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Neutral
Based on the latest 13 weeks of non-commercial positioning data. ℹ️

2 YEAR ERIS SWAP (Non-Commercial)

13-Wk Max 114,314 59,653 8,649 1,880 54,676
13-Wk Min 101,597 53,219 -2,364 -1,844 47,063
13-Wk Avg 106,033 56,091 1,590 640 49,942
Report Date Long Short Change Long Change Short Net Position Rate of Change (ROC) ℹ️ Open Int.
May 31, 2022 114,314 59,653 95 110 54,661 -0.03% 161,471
May 24, 2022 114,219 59,543 8,649 1,880 54,676 14.13% 162,168
May 17, 2022 105,570 57,663 1,254 1,273 47,907 -0.04% 153,519
May 10, 2022 104,316 56,390 188 1,159 47,926 -1.99% 151,991
May 3, 2022 104,128 55,231 1,724 1,709 48,897 0.03% 151,343
April 26, 2022 102,404 53,522 -2,364 303 48,882 -5.17% 153,618
April 19, 2022 104,768 53,219 1,791 -1,844 51,549 7.59% 155,147
April 12, 2022 102,977 55,063 1,380 529 47,914 1.81% 152,380
April 5, 2022 101,597 54,534 0 0 47,063 0.00% 151,000

Net Position (13 Weeks) - Non-Commercial

Change in Long and Short Positions (13 Weeks) - Non-Commercial

COT Interpretation for 1-2-YEAR INTEREST RATE SWAPS

Comprehensive Guide to COT Reports for Financial Instruments

Table of Contents

Introduction

The Commitment of Traders (COT) reports for financial instruments provide critical insights into positioning across currency, interest rate, and equity index futures markets. These markets differ significantly from commodity markets in terms of participant behavior, market drivers, and interpretation methodology.

Financial futures markets are characterized by institutional dominance, central bank influence, global economic sensitivity, and high levels of leverage. Understanding how different market participants position themselves in these markets can provide valuable information for both traders and investors seeking to anticipate potential market movements.

This guide focuses specifically on analyzing and applying COT data to financial futures markets, with specialized approaches for currencies, interest rates, and equity indices.

The Traders in Financial Futures (TFF) Report

The Traders in Financial Futures (TFF) report is a specialized COT report format introduced by the CFTC in 2009 specifically for financial markets. This report provides more detailed categorization of traders than the Legacy COT report, making it particularly valuable for financial futures analysis.

Key Features of the TFF Report

Enhanced Trader Categories:

  • Dealer/Intermediary: Typically large banks and broker-dealers
  • Asset Manager/Institutional: Pension funds, insurance companies, mutual funds
  • Leveraged Funds: Hedge funds and other speculative money managers
  • Other Reportables: Other traders with reportable positions
  • Non-Reportable Positions: Smaller traders below reporting thresholds

Advantages Over Legacy Report:

  • Separates true hedging activity from speculative positioning
  • Distinguishes between different types of institutional investors
  • Provides clearer signals about smart money vs. speculative money flows
  • Better reflects the actual market structure of financial futures

Coverage:

  • Currency futures and options
  • Interest rate futures and options
  • Stock index futures and options
  • U.S. Treasury futures and options

Financial Markets Covered

Currency Futures

  • Euro FX (CME)
  • Japanese Yen (CME)
  • British Pound (CME)
  • Swiss Franc (CME)
  • Canadian Dollar (CME)
  • Australian Dollar (CME)
  • Mexican Peso (CME)
  • New Zealand Dollar (CME)
  • Russian Ruble (CME)
  • Brazilian Real (CME)

Interest Rate Futures

  • Eurodollar (CME)
  • 30-Year U.S. Treasury Bonds (CBOT)
  • 10-Year U.S. Treasury Notes (CBOT)
  • 5-Year U.S. Treasury Notes (CBOT)
  • 2-Year U.S. Treasury Notes (CBOT)
  • Federal Funds (CBOT)
  • Euribor (ICE)
  • Short Sterling (ICE)

Stock Index Futures

  • S&P 500 E-mini (CME)
  • Nasdaq-100 E-mini (CME)
  • Dow Jones E-mini (CBOT)
  • Russell 2000 E-mini (CME)
  • Nikkei 225 (CME)
  • FTSE 100 (ICE)

Unique Characteristics of Financial COT Data

  1. Central Bank Influence

    Central bank policy decisions have outsized impact on financial futures

    Positioning often reflects anticipation of monetary policy shifts

    Large position changes may precede or follow central bank announcements

  2. Global Macro Sensitivity

    Financial futures positioning responds quickly to global economic developments

    Geopolitical events cause rapid position adjustments

    Economic data releases drive significant repositioning

  3. Intermarket Relationships

    Currency futures positions often correlate with interest rate futures

    Stock index futures positioning may reflect risk appetite across markets

    Cross-market analysis provides more comprehensive signals

  4. Leverage Considerations

    Financial futures markets typically involve higher leverage than commodities

    Position sizes can change rapidly in response to market conditions

    Margin requirements influence positioning decisions

  5. Institutional Dominance

    Financial futures markets have higher institutional participation

    Retail trader influence is typically lower than in commodity markets

    Professional trading desks manage significant portions of open interest

Understanding Trader Categories in Financial Markets

Dealer/Intermediary

Who they are: Major banks, broker-dealers, FCMs

Trading behavior:

  • Often take the opposite side of client transactions
  • May hold positions as part of market-making activities
  • Frequently use futures for hedging swap books and other OTC products

Interpretation keys:

  • Position changes may reflect client order flow rather than directional views
  • Extreme positions can indicate market imbalances
  • Often positioned against prevailing market sentiment

Asset Manager/Institutional

Who they are: Pension funds, insurance companies, mutual funds, endowments

Trading behavior:

  • Typically use futures for portfolio hedging or asset allocation
  • Often hold longer-term positions
  • Position changes may reflect broader investment flows

Interpretation keys:

  • Significant position changes can signal shifts in institutional outlook
  • Often represent "smart money" longer-term positioning
  • Less reactive to short-term market moves than other categories

Leveraged Funds

Who they are: Hedge funds, CTAs, proprietary trading firms

Trading behavior:

  • Primarily speculative positioning
  • Typically more active, with higher turnover
  • Often employ trend-following or technical strategies

Interpretation keys:

  • Extreme positions frequently signal potential market turning points
  • Rapid position changes may precede significant price movements
  • Often positioned with the prevailing trend

Interpreting Financial COT Data

1. Net Positioning Analysis

  • Net Long/Short Calculation: (Long Positions - Short Positions)
  • Percentile Ranking: Compare current positioning to historical range
  • Standard Deviation Measures: Identify statistical extremes in positioning

2. Position Change Analysis

  • Week-over-Week Changes: Identify rapid shifts in sentiment
  • Rate of Change: Measure acceleration or deceleration in position building
  • Rolling Averages: Compare current positioning to medium-term trends

3. Category Comparison Analysis

  • Dealer vs. Leverage Funds: Often positioned opposite each other
  • Asset Manager vs. Leveraged Funds: Can reveal institutional vs. speculative divergence
  • Category Ratio Analysis: Compare relative positioning between categories

4. Concentration Analysis

  • Concentration Ratios: Percentage of open interest held by largest traders
  • Dispersion Metrics: How widely positions are distributed among participants
  • Concentration Trends: Changes in market concentration over time

Currency Futures: COT Analysis Strategies

  1. Central Bank Divergence Strategy

    Setup: Identify diverging monetary policy expectations between currency pairs

    COT Signal: Leveraged funds increasing positions in the direction of policy divergence

    Confirmation: Asset managers beginning to align with the same directional bias

    Markets: Most effective in major currency pairs (EUR/USD, USD/JPY, GBP/USD)

  2. Extreme Positioning Reversal

    Setup: Identify historically extreme net positioning by leveraged funds

    COT Signal: When leveraged fund positioning reaches 90th+ percentile extremes

    Confirmation: Dealers positioning in the opposite direction

    Markets: Particularly effective in trending currency markets approaching exhaustion

  3. Dealer Positioning Strategy

    Setup: Monitor dealer positioning changes across currency markets

    COT Signal: Significant changes in dealer net positioning against prevailing trend

    Confirmation: Price action showing signs of reversal

    Markets: Works across most major and minor currency pairs

  4. Cross-Currency Analysis

    Setup: Compare positioning across related currency pairs

    COT Signal: Divergences in positioning between correlated currencies

    Confirmation: Fundamentals supporting the divergence

    Markets: Currency pairs with common risk factors or regional relationships

Interest Rate Futures: COT Analysis Strategies

  1. Yield Curve Positioning Strategy

    Setup: Analyze positioning across different maturity Treasuries

    COT Signal: Divergent positioning between short-term and long-term instruments

    Confirmation: Economic data supporting yield curve steepening/flattening

    Markets: Treasury futures across different maturities (2Y, 5Y, 10Y, 30Y)

  2. Fed Policy Anticipation Strategy

    Setup: Monitor asset manager positioning ahead of FOMC meetings

    COT Signal: Significant shifts in asset manager positioning in rate-sensitive futures

    Confirmation: Fed funds futures pricing aligning with the positioning shift

    Markets: Particularly effective in Eurodollar and short-term Treasury futures

  3. Inflation Expectation Strategy

    Setup: Track leveraged fund positioning in longer-dated Treasuries

    COT Signal: Major shifts in positioning following inflation data releases

    Confirmation: TIPS (Treasury Inflation-Protected Securities) market movements

    Markets: Most effective in 10Y and 30Y Treasury futures

  4. Risk Sentiment Analysis

    Setup: Compare positioning in safe-haven Treasuries vs. risk assets

    COT Signal: Divergences between bond positioning and stock index positioning

    Confirmation: Credit spread movements aligning with the positioning shifts

    Markets: Treasury futures and equity index futures compared

Stock Index Futures: COT Analysis Strategies

  1. Smart Money Divergence Strategy

    Setup: Compare asset manager positioning with leveraged fund positioning

    COT Signal: Asset managers and leveraged funds moving in opposite directions

    Confirmation: Market internals showing signs of potential reversal

    Markets: Particularly effective in S&P 500 and Nasdaq futures

  2. Sector Rotation Strategy

    Setup: Analyze positioning differences between various index futures

    COT Signal: Divergences between small cap (Russell 2000) and large cap (S&P 500) positioning

    Confirmation: Sector ETF flows aligning with the positioning shifts

    Markets: Works across various index futures (S&P 500, Nasdaq, Russell, Dow)

  3. Institutional Hedging Strategy

    Setup: Monitor asset manager short positioning in equity index futures

    COT Signal: Significant increases in short hedging during market rallies

    Confirmation: Put/call ratios or VIX movements supporting hedging activity

    Markets: Most liquid index futures (particularly S&P 500 E-mini)

  4. Equity Market Sentiment Strategy

    Setup: Track leveraged fund net positioning as a sentiment indicator

    COT Signal: Extreme net long or short positions relative to historical norms

    Confirmation: Traditional sentiment indicators aligning with positioning extremes

    Markets: Works across all major equity index futures

Intermarket Analysis Using Financial COT Data

  1. Currency-Interest Rate Correlation

    Analysis: Compare positioning in currency futures with related interest rate futures

    Signal Interpretation: Divergences between related markets may signal trading opportunities

    Example: EUR futures positioning vs. Eurodollar futures positioning

  2. Risk-On/Risk-Off Flows

    Analysis: Analyze positioning across equity indices, Treasuries, and safe-haven currencies

    Signal Interpretation: Coordinated movements across asset classes signal significant macro shifts

    Example: S&P 500 futures vs. Japanese Yen futures vs. 10-Year Treasury futures

  3. Commodity Currency Analysis

    Analysis: Compare positioning in commodity currencies with related commodity futures

    Signal Interpretation: Divergences may signal upcoming realignment

    Example: Australian Dollar futures vs. gold futures positioning

  4. Cross-Asset Volatility Signals

    Analysis: Monitor positioning changes during periods of heightened volatility

    Signal Interpretation: Identify which trader categories add/reduce risk in volatile periods

    Example: VIX futures positioning vs. S&P 500 futures positioning

Combining COT Data with Macroeconomic Indicators

Economic Data Releases

  • Compare COT positioning changes before and after major economic reports
  • Identify which trader categories respond most strongly to specific data points
  • Economic indicators to monitor:
    • Employment reports (Non-Farm Payrolls)
    • Inflation data (CPI, PCE)
    • GDP reports
    • Manufacturing and services PMIs
    • Retail sales

Central Bank Policy

  • Analyze positioning shifts around central bank meetings
  • Identify anticipatory positioning ahead of policy decisions
  • Monitor position adjustments following policy surprises
  • Key central bank events to track:
    • Federal Reserve FOMC meetings
    • European Central Bank policy announcements
    • Bank of Japan interventions
    • Bank of England decisions

Global Risk Events

  • Track positioning changes during geopolitical crises
  • Identify safe-haven flows across asset classes
  • Monitor unwinding of positions as risk events resolve

Market Liquidity Conditions

  • Analyze positioning shifts during periods of changing liquidity
  • Monitor quarter-end and year-end position adjustments
  • Track positioning during funding stress periods

Case Studies: Major Financial Futures Markets

Euro FX Futures

Typical Positioning Patterns:

  • Leveraged funds often drive trend-following moves
  • Asset managers typically position around long-term economic fundamentals
  • Dealers frequently positioned against extreme speculative sentiment

Key COT Signals:

  • Extreme leveraged fund positioning often precedes significant reversals
  • Asset manager position changes can signal longer-term trend shifts
  • Dealer positioning often provides contrarian signals at market extremes

10-Year Treasury Note Futures

Typical Positioning Patterns:

  • Asset managers use for portfolio hedging and duration management
  • Leveraged funds react to economic data and Fed policy expectations
  • Dealers often serve as liquidity providers across various yield curve points

Key COT Signals:

  • Asset manager positioning shifts often precede significant yield movements
  • Leveraged fund positioning extremes frequently signal potential turning points
  • Dealer positioning changes can indicate institutional order flow shifts

S&P 500 E-mini Futures

Typical Positioning Patterns:

  • Asset managers use for hedging equity exposure and risk management
  • Leveraged funds engage in directional speculation and volatility strategies
  • Dealers often manage complex option-related exposures

Key COT Signals:

  • Asset manager short positioning often increases during strong rallies (hedging)
  • Leveraged fund positioning extremes typically signal potential reversals
  • Dealer positioning often reflects institutional client flows and market-making needs

Advanced Strategies for Financial Markets

  1. Multi-Timeframe COT Analysis

    Implementation:

    • Analyze weekly position changes for short-term signals
    • Track 4-week position trends for medium-term bias
    • Monitor 13-week position changes for longer-term signals

    Benefits:

    • Reduces noise from single-week fluctuations
    • Provides context for short-term moves
    • Identifies persistent institutional positioning trends
  2. COT Momentum Strategy

    Implementation:

    • Calculate rate of change in positioning for each trader category
    • Identify acceleration or deceleration in position building
    • Enter positions when rate of change reaches extremes

    Benefits:

    • Captures early stages of position building
    • Identifies exhaustion in existing trends
    • Works across multiple financial futures markets
  3. COT Divergence Strategy

    Implementation:

    • Identify divergences between price action and positioning
    • Look for situations where prices make new highs/lows but positions don't confirm
    • Enter counter-trend positions when divergences appear at extremes

    Benefits:

    • Catches major turning points in financial markets
    • Provides higher probability entry points
    • Often precedes significant market reversals
  4. COT Spread Strategy

    Implementation:

    • Analyze relative positioning between related markets
    • Identify unusual divergences in correlated instruments
    • Establish spread positions when divergences reach extremes

    Benefits:

    • Reduces directional market risk
    • Capitalizes on relative value opportunities
    • Often offers better risk-adjusted returns than outright positions

Common Pitfalls in Financial COT Analysis

  1. Ignoring Market Context

    Pitfall: Interpreting COT data in isolation without considering market environment

    Solution: Always evaluate positioning within broader market context

    Example: Leveraged fund short positions during a bull market correction vs. during a bear market

  2. Misinterpreting Hedging Activity

    Pitfall: Confusing hedging-related positioning with directional views

    Solution: Understand the typical hedging patterns in each market

    Example: Asset manager short positions in S&P futures often increase during rallies due to portfolio hedging

  3. Overlooking Contract Roll Impacts

    Pitfall: Misinterpreting position changes during contract roll periods

    Solution: Be aware of standard roll schedules for major contracts

    Example: Apparent position shifts during quarterly IMM dates in currency and interest rate futures

  4. Overemphasizing Single Data Points

    Pitfall: Making decisions based on a single week's position changes

    Solution: Focus on multi-week trends and significant position extremes

    Example: Temporary positioning adjustments vs. sustained directional shifts

  5. Neglecting Regulatory Changes

    Pitfall: Failing to account for changes in reporting requirements or regulations

    Solution: Stay informed about CFTC reporting methodology changes

    Example: Impact of Dodd-Frank rules on swap dealer classifications and reporting

Educational Resources

  • "Sentiment in the Forex Market" by Jamie Saettele
  • "Trading the Fixed Income, Inflation and Credit Markets" by Neil Schofield
  • "Inside the Currency Market" by Brian Twomey

Institutional Research

  • Bank Research Reports: Often include COT data analysis in market commentary
  • Investment Bank Strategy Notes: Frequently reference COT positioning in market outlooks
  • Hedge Fund Research: Sometimes available through prime brokerage relationships

© 2025 - This guide is for educational purposes only and does not constitute financial advice. Financial futures markets involve significant risk, and positions should be managed according to individual risk tolerance and objectives.

Market Neutral
Based on the latest 13 weeks of non-commercial positioning data.
📊 COT Sentiment Analysis Guide

This guide helps traders understand how to interpret Commitments of Traders (COT) reports to generate potential Buy, Sell, or Neutral signals using market positioning data.

🧠 How It Works
  • Recent Trend Detection: Tracks net position and rate of change (ROC) over the last 13 weeks.
  • Overbought/Oversold Check: Compares current net positions to a 1-year range using percentiles.
  • Strength Confirmation: Validates if long or short positions are dominant enough for a signal.
✅ Signal Criteria
Condition Signal
Net ↑ for 13+ weeks AND ROC ↑ for 13+ weeks AND strong long dominance Buy
Net ↓ for 13+ weeks AND ROC ↓ for 13+ weeks AND strong short dominance Sell
Net in top 20% of 1-year range AND net uptrend ≥ 3 Neutral (Overbought)
Net in bottom 20% of 1-year range AND net downtrend ≥ 3 Neutral (Oversold)
None of the above conditions met Neutral
🧭 Trader Tips
  • Trend traders: Follow Buy/Sell signals when all trend and strength conditions align.
  • Contrarian traders: Use Neutral (Overbought/Oversold) flags to anticipate reversals.
  • Swing traders: Use sentiment as a filter to increase trade confidence.
Example:
Net positions rising, strong long dominance, in top 20% of historical range.
Result: Neutral (Overbought) — uptrend may be too crowded.
  • COT data is delayed (released on Friday, based on Tuesday's positions) - it's not real-time.
  • Combine with price action, FVG, liquidity, or technical indicators for best results.
  • Use percentile filters to avoid buying at extreme highs or selling at extreme lows.

Okay, let's craft a comprehensive trading strategy for 2-Year ERIS Swaps, tailored for retail traders and market investors, leveraging the Commitments of Traders (COT) report.

I. Understanding the Landscape

  • What are 2-Year ERIS Swaps? These are interest rate swaps where one party agrees to pay a fixed interest rate, and the other pays a floating rate (usually linked to LIBOR or SOFR, depending on the specific contract) on a notional principal of $100,000 USD. The swap has a tenor of two years. ERIS (Enhanced Rate Interest Swap) aims to replicate the economics of trading OTC (Over-the-Counter) swaps in a listed, cleared environment, reducing counterparty risk.

  • Why Trade Them?

    • Interest Rate Hedging: Businesses and investors can use these swaps to hedge against changes in interest rates. For example, a company with floating-rate debt can swap into a fixed rate to lock in borrowing costs.
    • Speculation: Traders can profit from their views on the future direction of interest rates. If they expect rates to rise, they might buy (go long) the swap, hoping the fixed rate side of the swap will become more valuable.
    • Arbitrage: Opportunities may arise to profit from temporary price discrepancies between the ERIS swap and other related interest rate instruments (e.g., Eurodollar futures, Treasury notes).

  • The Importance of the COT Report: The COT report, released weekly by the CFTC (Commodity Futures Trading Commission), provides a breakdown of the positions held by different types of traders in the futures and options markets. It categorizes traders into:

    • Commercials (Hedgers): Entities who use futures markets primarily for hedging purposes related to their underlying business activities (e.g., banks hedging interest rate risk).
    • Non-Commercials (Large Speculators): Large entities, such as hedge funds and other institutional investors, who primarily trade for speculative profit.
    • Non-Reportable Positions (Small Speculators): Small retail traders whose positions are below the reporting threshold.

II. Trading Strategy Based on the COT Report

This strategy uses the COT report as a directional bias and confirmation tool. It is NOT a standalone system. You'll need to combine it with other forms of technical and fundamental analysis.

A. Data Acquisition and Preparation

  1. Obtain the COT Report: Download the Legacy Futures Only report from the CFTC website. Specifically, look for the data related to "2 YEAR ERIS SWAP - CHICAGO BOARD OF TRADE."
  2. Track the Data: Create a spreadsheet or use a charting platform that allows you to track the following COT data over time:
    • Net positions of Commercials (Hedgers)
    • Net positions of Non-Commercials (Large Speculators)
    • Total Open Interest

B. Interpretation of COT Data & Trading Signals

  1. The Relationship Between Commercials and Non-Commercials: This is the core of the strategy.

    • Commercials (Hedgers): They are considered "informed" traders. They are often on the right side of the market in the long run because they have intimate knowledge of the underlying interest rate environment. They use swaps for business purposes and might be willing to accept near-term losses if it aligns with their long-term hedging objectives.
    • Non-Commercials (Large Speculators): They are trend-following traders. They tend to be right in the intermediate term, but can often be caught on the wrong side of the market at turning points.

  2. Key COT Signals:

    • Extreme Readings: Look for extreme net positions in either Commercials or Non-Commercials. For example:

      • Extreme Net Short Positions by Commercials: This could indicate that interest rates are approaching a top. Commercials are hedging against rates falling by selling the swap (shorting). A possible signal to consider a short position (selling the 2-year ERIS swap).
      • Extreme Net Long Positions by Commercials: This could indicate that interest rates are approaching a bottom. Commercials are hedging against rates rising by buying the swap (going long). A possible signal to consider a long position (buying the 2-year ERIS swap).
      • Important Note: "Extreme" is relative. Look at the historical range of COT data to determine what constitutes an extreme level for this specific market.

    • Divergences: Look for instances where price action diverges from the COT data.

      • Price Rises, Non-Commercials Decrease Longs (or Increase Shorts): This could be a bearish signal, suggesting the rally is losing momentum.
      • Price Falls, Non-Commercials Decrease Shorts (or Increase Longs): This could be a bullish signal, suggesting the decline is losing momentum.

    • Changes in Open Interest: Rising open interest generally confirms the trend, while falling open interest may indicate a weakening trend.

      • Rising Open Interest + Increasing Non-Commercial Longs: Bullish confirmation.
      • Rising Open Interest + Increasing Non-Commercial Shorts: Bearish confirmation.
      • Falling Open Interest + Decreasing Non-Commercial Longs: Potential bearish reversal.
      • Falling Open Interest + Decreasing Non-Commercial Shorts: Potential bullish reversal.

C. Putting It All Together: The Trading Strategy

  1. Determine the Market's Current State: Analyze recent price action in the 2-Year ERIS Swap. Identify the current trend (uptrend, downtrend, sideways).

  2. Analyze the COT Report: Look for extreme readings, divergences, and changes in open interest as described above.

  3. Combine with Technical Analysis:

    • Support and Resistance Levels: Identify key support and resistance levels on a price chart. These can be used as potential entry and exit points.
    • Chart Patterns: Look for chart patterns (e.g., head and shoulders, double tops/bottoms, triangles) that confirm or contradict the COT signals.
    • Moving Averages: Use moving averages to identify the trend and potential areas of support/resistance.
    • Momentum Indicators (RSI, MACD): Use these to gauge the strength of the trend and identify potential overbought/oversold conditions.

  4. Combine with Fundamental Analysis:

    • Federal Reserve (The Fed) Policy: The Fed's monetary policy decisions have a significant impact on interest rates. Stay informed about Fed meetings, speeches, and economic forecasts.
    • Economic Data: Key economic data releases (e.g., inflation, GDP, employment) can also influence interest rates.
    • Geopolitical Events: Major geopolitical events can create uncertainty and volatility in financial markets, including interest rate markets.

  5. Entry and Exit Points:

    • Entry: Enter a trade when the COT signal is confirmed by technical and/or fundamental analysis. For example, if the COT report shows extreme net long positions by Commercials, and the price is bouncing off a key support level, and the Fed is expected to maintain accommodative monetary policy, you might consider a long position.
    • Exit:
      • Profit Targets: Set profit targets based on technical analysis (e.g., resistance levels) or a multiple of your initial risk.
      • Stop-Loss Orders: Place stop-loss orders below key support levels or at a predetermined risk tolerance level to limit potential losses. Consider using trailing stop-loss orders to lock in profits as the trade moves in your favor.
      • COT Signals Reversal: If the COT report starts to show a reversal in the positions of Commercials and Non-Commercials, consider exiting the trade.

  6. Risk Management:

    • Position Sizing: Never risk more than a small percentage of your trading capital on any single trade (e.g., 1-2%).
    • Diversification: Don't put all your eggs in one basket. Diversify your trading across different markets and asset classes.
    • Leverage: Use leverage cautiously. While leverage can magnify profits, it can also magnify losses. ERIS swaps, traded on margin, inherently involve leverage.
    • Emotional Control: Stick to your trading plan and avoid making impulsive decisions based on fear or greed.

III. Example Scenario

  • Scenario: The U.S. economy is showing signs of slowing down. Inflation is under control. The Federal Reserve is expected to pause or even cut interest rates.

  • COT Report: Commercials have been steadily increasing their net long positions in 2-Year ERIS Swaps, reaching an extreme level relative to the past year. Non-Commercials are net short.

  • Technical Analysis: The price of the 2-Year ERIS Swap has been consolidating near a support level. Momentum indicators are showing signs of positive divergence.

  • Trading Decision: Based on the COT report, technical analysis, and fundamental outlook, you decide to take a long position in the 2-Year ERIS Swap. You place a stop-loss order below the support level and set a profit target based on the next resistance level.

IV. Important Considerations and Cautions

  • Lagging Indicator: The COT report is a lagging indicator. It reflects positions held as of Tuesday of the report week, and the report is released on Friday. The market may have already moved significantly by the time the report is released.
  • Correlation, Not Causation: The COT report shows correlations between trader positions and price movements, but it doesn't prove causation. Other factors may be influencing the market.
  • Market Complexity: Interest rate markets are complex and influenced by a wide range of factors. The COT report is just one piece of the puzzle.
  • Data Revisions: The CFTC can revise COT data. Be sure to use the most up-to-date information.
  • Brokerage and Exchange Fees: Factor in brokerage commissions, exchange fees, and margin requirements when calculating potential profits and losses.
  • Volatility: Interest rate markets can be volatile, especially around major economic data releases and central bank announcements. Be prepared for price swings.
  • Market Liquidity: While ERIS swaps are designed to be more liquid than OTC swaps, liquidity can still vary depending on market conditions.
  • Continuous Learning: The market is constantly evolving. Stay informed, continue to learn, and adapt your trading strategy as needed.
  • Backtesting: Before using any trading strategy with real money, thoroughly backtest it on historical data to assess its performance.

V. Tools and Resources

  • CFTC Website: www.cftc.gov
  • Brokerage Platforms: Many online brokerage platforms offer access to futures and options trading, as well as charting and analysis tools.
  • Financial News Websites: Stay informed about economic news and market developments. Examples include Bloomberg, Reuters, and the Wall Street Journal.
  • Trading Forums and Communities: Connect with other traders and share ideas. (But be cautious and always do your own research.)
  • Educational Resources: Take advantage of online courses, books, and articles to expand your knowledge of interest rate markets and trading strategies.

In Summary

This trading strategy combines the directional bias provided by the COT report with technical and fundamental analysis to generate potential trading signals for 2-Year ERIS Swaps. Remember that the COT report is just one tool in your arsenal. Combine it with other forms of analysis, practice sound risk management, and continuously learn and adapt to the market. This strategy, like any other, does not guarantee profits and may result in losses.