NFP Trading – the Basics

NFP is short for Non-Farm Payrolls, and it is a term that measures the amount of jobs that are opened in the US every month. As the name suggests, the number of jobs does not include the ones that are related to the farming industry. The NFP is released on a first Friday of every month.


NFP includes a variety of factors that contribute to the rise or a decrease in the number of new job openings. Some of them include:

  • unemployment rate – the ratio of people who are unemployed for the time that is being measured and the people who are employed. Is the first greater than the second? If the answer is yes, the unemployment rate will rise
  • average hourly earnings – this is one of the most important factors that affect the overall economy of a certain country. Hourly earnings are again in relation to many different factors, and are making a job opening more or less appealing. Then, you can also compare them to the same positions in other countries, and assess accordingly how the NFP will probably turn out
  • participation rate – this is one of the trends that are associated with the NFP and its results.


Stockscm Trading Strategy

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NFP and its Influence

The Non-Farm Payroll is quite an important factor on the Forex market. Many experts are claiming that the NFP is actually one of the main, if not the only factor that is driving the market in a certain direction. Whatever the reason may be – NFP is definitely a strong contender on the market when you are deciding on your trading strategy.

In time, traders have noticed that they can, in fact, decide on their trading plan like this. Especially when assessing and researching the NFP and its features. Most often, the release of the Non-Farm Payroll is actually one of the most watched economic events in a month! The thing about this event is, that it can create a lot of chaos and heightened emotions on the market. That alone can cause major shifts in trading, as many experienced clients already know.


NFP – Main Goals

Since the release of the NFP draws so much attention each month, it has become a major factor in the market. Accordingly, many traders have started to attempt at creating new and innovative trading strategies using this report. Though the information about it are confidential, of course, there are some ways you can use the speculation in your favor.

Like with any other asset, you can use this emotional environment just before the NFP is being released to watch how the market is performing. This includes everything – from market trends to your own personal instinct. In other worlds, these are the main advantages of the NFP. By following this example, you can create your own personal trading strategy, and gain from it, too!


NFP and the FED

One of the biggest roles that the NFP has in the world of finance is in relations to the Federal Reserve, which is the US national central bank. Namely, the Federal Reserve also patiently awaits for the Non-Farm Payroll report each month. After that, the officials use its main points and information that the report provides in order to decide on the future steps. Monetary policies, interest rate cuts and all of the other major moves that the Fed decides on are primarily based on the NFP.

For example, if the NFP shows a growth in the number of job openings, the Federal Reserve will raise the interest rates in order to control the inflation from spiraling. Same goes in the other direction. Especially in times of hardships on the global markets, the Fed will be cutting the interest rates. Though, it should be noted that this is not a useful move in the long run. This is the main reason why the Fed is quite hesitant at making it.


The Consensus

A lot of the reactions that are surrounding the release of the NFP each month can be a part of a trading strategy. Namely, the consensus means that the majority of the market participants are agreeing on what the results of the latest NFP will be. Then, after its release, if the consensus was close to the actual results – the damage will be a lot easier to come by.

Similarly, the further the results are from this consensus, the bigger the consequences. Still, this is all a normal part of trading – speculating, failing, trying again, and succeeding. It is the same with trading with NFP, which is why this strategy is attracting more and more traders each day.


How to Trade NFP?

Much like any other type of trading strategy, this one requires knowledge, patience and a bit of luck. According to your personality type and your strengths and weaknesses, you can choose from the two of the following strategies:


Trading before the release of the NFP

as mentioned before, this requires a lot of patience. And if your speculations don’t turn out to be true – don’t be so hard on yourself! Speculating is an essential part of trading. Therefore, you will apply it no matter what type of an asset you are choosing to trade with

Trading after the release of the NFP

this type of trading is a lot more cautious, but also quite hectic. This is why you should aim at always keeping your head calm and cool. Even when things seem to be spinning out of control! It is important to note that the initial reaction to the NFP might not be the right one. But still, it is certainly a strong factor that can create a serious market trend. Later, you can also use to your trading advantage.


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