While some traders rely on fundamental analysis and others on their technical skills, some are able to make a good living trading news events and economic releases alone. For the news trader, there is possibly no more important number than the Non-Farm Payrolls report which is released on the first Friday of each month. It is this number that paints the clearest picture of the current state of the US economy and although unemployment can sometime be a lagging indicator NFP is often a key consideration when central banks decide on their monetary policies.
Non Farm Payrolls is released normally on the first Friday of each month at 8:30 am EST. It contains employment information about the United States Department of Labor as part of a comprehensive report on the state of the labor market. The figure released every month shows the change in the Non Farm Payrolls (NFP), compared to the previous month, and is usually between +10,000 and +250,000 during non-recessional times. The NFP number is meant to represent the number of jobs added or lost in the economy over the last month, excluding jobs relating to the farming industry.
The Non Farm Payrolls report causes one of the consistently biggest movements of any news announcement in the forex market. As a result, many analysts, traders, funds, investors and speculators anticipate the NFP number – and the directional movement it will cause. With so many different parties watching this report and interpreting it, even when the number comes in line with estimates, it can cause large rate swings. The challenge for most traders is to trade this move without getting knocked out by the irrational volatility it can create. This is because speculating on the direction of a given currency pair upon the release can be very dangerous.
Trading news releases can be very profitable, but it is not for the faint of the heart. This is because speculating on the direction of a given currency pair upon the release can be very dangerous. Fortunately, it is possible to wait for the wild rate swings to subside. Then, traders can attempt to capitalize on the real market move after the speculators have been wiped out or have taken profits or losses. The purpose of this is to attempt to capture rational movement after the announcement, instead of the irrational volatility that pervades the first few minutes after an announcement.
Trading the news can be exciting, and is also one of the higher risk strategies available to you. If you place conditional entries either side of the market, you may find that both of these are triggered by the fluctuations. Your stop loss order may be rendered less effective at cutting your losses by the market gaping in response to news. These are factors you need to take into account when you consider if you have the disposition to trade the news. News is temporary in its effect, and markets soon settle back to near their previous positions.