FTG Blog - Trading the NFP Successfully

Trading the NFP Successfully

The Non-Farm Payroll (NFP) report is the single most important economic indicator for the United States of America. It represents the total number of employed staff in the U.S. excluding farmers, government employees, private household employees and employees of non-profit organisations.

Because this is one of the biggest announcements in the Economic calendar, the NFP report causes large rates of movement of any news announcement in the forex market. Having said that, many analysts, traders, funds, investors and speculators anticipate the NFP number – and the directional movement it will cause. You can imagine that many interested parties watch this report and interpret it, even when the number comes in line with estimates, it can cause large rate swings. Continue on to find out how you can trade the NFP without getting knocked out by the irrational volatility it can create.

Trading data Releases

Trading data releases can be highly profitable; alas it’s not for the faint of heart. Speculating on the direction of a given currency pair upon the data release can be risky. Fortunately though, it’s possible to wait for the wild rate swings to subside. Traders can then attempt to capitalize on the real market move after the speculators have been wiped out or have taken profits or losses. By waiting you can attempt to capture rational movement after the announcement, instead of getting caught up in all the irrational volatility that erupts after the first few minutes the data release.

The release of the NFP generally comes out on the first Friday of every month at 13:30 GMT (Like our Facebook page for the latest economic events). The data release creates a favourable environment for active traders, in that it provides a near guarantee of a tradable move following the announcement.

The Strategy

The NFP report generally affects all major currency pairs; however there is one that is most favoured amongst traders and that is the GBP/USD. This is because the Forex market is open 24 hours a day and all traders have the ability to trade the news event.

The logical strategy is to wait for the market to settle. After the initial swings have happened, and after market participants have had a bit of time to reflect on what the numbers mean, they usually enter trades in the direction of the dominating momentum. They wait for a signal that indicates the market may have chosen a direction to take rates.