Getting the edge with open positions data

Since it is market participants who ultimately drive forex prices through the act of buying and selling various currencies, it’s fair to say that knowing who is buying what and how much would be extremely useful information in predicting future price moves.

Well, the good news is, that using a couple of different reports, it is possible to do just that and FXTM provides  a free economic calendar to help you to keep up to date!

Commitment of Traders Report

The COT report is published by the Commodity Futures Trading Commission (CFTC) every Friday at around 2.30pm EST. Although it measures futures and not spot positions it is still the best available source for gauging what market participants are doing.

The data itself is split between three groups; Commercial traders, non-commercial traders and retail traders. Generally the commercial traders are the big corporations and banks that use the markets to hedge their exposure, while the non-commercial traders are the large speculators and traders.

Identifying extremes

The best way to use this data then is to look for the market extremes as it is at these times that the market is most likely to hit a top or bottom.

Generally, as most traders move to one side of the trade it is a clear signal that the market is reaching a climax. If everyone is long, for example, then there is no one left to buy, so the market in theory will start to fall back. Conversely, if nearly everyone is short, then there is no left to sell.

By looking for these moments it is possible to find times when the market will spring back, like an elastic band and when combined with other fundamental factors, a useful strategy can be developed.

Commercial and non-commercial traders

Another thing to look out for is the fact that commercial and non-commercial traders will often diverge as a market peak or trough is reached. Since commercial traders are mainly looking to hedge, they tend to buy more as the market hits bottom and sell as the market reaches a top. Conversely, non-commercial traders like to follow the trends, so tend to be more bearish at market bottoms and bullish at market tops.

In other words, if you see a market extreme whereby a large proportion of traders are positioned on side of the trade and this is accompanied with divergence between the commercial and non-commercail traders, it is a strong sign that a market extreme will be near.

Oanda data

Like the COT report, there are other places where traders can find data on open positions  such as from large forex broker Oanda. The company releases  details of the net long and short positions for most of its customers and lists them via its website. Although it is relatively untested, this data could be another way to gauge market sentiment. Oanda also shows data on much shorter timeframes than the COT report and it is generally shown that whenever a market is over 75% net long or net short, a reversal is usually near.