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Commitments of Traders – An Explanation

The Commitments of Traders charts illustrate the directions in which three different categories of investors believe a given commodity is headed. These three categories (Commercials, Large Speculators and Small Speculators) are based on the following definitions:

Commercials (aka hedgers) are people or companies that deal with actual commodities as part of doing business. They trade in those futures as a hedge against the risks they run in the course of that business. Commercials are exempt from position limits and post smaller margins than speculators.

Large Speculators are traders whose trading levels are high enough that they require reporting to the CFTC (Commodity Futures Trading Commission). These trading levels vary from one commodity to another, and often from one year to another.

Small Speculators are the traders remaining after the Commercials and Large Speculators have been subtracted from the total open interests.

These three divisions are not quite so well-defined in reality as shown above. Successful small traders become large traders while unsuccessful large traders become small traders, and commercial ‘hedgers’ often trade on speculation.

Though there are no hard and fast rules about the success of each of these divisions, it is generally assumed that the Commercials are the most successful. The large speculators used to be successful as well but in recent years have done poorly as a group. The small investors are often looked at as the example of what not to do in futures trading.

The motivating factor of a given group should also be taken into account. It should be remembered that the commercials are often short because they are hedging while the small investors are often long due to unflagging optimism.

The actual values are less important than the current trend. Are commercial traders reducing their position or increasing it? Also compare to past years to get an idea of typical holdings particularly for the commercials.

  Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

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