The first Commitments of Traders (“COT”) report was published back in 1962 and antecedents of the report can be traced all the way back to 1924. Since its inception, the COT report has gone through numerous changes and improvements over the years. The Commodity Futures Trading Commission (“CFTC”), an independent US agency created by congress in 1974 to regulate the US commodity futures and options markets, is responsible for maintaining the COT report.

The COT report provides a breakdown of the buying and selling that takes place in the futures markets each week. By combining certain price indicators with specific information contained in the COT report, one can create very powerful trading tools. For example, one can ascertain that certain large market participants likely have access to certain fundamental information before the information is made public. Thus, one might monitor the trading activities of these large participants to gain insight into the direction of the market. The COT data provides information that makes this possible. The insight obtained by combining COT data with price indicators can be far more reliable than any price indicator by itself (see Box on Trading Strategies).

Over the years the data in the COT report has become highly regarded and highly sought after as a trading tool used by traders and speculators all over the world. The CFTC has made numerous improvements and updates to the report over the years.

The changes made during the 2nd half of 2009 are the most significant improvements ever made to the report in my opinion. These changes were made in response to significant changes in market dynamics. ETF’s have become extremely popular during the last 10 years, and ten years prior to that they simply did not exist. In addition, OTC activity in derivates has exploded. Swaps are a big part of this and the recent changes in the COT report now include a category for tracking swap dealers. Furthermore, during the last 10 years we have seen pension and endowment funds moving into commodities, which did not occur to any significant degree during the prior ten years. Pension and endowment funds now control huge sums of money, much of which is passively managed index fund exposure. Some would say this is only the tip of the iceberg. There is a great deal more in sovereign funds for example.

The driving factor behind the flow of money into commodities may simply be out of control printing of fiat currencies throughout the world. Whatever the case may be, the upgraded COT report should prove very useful in the years ahead. The new swaps category will help track pension fund activity. The fact that the CFTC has pulled the swaps out of the traditional commercial category also enables followers of the COT report to track the activity of true hedgers in the same way that we have tracked them in the past.

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