Just for the record, I don’t think that what you have written here is that accurate in what the COTs actually means and what commercial hedgers actually are. In fact I think a lot of people on babypips (not necessarily you) go on about COTs and commercials as if they are something that they are not.
Pfft Remember when it was trading at 1800 then down to 4-6 bucks then there was that brief moment of a straight shot up to 56 then slam back down to 5 faster than you can say lacucaracha
Could we please have your explanation on what the COTs are, and how that differs from what everybody else thinks.
Sorry but your comment is very vague.
People here seem to think that commercial traders are an entity who is trading in the fx market like a big stupid trader. What commercial hedgers are, are the people who have the ESSENTIAL role of taking physical delivery of the currency as you trade. So if you are shorting fiber (buying USD, selling euro), the commercials allow you to do so because they are taking euros from you and are giving you USD (there are steps in between such as the interbanks and your broker of course). But essentially as traders are going increasingly short on the euro, commercials are stockpiling actual euro currency (not a leveraged derived products, but actual currency you can buy clothes in).
They are not doing this because they are stupid, and have no idea what they are doing, but they are an essential part of the fx market. If commercials ceased to take long contracts on the euro, and traders continued to short, then they would have no-one to sell euros to, except other traders who don’t only hold leveraged cash positions, and the fx market would cease to exist. So when traders are short, commercials MUST be long otherwise the whole system would not work.
Commercials do not idly sit by with these physical euros. Unlike traders, they can actually use them, because they are physical. So they can use them to invest in the stock market, buy bonds, or loan out to companies or people on the street. So even though all these short traders are making money from the trade, commercials are also making money by loaning out. Commercials are the guys who are swindling banks on 7% loans, who then in turn swindle man on the street for 12% loans. So there can be slight differences because commercials can take money out of the fx cycle by putting it into non fx related business activities.
BTW, commercials are not people like Volkswagen, BMW etc. VW is a CUSTOMER of these commercials, they do not directly intervene in the fx market. The idea that VW are stockpiling euros is just ludicrous, do you actually think VW have been buying euros for the last 3 months?? For what purpose would that serve? They are not an investment company - they are interested in the price of car parts, steel, etc. The only people who could conceivably be stockpiling euros would be an international CUSTOMER of VW car parts who has primarily dollars and sees a bargain in euros.
Commercials can intervene in the market yes, because they are not about to make a loss on their physical cash. If they bought at 1.35, they are not going to stop out at 1.3 because they are physical, not leveraged, and can just stick the money in the central bank for interest if the worst comes to the worst (as indicated by this months ECB record high cash deposits). When the market turns for some reason, and trader shorts decide to close, or start going long, they are going to laugh at traders and want their 6-7% profits. So when traders start turning, then commercials are not going to be selling the euros back to traders at the same rate (ie if they bought at 1.35 they will offer at 1.37), and the market will switch up rapidly.
What I think most people here believe having spoken to people on chat and skype is that commercials are some highly stupid trader who is going long when everyone is short. Basically COTs can go on being record numbers as long as the traders are shorting. I have read here for the last few weeks that the price must turn because commercials are at record highs. Commercials are only going to start reducing their long positions (or stockpiles of physical cash) when traders start going long. And you will see that on your price chart, not COTs.
The alternative is that Volkswagen cars (a German company) is so popular that people are need euros to buy their cars, or so many people are going to Greece on holiday because the economy is improving that the millions of tourists need euros, or that people are beginning to borrow euros to start businesses in Europe, that commercials need more euros and start going long in the market. Of course, more car orders, more tourists, more loans means the economy is improving, so the fundamentals are causing a shift up in commercial orders which would cause a discrepancy in the COTs.
When people here talk about commercials I really think they are just making up what they saying from partially understood knowledge they have read from a blog or post and are just quoting what they have no idea about.
So in summary - COTS:
- Commercials are essential for fx trading because they take the other side of the traders trade allowing it to take place.
- Commercials use the cash for ‘real world’ demand from consumers
- Commercials long positions will always go up with traders going short
- When traders start going long, then commercials will start to close their long positions at a profit
- Alternatively, commercials can start going long in euro if euro economy improves as real world demand from consumers improves
So commercial long positions going up means either
- Traders are going more short OR/BOTH
- Real world demand for European products and economy is going up
So commercial long positions can go up and up until traders go long or economy improves, and the reading of COTs that most chatroom ‘experts’ give is a load of rubbish.
Now a lot of people are going to read this post and lie to themselves and say “oh but thats what I always thought what COTs was” but the reality is that most people who talk about COTs and commercials, as I gained the impression was that commercials were some dumb super trader who was snapping up a bargain in the euro for the last 3 months, trying to pick a bottom. Someone was saying that the price was going down because although most commercials were long, the biggest 5% of commercials were short and that’s why the price was going down, and no-one was questioning him.
If this post has enlightened your understanding about COTs, please ‘like’ this post. Hope you learned something and also makes you aware that not everyone on babypips actually understands what they are saying.
I usually find out that there was ‘blood on the street’ sitting on my butt, after having slipped on it, hehe.
O.
How can you even POST a post of that nature after a post of such high quality as that of goldenmember’s???
I too need to post a post here but thought I’d least congratulate him on that post and the information contained therein BEFORE I post my ‘junk’!!! LOL!!!
Anyway: nice post goldenmember. I’m 100% sure you’ve cleared up or made clear many things that a lot of (new and experienced) traders have been taking at face value and not really thinking about. COT reports mean nothing to me of course but I know (or have seen that APPARENTLY) many see them as ‘the keys to the kingdom’.
And by the way with that knowledge and understanding: you’ll have no problem being popular girls (sorry: I forget the exact title of your fantastic thread)!!! LOL!!!
Regards,
Dale.
And now for MY ‘junk’ Oliver1968!!! LOL!!! Only taking the ‘pi*s’ with you (as always) but goldenmember did do a stirling job of that post. Anything after that is a sort of ‘anti-climax’ really!!!
I never saw this last night while I was posting.
And the alternative is… It could go NOWHERE!!! LOL!!!
As of RIGHT NOW at my time of posting it’s trading at 1.2677/1.2681. How do I know??? Here’s a little ‘pressie’ that I normally give out from time to time (usually after it’s ended up in some ‘corpse thread’ somewhere):
Spot Exchange Rates| Major Rates | Cross Rates | Rate Charts | Oz Forex
Those are live Interbank Spot Rate (live as in 24/7 i.e. including weekends). All you have to do is click of the ‘Refresh’ button when you want to see if the rate has changed.
What’s REAL nice about that site (and there’s another in New Zealand) is that you can get VERY long term charts of just about any currency in the world vs. just about any other currency in the world. They’re simple charts but I’ve used them to demonstrate to those ‘talented few’ that say to not trade with stops and keep adding to a losing position because 'the trade will eventually come back to break even or better JUST how wrong they can be!!! LOL!!!
Anyway: at this stage it doesn’t look like there’s going to by ANY gap (maybe a pip or two)!!! So ‘that is that’ (for now).
I used to use that site when I was trading Spot FOREX to know whether I was GOING to be laughing or crying at the open!!! LOL!!!
The only thing I’ve noticed TODAY is that the chart data is not available for some reason (below the rate data). And they’ve changed the colours of their website which are REALLY just a ‘tad’ ‘hard on the eyes’. It’s also a good place to check rates if you ‘suspect’ your brokers rates (during the day).
So in all probability: the only gap I’m going to see is on the CAC40. Sorry ‘chasps’!!! LOL!!! But note: EVEN THAT is no ‘guarantee’ of a gap i.e. the FUTURES could gap an hour before the actual market opens but could trade right back down to their open so that when the market opens nothing happens. Just some useful (useless???) insights for Spot FOREX traders is all.
Regards,
Dale.
That has been posted in the ‘spirit of balance’: after a long, expert post, which teaches, post a short one for a chuckle. 
lol, to be honest: I read your post (the one I quoted), posted my oh-so-witty reply and only then saw goldenmember’s serious one.
O.
It’s ALL good my friend. It’s all good.
Regards,
Dale.
Yep … nice to have an inconsequential post between two serious ones … otherwise we’ll all get a headache. 
But … I can post seriously, too: check this out.
Cheers,
O.
P.S.: I think if BP ever creates an ‘award’ for steering threads in 25 directions they were never meant to go , you 'n I will fight for it.
No. VW doesn’t stockpile euros. They stockpile “dollars”.
They are a European country doing business in the US. Their forex trips are one way. You think they would swap out a few billion at 1.49? A 0.10 drop in the euro nets them an awful lot of cash that they didn’t need manpower, or inventory for.
Boeing, Caterpillar, Ford, etc. stockpile euros, and wait for the boat to lean to the other side. Think they would trade euros for dollars at 1.10? No, they’ll wait until 1.45. None of those guys really factor into the market moving equation via the COT, because their money isn’t really in the market until the market favors them.
They aren’t speculators, they are opportunists.
Well after all that I decided to make 1 trade just to see. I have no worries though as I only placed 1 of Oanda’s finest units. 1 ten thousandth of a dollar so not really a trade more of an experiment to see slippage and whatnot,
Interesting to note though is that I place the trade several hours ago, it is only 2.9 pips down.
(was 10 when I opened the trade) but Oanda have widened there usual 10 pip weekend spread to 20 pips, I wonder if they
know something I don’t…well yes I know they know more but in the figure of speech!!
Hence what D-pip said about the REASONS why commercial hedgers being record long on euro is wrong isn’t it? If anything they are stockpiling DOLLARS longs NOT EURO longs like you say - but guess what, commercial hedger DOLLAR SHORTS are at a high. Basically COMMERCIAL HEDGERS are NOT Boeing, Caterpillar, Ford which was implied and you are still implying.
23 pip profit so far! + oanda’s got 20 pip spread! looks like trading has started early today,
order was executed at market value this morning!
oops, spoke too soon! 10 pip profit now!..4 now!
12 now, it’s moving as I type!!!
Unrealised P&L 0
good old 1 unit!
14.3 now!
When did I give anyone the [B]“reason why”[/B] commercial hedgers are at a record long on eur?:o
I didn’t imply that Boeing, nor anyone else were commercial hedgers.
What I said was, their money was usually sidelined until the market favored them.
Don’t put words in my mouth that weren’t there.
And while we’re at it, I didn’t see where d-pip stated anything about WHY the market was long, only that the COT showed a segment of it was. And it was said that way to back up the statement about not just blindly expecting a huge market drop on open.
I haven’t come across anybody here that thinks this, in fact quite the opposite.
In all the discussions I have seen on this topic so far, people seem to have a pretty good grasp on it.
Maybe its a good thing I stay out of chat rooms …lol
I am not an expert in COT report but I think there is a misunderstanding about how to use it.
We have to remember that COT is about fx futures and no the Spot market, so the information is limited.
Commercial positioning in the COT report is not that relevant as they use the future market to hedge and most of the commercial exchange is actually done in the spot market, that is why they look like dumb traders in the futures market, that most of the time are in the losing side of the trade. But they are not there for profiting or speculation, they need to offset the risk of their operations. On the other hand Non-commercials ride the trends set by fundamentals, that is why they always seem to be right in their trades.
Meanwhile in the spot market, commercials (as Master Tang said) can keep their money at the sidelines until the market turns and favors their trades, if you check volume in the weekly chart you can see that the fall of E/U is due to the lack of interest in the pair, so you can infer that huge amount of money is at the sidelines.
The reason extreme points in COT reports are somehow reliable to pick a reversal is because when speculators are so heavily net short/long, then nobody is left in the other side of the trade, this means price can fall/climb fast and less or no traders will follow the trend at extreme points.
When prices are at extreme points any fundamental factor will have an extraordinary effect, so speculators will cover any positions quickly (remember they are trading for profits) and price will climb or fall pretty fast.
( Sorry for my english )
yunny1,
As always a good explanation thanks. I’m sorry I ever mentioned the freaking COT report, it has derailed the whole thread!
I wouldn’t go worrying TOO much about it. So far as I can tell the ‘slam dunk’ opening gap was around 47 pips. Hardly ‘life changing stuff’!!! LOL!!!
Put it this way: the information shared here is worth WAY more than 47 pips (unless of course you’re trading $1 000 pips and were ALREADY short on Friday night in which case I’d have to retract this statement)!!! LOL!!!
Regards,
Dale.