Why Should You Understand and Use COT

Being a trader in binary options, by now you must have heard about Commitment of Traders, or most commonly known as COT. The Commodity Futures Trading Commission publishes this report on every Tuesday and Friday evening for the investors. This report is extremely popular among new investors and provides a window into the future with regards to trends, snapshots of traders and speculations.

For novice investors this report contains all the information they require to develop an understanding of how the trading system works and what the big guns in the system have to say or do. The lines below give the major tenets of COT and its benefit.

Major Tenets:

COT primarily shows the traders different kinds of contracts of traders that are to take place in future. The position can be better understood and analyzed on the bases of the types of the traders. There are three types of traders that are mentioned in a COT.

Commercial Traders:

The first category of traders mentioned in COT are the institutions or businesses who utilize the future market as a means of hedging off the risk. These traders predict of the future, especially when the price is to fall in the short run, therefore, these should not be your focus in the report.

Non-Commercial Traders:

These traders are basically, institutions, businesses and large hedge funds the purpose of whom in commodity future trading is to gain profit and experience growth. These entities are not directly involved in any production or trade, therefore, what they bring to the report is something which should be highly looked after to and considered for future trading.

Non-Reporting Traders:

These are basically the traders that trade on a small scale and aren’t worthy enough of submitting their holdings to the CFTC. Therefore, if their little percentage finds any mention in the trade, it should be ignored.

The Left Column:

In the left column of the COT is the non-commercial traders. These traders are basically trying to better their position by competing with themselves regardless of the speculations of the other investors.

Positions:

There are long positions and short positions in the traders which you are considering. The long positioning means a bullish trend, which is a green signal to go on with the trade. The rise in long trends and the fall in short trends means that the trend is going upwards and thus, bullish trend.

Advantage Of COT -  The biggest advantage of COT is that it lets smaller traders know about what bigger traders are doing, hence it provides them a change to imitate or understand what the trend is doing and how it is progressing in the market. Thus, COT serves as a beacon that guides the smaller traders pertaining to understanding the big guns and the way they trade in the market.

Conclusion:

If you are new to binary options, then you must surely consider developing an understanding of COT, which will help you in developing a basic understanding of what the expert or leading traders do and possibly an insight to how they do it.