Trading a major announcement like the monthly Non-Farm Jobs Report (NFP) is like sitting on a surfboard at the base of a 30 foot wave. Experienced surfers crave huge swells like this and stand up to the wave, riding out the adventure all the way to the shore. And you better believe that surfer is going to paddle out back for more. But, would your average boogie-boarder who is used to riding small waves want to give the 30-footer a try? Probably not.
The same goes with trading NFP. The resulting wave of market volatility created from this important monthly economic event can be a lot of fun to trade, if you know what you are doing. It isn’t for newbies or the faint of heart. In fact, I know many professional and experienced traders who choose not to trade on NFP Friday. Some traders who trade all month with Trade Copiers/EA’s/Mirror Trading software actually disable their automated trading software out of respect for the NFP. They would rather sit on the shore, so to speak, and watch the wave from a distance.
What exactly is the NFP announcement?
Every month, usually on the first Friday, the Bureau of Labor Statistics releases the Non-Farm Payroll report. This report shows the total US workers for any non-farm business, also excluding general government, private household and some non-profit employees.
This data is used as an indicator of the rate of economic growth and inflation.
As with other indicators, the difference between the actual NFP data and expected figures will actuate the overall effect of the data on the market. Generally, if the non-farm payroll is increasing, this is a good indication that the economy is swelling or if is decreasing, then this indicates the economy is dropping. If it is increasing quickly, this can lead to an growth in inflation.
For Forex, the level of actual NFP data compared to estimates is what moves the market. If the actual data comes in lower than economists’ estimates, Forex traders will usually sell the USD in anticipation of a weakening currency and buy when the data is higher than expected in anticipation of a strengthening currency.
To trade, or not to trade?
Whether just sitting on the shore and watching, barely stepping into the water to get your feet wet, or paddling out to ride the wave; who would want to miss out on the excitement of a 30 foot swell! Same with NFP trading: Whether you just watch and observe Forex market volatility or attack the wave head on by trading on this highly volatile trading day, who would want to miss out on the excitement of the Forex reaction to the NFP release?
If you want to participate in trading the NFP but without any risk, you may want to consider using a demo account.