NFP is the non-farm payroll report which a vital economic indicator for the United States of America. Its purpose is to a give total of paid employees in the United States. These numbers do not include government employees, farm workers, those who work for nonprofits nor private household employees.
The NFP plays a pretty important role in forex trading and is an indicator of the movement of the US dollar. How it works is that if the NFP report is better than sector forecasts then the US dollar will rise but if the NFP is worse than market predictions then the US dollar will fall.
Here are a few things to remember when trading using the NFP report.
- Believe the insanity that ensues right after the report is given. Often times there are other things at play that can affect the results so it’s best to wait and see before acting. When the NFP report is just released the market is very volatile as people are reacting to the news. This isn’t always a good indicator of how the market will go so it’s best to wait a few hours before making your move.
- Put all of your eggs in one basket. NFP trading, like any other form of forex trading, carries with it, its own risks and so a good rule of thumb is not to put all of your eggs in one basket. This is a great way to mitigate risk.
- Trade before the release of the NFP report. The momentum during this period is typically low and it increases the chances of you being whipsawed.
- Trade when the numbers are moving in the same direction. This gives you a bit more certainty when making decisions which is something all traders could make use of. Do your best to avoid trading mixed NFP numbers as they add risk and could result in a loss.
- When trading, it’s wise to know the market/sector which you’re trading in. The same goes for the NFP report. Take time to learn about the US job market, the market’s perspective on the dollar and more. Gaining an understanding of the sector and what will affect the NFP report and the dollar, will give you increased insight and more confidence and making trades.
NFP trading is not for amateurs but when done right, it can be quite profitable. We hope these tips help increase your chances for success.