The world of trading is in perpetual growth, with the number of traders following this rise. Thanks to the internet. It opens doors to a universe restricted a few years ago to a category of elites.
That said, to be a good trader, it is essential to consider specific indicators, particularly the Non-Farm Payroll or NFP, which has significant importance. Indeed, the NFP is considered an indicator of economic growth and is the most closely watched on the stock market. It is one of the most important economic indicators around the world, with also quite significant repercussions.
It is a market mover that makes the market very volatile and significantly influences the price of Forex and other financial markets. It establishes good strategies for money-making and suitable NFP trading while remaining cautious to avoid unpleasant surprises. Given its importance, it becomes imperative for all traders and investors to pay close attention to it.
What is the Non-Farm Payroll or NFP?
It is essential to know that the NFP or Non-Farm Payroll is one of the most expected and critical economic indicators worldwide. It reflects the level of activity and the health of the U.S. economy. Be it on the stock markets and bond and currency markets.
That said, the NFP report contains the number of jobs created in the US in the non-farm sector in the previous month because this activity is seasonal, which is why it is excluded. Also, other activities are not included in the data, such as:
- Jobs in the agricultural sector,
- Jobs in the private sector,
- Jobs in the public sector,
- Jobs that are related to volunteering.
In short, it is a measure of productive workers. The more people are employed, the better the economic conditions and vice versa. Also, the NFP is going to be used as a basis for decisions about the future rate of the Federal Reserve, and here we find two possibilities:
- If the level of the NFP indicator is high, then it increases the possibility of further rate hikes in the future,
- On the other hand, if the Non-Farm Payroll numbers fall, it will raise concerns about the slowing economy by reducing the rate hikes projected by the Fed.
In addition, the Non-Farm Payroll refers to data from monthly surveys conducted by the U.S. Department of Statistics and published every first Friday of the month, along with average hourly earnings levels and the unemployment rate.
What is the significance of the NFP?
There is a close relationship between the level of employment in the U.S. and household spending, which increases in parallel with the number of jobs created, and vice versa. Furthermore, it is necessary to emphasize the impact of the NFP. It is mainly due to the high volatility of the currency rates, which happens right after the announcement is released every Friday. It should also be noted that this announcement is representative of the past month’s work.
Traders make their investments only minutes before the announcement comes out to take advantage of a reasonably significant profit margin. Having said that, traders can learn about the NFP by checking the Forex Economic Calendar or obtaining them using trading tools that are unique to Forex. However, the Non-Farm Payroll is considered by many to be one of the most effective indicators for several reasons:
- The value of NFP is proportional to household spending in the country.
- When wages are high, expenditures are high.
- A high NFP is synonymous with a growing economy, which translates into a strong position for the USD against other currencies, causing traders to take advantage of it.
How do I trade the NFP?
It should be noted that real trading opportunities present themselves to traders in the stock market during the release of NFP Forex. Which always generates an increase in volatility in the currency market. Thus, NFP trading becomes highly lucrative for those who master what they are doing but also dangerous for traders who do not have a well-established strategy in this area. However, there are many different approaches:
- Short-term NFP trading is done by taking a position just before the release. Also, one can use the Breakout strategy, establishing a range around the price just before the announcement of the Non-Farm Payroll report on an M5 chart. This is to capture any movement that breaks this range up and down.
- Taking a position just after the publication. The Momentum strategy follows the market’s momentum at the time of the publication of the NFP report. Stay in this movement as long as possible and add positions progressively as the market continues its evolution. But always in the direction of the initial position of the trader. This is most suitable for the most experienced traders. Also, we have the wait-and-see strategy, which is a strategy consisting of entering the market following false signals or a price reversal. This is suitable for beginners and the more conservative traders to let the intense movements initiated by the publication and take position after 5 to 15 minutes.
- Long-term NFP trading consists of analyzing the results to take a position based on a fundamental approach for a medium to long-term destination. Thus, this approach is reserved for swing traders and investors in the Forex market.
That said, it is also possible for beginners to trade NFPs. Thanks to CFDs or contracts for the difference, individual traders can make profits on market movements on a wide range of products at a lower cost and more efficiently. Indeed, the best way for traders who are new to Forex to trade NFP is to trade NFP is to speculate on the following:
- American indices,
- US currencies.
However, some brokers even provide demo accounts for traders to get more familiar with and perfect the activity of NFP Forex trading.