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An Introduction to the US Non-Farm Payrolls



As private traders, strong moves can be our lifeblood. When an instrument moves strongly in one direction, it creates opportunity that allows us to hop aboard and ride the wave. But what is it that makes markets move? Generally, strong moves occur when there is an imbalance between supply and demand in the markets—so what creates that?

Normally, this imbalance occurs when new information comes into the market, which causes traders to change their minds. Based on the new information, traders may either want to liquidate their existing positions (for either profit or loss) or leave the sidelines and join the market action. Sometimes, that new information can arrive in an informal, unplanned manner: natural disaster, political shocks, and outbreaks of war (or peace), for example. Other times, the new information comes in the form of planned, fundamental news events from the economic calendar. One of the most important of these news events is the US Non-Farm Payroll Number (NFP).

This number is normally released on the first Friday of every month at 8:30 a.m. EST (usually 1:30 p.m. for UK traders). The non-farm payroll number refers to any job created in the previous month, with the exception of farm work, self-employment, and the military (and a few other small exceptions). Traders normally receive the headline figure and the change compared to the previous month, plus any adjustments required.

This number is important because it’s used to gauge the health of the US economy. Often, the NFP number is what will cause traders to change their minds—they may either jump into the market action or close their existing positions. These changes create the imbalance in supply and demand that can help cause a strong move

The NFP number is eagerly awaited every month and attracts many traders, as there is often a strong move generated from the news release. Look at the chart of the USDJPY below, and it should stick out clearly when the news was released!

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This provides the kind of opportunity that private traders are looking for—so how do we take advantage of it?  

Many traders are attracted to the idea of trying to figure out what the jobs number will be and carry a position before the announcement based on their analysis. Others will try and hit the market exactly as the news is released. Truthfully, both strategies are fraught with challenges for the uneducated trader. In the former, you are trying to guess a) what the number will be and b) how the market will react to the news. In the latter, you are trying to execute a trade at market during an unbelievably volatile time, which can have challenges all its own.

Wise, experienced traders generally focus on how the market reacts to the news before placing a trade. They realize that it’s not really about what the number is, but how the market responds. They will wait for the number to be released, see how the market reacts, and let the volatility die down before placing their trade. These traders are effectively waiting for the market to play its hand and choose a direction before deciding what trade to place. This patient strategy does mean traders may give up some of the immediate reward available, but they are also managing their risk exposure during a volatile time window.

Be sure to know when the next NFP number is being released so that you can watch the events unfold in front of you. NFP provides a wonderful opportunity, but only for the educated and prepared. Trade well!

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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Malte Kaub