NFP Trading: Complete Guide for Before and After NFP Trades
Non-Farm Payrolls (NFP) is the most important data in the financial market. It gives birth to multiple buy and sell opportunities. You can make significant money in the market just by keeping a watch on NFP data.
Well, trading non-farm payroll is not as easy as it looks. But worry not, here is your guide to NFP trading. Let’s learn what NFP is, how it impacts the diverse market, and strategies to trade before, after, and during the NFP.
What is an NFP Data?
NFP is a key fundamental indicator that sheds light on the US economic health and employment status. It shows the number of new increases in jobs compared to the previous month at the United Nations. The data is released on the first Friday of the month at 8.30 am (EST).
NFP includes the data from almost every sector in the USA, excluding farmers, private households, and non-profit organization workers. As per the data, the NFP covers 80% of workers in the USA.
The data not only impacts the forex market, but it also has a significant impact on the entire global financial market. NFP is quite important data; as a result, the market is filled with opportunities before, during, and after the NFP release.
A quick glance
NFP is a key fundamental trading indicator that sheds light on the US economic health and employment status. It shows the number of new increases in jobs compared to the previous month at the United Nations.
NFP trade is placing a trade before, during, or after the US Nonfarm Payroll.
When NFP data comes out positive, the USD is expected to rise against the other currencies, so traders can consider opening a long position for the USD and a short position in the opposite case.
An increase in NFP is positive for the US dollar, so the USD is expected to rise against other currencies.
NFP is released on the first Friday of the month at 8.30 am EST.
Impact of Non-Farm Payroll Data
The employment state reflects the economic health of the country. Thus, the Federal Bank watches employment data and makes efforts to maintain a high rate of employment in the USA. Here is how NFP impacts the economy:
Interest Rate:
If the NFP data is strong, the FED considers raising the interest rate, and if the NFP data is weak, the FED considers raising the interest rate.
GDP:
A Strong NFP is positive for a country; it positively impacts GDP, while a weak NFP is negative for a country; it negatively impacts GDP.
U.S. dollars:
NFP is valuable data for forex traders as it directly impacts the US dollar. And U.S. dollars move the entire forex market. Irrespective of the pair you are trading, NFP gives you key insights.
A positive NFP indicates the rise of the US Dollar; as a result, traders can consider buying the US currency, while a negative NFP indicates the weakness in the US currency, and traders can consider selling the US currency.
How to Trade NFP
Let us understand NFP forex trading with the EUR/USD example. When NFP data comes positive, traders expect the USD to rise against the other currencies, and when NFP data comes negative, traders expect the USD to fall against the other currencies.
Now, suppose you are EUR/USD traders and planning your trade for the NFP week. As per your analysis, the NFP data is expected to be positive. So you open a short position in the EUR/USD pair.
In this case, if the data comes in your favor and the price moves as per your prediction, you will make a profit, and if not, you will suffer a loss.
NFP Trading Strategies
NFP trading can be done before, during, or even after the data releases. Here is how you can use the strategies:
Trade NFP Before the Release
For using, before the release strategy, you need to have an in-depth understanding of the current US economic status. Here, you are going to predict whether the NFP data will come in positive or negative, and how it will impact the market.
Suppose you have been watching the news, speeches, and economic events. Now you have positive NFP forex data expectations, and you think that the USD is all set to rise. So under this strategy, you will place the bullish trade even before the release of the data.
Trade NFP During the Release
Trade during the release is quite risky. The market is already very volatile during the NFP release. Plus, you don’t know where the price will move. However, experienced and advanced traders even take advantage of the NFP release time market change.
Scalpers and day traders love high volatility. Thus, such traders enter a trade position during the NFP release and open and close trades within minutes. But with such a strategy prediction, the direction of price movement is quite difficult.
Trade NFP After the Release
Trading after the release is a cautious approach. Here, you know whether the data comes out positive or negative. Now you just need to place the trade accordingly.
You have even seen how the market reacted to the NFP headline. Based on data and market reaction, you will make the trade decision.
For example, if the data is too strong, that leads to a bullish trend, and you think that the trend will continue. So you can go ahead with placing a long trade.
Tips for NFP Trading
- Before starting NFP trading, grab an indepth understanding of NFP expectations, NFP time, and watch NFP charts. It will help you in framing a strategy effectively.
- Be vigilant while selecting a forex pair for trading. NFP does not have the same impact on all pairs. Some pairs move a little while some react too much, while some remain stable. So make the right choice accordingly.
- A trading trick that can actually have a positive impact on NFP data is demo account usage. Trade NFP on demo accounts at the initial stage. This way, you will not risk any amount and learn how the market reacts to the NFP release. Also, you can find out whether NFP trading is ideal for you or not.
- Do not place trades solely on NFP data. Use technical analysis indicators such as moving averages, RSI, or Bollinger bands for confirmations.
- Become a pro in risk management. NFP causes high volatility and unpredictability. Even the best traders can make wrong decisions during NFP release. So use robust risk management, trade with proper stop loss orders, and diversify your capital.
Wrapping Up
NFP is undoubtedly a great strategy, especially if you are a forex trader. Also, if you trade USD against gold, cryptocurrencies, indices, or any other commodity, the strategy works well.
However, even NFP trading has downsides. It involves significant risk and high volatility trading. Only knowledge will save you from its drawbacks.
So get a practical understanding of NFP trading. At Market Investopedia, we have webinars solely dedicated to NFP trading. So if you want to trade the Next NFP, attend our valuable webinar and trade NFP like a pro.
