Trading the Non-Farm Payroll (NFP) Report

Trading the Non-Farm Payroll (NFP) Report As a Source of Trading Opportunities

The non-farm payroll (NFP) report is meant to reveal the total number of paid workers in the U.S. not including farm and government employees. It is on the most important economic announcements in the United States. This report is usually released on the first Friday of every month.

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Trading the Non-Farm Payroll (NFP) Report

There is always a lot of anticipation leading up to the news announcement in the forex market. Many analysts, traders and investors alike try to predict the Non-Farm payroll number, along with the movement and direction it will cause in the markets. Generally, the day after the numbers are released, there are many trading opportunities to be had by all. This information is so important because jobs in the U.S. represent 80% of the total workforce.

With so many people watching this report and clarifying the results, even if he numbers are as expected, it can cause large swings with various interest rates. Learn how to trade the volatile NFP report.

Why is the Non-Farm Payroll Important for Traders?

Trading the NFP news releases can be very profitable, but it is not for the weak at heart. A news release such as the NFP is the spark for higher volatility. Generally, a volatile market is a source of trading opportunities and potentially bigger profits or losses.

The release of the NFP usually takes place on the first Friday of every month at 8:30 a.m. EST. This news release creates a potentially good environment for active traders because it means there is almost a guarantee that a tradable move will occur following the announcement.

Like always, when trading we do not know if we will make money on it or not. It’s a good idea to approach the trade from a logical viewpoint, based on how the market is reacting. This can provide traders with more consistent results than just guessing the direction that the event will cause.

The jobs figures released say a lot about the status of the economy, especially if the number is much higher or lower than originally expected. This scenario can have a big and impulsive impact on financial markets and the FX currency market. The large shifts in currency value mean an overall good opportunity to trade.

The NFP Report and Initial Strategy

The NFP report usually affects all major currency pairs; however, one of the favorites among traders is the GBP/USD. With the forex market being open 24 hours a day, all traders worldwide have the ability to trade the news event.

The logic and tip we can give you behind this strategy is to wait for the market to take in the information's implication. After the markets contributors have had time to reflect on what the number means they will enter a trade, and then they wait for a signal that the market may have chosen as a direction.

By waiting a little, this avoids getting in too early, and lowers the possibility of being wiped out of the market before it has chosen a direction.

Tips for Trading the NFP Report

The first tip for trading the NFP is to make sure you have a good understanding of the employment conditions in the United States. This will make a trader more confident and help understand the full impact of the report. Therefore, it is very important to stay updated on news related to the US employment scenario.

NFP news lasts short-term, the actual impact only lasts for a few hours. This means traders wanting to take advantage of the market movements, following the NFP release, must act within the first few hours.

Traders should approach the trade after the NFP in a logical way, and not simply guess the direction of the movement.

An important tip to remember is that the NFP report affects almost all major currency pairs. This means one can trade in any currency pair, whether the USD is a part of it or not, since most economies are impacted by the US economic situation.

A third tip is that traders need to wait for the market to digest the NFP report’s significance and think about the actual impact it would have on the country as a whole before entering a trade.

How does the NFP impact the USD?

There is a simple answer to this question. The better the employment numbers (more payrolls added), this is good for the USD; if there are worse numbers, bad for the USD.

Different Approaches from Traders

Trade NFP and understand the jobs data outlined. During the NFP release, things often get very volatile and hectic. There are usually two price reactions to any NFP release:

First, there will be an immediate volatility spike.

Second, the price alternates as more and more as traders digest the numbers and then the price will start moving into the real direction.

Important Final Tips for Trading

Do not trade the actual NFP numbers, trade people’s reactions to those numbers.

The NFP number is the most closely watched of the three reports, and it comes with 3 numbers to review: the number from previous month’s NFP, the forecast made by experts, and the actual numbers that are released to the public. With that said three things can occur which often determine investors’ reactions:

  1. The actual number is higher than the forecast - Dollar will likely rise
  2. The actual number is lower than the forecast - Dollar can likely fall
  3. The number is higher than forecasted and lower than previous - No direction to be taken, lots of volatility as investors do not know which way things will go

Major Currencies of the Non-Farm Payroll

The major currency pairs which are most traded during this event are the EUR/USD, GBP/USD, AUD/USD or USD/JPY which serve as favourites. The major currency pairs tent to move as traders buy or sell the USD depending on how well the US economy is reportedly doing.

With all this said on the Non-Farm Payroll, being prepared for the big day is important. Get your trading account ready with CM Trading today and benefit from all of our educational materials leading up to this event.


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