How would you like a simple currency trading tool, you can incorporate in your currency trading strategy which will alert you to every major top or bottom in a currency? Well if you do, you can use the CFTC Net Traders Positions which are free for all traders to use. In this article we will look at how to read the report and how to spot some great high odds trading set ups.

The report is realized weekly by the CFTC and covers the open interest in a variety of currency futures and it's free to use and you can sign up on the CFTC site to have the positions emailed to you, as soon as there realized on Friday of each week.

Lets look at how the report is complied and how to use it. The Commitments of Traders Report divides the positions held into three groups.

1. Commercials

   These are people have an exposure in the currency their dealing in and are using the futures market to hedge their position. 

2. Large Speculators

   Are a group that hold large reportable positions, this group comprises of are well capitalized individuals but is mostly large fund managers. 

3. Small Speculators

   This group includes everyone else that doesn't fit into the two categories above and the group is mostly speculators looking to make a profit. 

To use the report correctly, you need to look for extremes where the commercials are heavily net long or short and they are directly opposed by the speculators who have an opposite extreme position. The group that you want to follow are the commercials for example – if the commercials are heavily net long the Euro and the speculators hold the opposite position, a price break is likely in the commercials favour. If we examine the groups in more detail this will become clearer.

Commercials

They are using their positions in the futures markets NOT to speculate but to hedge their cash position. They are therefore trading without emotion and focusing on fair value and they know when prices have been pushed to far from fair value by greed or fear.

When emotional price spikes occur they will "fade" the move, selling into emotionally generated buying or buying into emotionally generated selling. Because they are hedgers, they will only change their positions when prices move significantly away from fair value

Large Speculators

This category is dominated by funds and are selling greed to investors and generally following trends This group tends to have a poor performance at major turning points being always caught long at major tops and short at major bottoms.

Small Speculators

Small speculators are an emotional group of traders again with a poor track record and are always caught heavily long at important market tops and short at market bottoms.

How to Use the Positions.

When you use the report in terms of determining where a currency might go you are only interested in extremes. Small moves in the commercial positions are not important as small moves are insignificant to them. When you see commercials buy and sell aggressively and speculators hold a heavily opposed position you have the set up for a price break in favour of the smart money commercials.

In conclusion

1. The commercials are disciplined, unemotional traders.

    

2. They know fair value of the currency they are trading in.

    

3. They are RIGHT at ALL major tops and bottoms and speculators both large and small are normally caught out as they are buying on greed or selling on fear.

    

The CFTC Net Traders report is essential reading for any currency trader, as you can use them to spot fair value and see if prices have been pushed to far in either direction and look for contrary trading opportunities.

Final Words

You should make them an essential element of your currency trading strategy and while they don't give you timing for your trading signals, they alert you to a possible big profit opportunity and you can look to then time your entry with other technical tools.

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