of the market trend and their positioning can be used as part of technical analysis by the Large Speculators or Hedge Funds.
OPEN INTEREST: (also known as open contracts) refers to the total number of outstanding futures contracts that have not been settled or offset. For each buyer of a futures contract there must be a seller. From the time the buyer or seller opens the contract until the buyer or seller closes it, that contract is considered ‘open’.
LONG HEDGE: A strategy that protects companies or entities from increasing prices by purchasing futures contracts as an attempt to reduce the risk of rising prices.
SHORT HEDGE: A strategy that protects companies or entities from decreasing prices by selling futures contracts as an attempt to reduce the risk of declining prices.
LONG-TERM TREND: trades that are expected to last over 3 months
SHORT-TERM TREND: trades that are expected to last less than 3 months