More people start to show interest in trading and try to learn about the different financial aspects of trading. If you are new to trading and you want to learn more about this field, you must be aware of different economic pointers. In Forex trading, Non-Farm Payroll (NFP) is one of the most important indicators of economic development in different markets.
To be able to enjoy a successful Forex trading, you should definitely get familiar with the NFP term and what it represents. If you want to learn how to improve your Forex trading strategy, you can continue reading this article as we will try to explain all of the NFP basics.
What is Non-Farm Payroll?
In the world of economics and trading, a Non-Farm Payroll report is an important economic growth indicator in the United States. It represents the total number of US paid workers with the exception of non profit organizations employees, farm employees, government officials, and private household employees. By showing the number of employment in the US during the previous month, the NFP report expresses the growth level of the US economy.
Typically, the NFP reports are highly anticipated by forex traders as numerous global economies are in business relationships with the US. As NFP reports also influence global markets, they often are a reason for speculations among global traders. If you are interested in Forex trading, then it is advisable to learn about NFP reports and how to trade them. If you want to learn about NFP in detail, you can find out more on Investopedia.
When Are NFP Reports Published?
The NFP report is published monthly, every first Friday of the month, at 8:30 a.m. ET. This report is issued by the U.S. Bureau of Labor Statistics. The data that can be seen in each report also includes several statistics, in addition to the unemployment rate for the previous month.
If you visit the official website of the U.S. Bureau of Labor Statistics, you can see the result of all previous NFP reports as well as the results of the latest one. There is also a mean revision and an absolute mean revision to the estimates of previous NFP reports. You can also use an economic calendar to follow the upcoming NFP reports and the way they affect global markets.
The Effect of NFP Reports on Forex Trading
Since the NFP report is released monthly, it is an accurate indicator of the current economic growth of the US. As employment is a key factor that determines the status of the Federal Bank Reserve, it is also a key factor that allows traders to make decisions. Whenever the employment rates drop, policymakers often resort to stimulus packages with low interest rates. The general goal of such policies is to help the economy and create bigger employment.
When stimulatory policies are implemented, the lower interest rates will cause a decrease in the demand for the Dollar. Since interest rates have an important role in the appreciation/depreciation of currency pairs, it is clear that low demand for the Dollar will also make traders depreciate the currency. Traders are often careful with NFP reports as a sudden increase in volatility may actually lead to a stop out level. This means that all traders’ positions on the Forex market may be automatically closed.
How to Trade the NFP?
Since NFP reports have a huge role in the Forex market, every time a new report is released, it causes quite the significant moves among Forex traders. As many traders are actively following and speculating NFP reports, this indicator allows a very good environment for active traders. If you wish to learn more about the key economic indicator, you can take a look at this video explaining how to trade the NFP.
It is good to wait for later evaluation of the actual numbers presented in the NFP report. Instead of being deceived by early speculations, you will benefit from waiting for the market to determine the real results of the report and how it will affect the economy. By waiting for the right time to trade, you will also avoid being stopped-out by the irrational increase in volatility.
After the initial response to the NFP report, if the price decreases more than 50% of the initial move, you should allow the price point to consolidate for at least two price bars. Compare the high and low points of those two price bars. Whenever the initial move goes up and the bid price surpasses the high point of the two price bars, you are advised to buy. If the initial move was down and the bid price decreases, you should initiate a short trade.
The best way to learn how to trade is to have a lot of practice opportunities. Thankfully, numerous brokers allow their customers to open demo accounts and trade without actually risking any real money. This can be a great way to learn how to base your Forex trading on NFP reports and enjoy many successful trading sessions.