How to Trade Around the NFP Report?

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At 8:30 AM EST every Friday of the month, you can expect the NFP report to be released. It’s a market mover and can have a significant impact on the price of an asset. The report consists of several numbers that show the current state of employment in the United States. Investors and traders watch these figures closely because they affect interest rates, inflation, and economic growth.

Keep these in mind when trading assets such as stocks, commodities, or currencies around this event. 

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Interpret the number properly 

It’s probably one of the biggest mistakes novice analysts make when analysing numbers from reports like these. 

The U3 number is the most important one. It’s the Unemployment Rate, and it shows what percentage of people who want a job cannot find one right now. It’s shown as a percentage, so if someone told you it was at 5%, they meant that 5% of Americans over 15 years old either don’t have a job or are looking for one. 

People also pay attention to the U6 number, which considers those part-time working jobs but still wanting full-time ones and those who can’t find work and stopped looking. This figure has been steadily dropping since its peak during the recession and now hovers somewhere between 8% – 9%. That means that anywhere between 16-17 million people are still looking for work.

The Non-Farm Payroll number shows how many jobs were added or subtracted during the month. It’s shown as a change in thousands. If someone told you that 157K new jobs are available, it meant that 157,000 new ones appeared for Americans to fill.

Finally, the Unemployment Rate is not the same thing as Jobless Claims. These are two very different numbers; you need to consider both when assessing what the NFP report will say.

Be careful with charts.

Charts can give off mixed signals, even if they seemed clear before you looked at them more closely. Especially in technical analysis, where chartists try to predict the future direction of an asset/market by looking at historical patterns. 

Like how the DOW once dropped sharply right after the release of NFP figures, recovered in minutes, and then dropped even further once investors reconsidered their positions.

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Know who is watching 

Major currency pairs move when news comes out, but other markets are particularly good at gauging investor expectations about what’s next for rates, inflation, or economic growth. 

It includes bond prices and interest rates, currency crosses that are specifically sensitive to interest rate changes, and stock indexes like the Dow Jones Industrial Average. 

Keep track 

You can find real-time data about current labour market conditions in the United States. These include Bloomberg and Google. 

Trade carefully

If you are initiating a trade when the NFP report is released, always have a stop loss in place. It is simply an exit strategy where you automatically close your positions if they go into negative territory after a pre-determined amount of time or price drop. 

It will help protect you from losing too much money on trades that don’t work out. A limit order might also be helpful because it’s an instruction to buy/sell only at specific prices.

This way, you won’t end up buying/selling at a higher (or lower) price than you intended.

More information equals better trading.

It would be best to be careful of trading around this report based on only one piece of information. It is because the number released is just that – one single figure. 

By reading articles like this, you can find out more about what the jobs market currently looks like and start forming opinions based on more than just one figure. It will make your trading decisions much better informed.

Consider using a broker like Saxo Bank until you are comfortable with charts and projections. They can give you world-class advice and assistance. 

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