The Non-farm Payrolls (NFP) report is a key economic indicator that is released on the first Friday of every month. It reflects the change in the number of paid U.S. workers and can affect international financial markets and trading.
The Non-Farm Payrolls (NFP) report is a key economic indicator that is released on the first Friday of every month. It reflects the change in the number of paid U.S. workers, excluding farm workers, private household employees, and non-profit organization employees.
About the NFP
This report quickly looks at how healthy the U.S. economy is based on the employment rate. This is because when employment is low, people spend less, which can slow the economy.
The NFP report also includes:
- Labour force participation rate
- Unemployment rate,
- Average hourly earnings
- Average workweek hours
- Other statistics
How does the NFP impact the market?
The NFP report affects the interest rates as the Federal Reserve (FED) considers the employment situation when setting interest rates.
Stronger-than-expected NFP figures may lead the Fed to consider raising interest rates, potentially strengthening the US dollar and impacting other assets. Our previous blog article discussed what the Fed does and how interest rate changes affect the markets.
Since the US is a global leading economy, its economic situation also has repercussions on other countries. The employment situation in the US is being looked upon as a sign of the condition of most advanced economies. In addition, the US is the world's biggest consumer market, so its economy impacts many other countries that trade with it.
For prop traders, the NFP is important because it can cause significant volatility in financial markets, particularly the foreign exchange rates and stock markets, and can signal potential shifts in monetary policy.
How the NFP report impacts forex
As a main indicator of the US GDP, the NFP report influences sentiment toward the dollar. A strong employment rate, in turn, indicates that the economy is going to do well. This may lead traders to buy or hold the dollar, increasing demand for the dollar and pushing the US dollar index (DXY) up. We have previously discussed how the DXY affects the markets. If you would like to read more, head over to An introduction to the U.S. dollar index (DXY).
Conversely, if the job market downturns, traders are likely to sell the dollar in anticipation of the economy going down. In any case, expect volatility in currency pairs like EUR/USD and USD/JPY.
How the NFP report impacts the stock markets
Besides the forex market, the stock market will also have reactions to the NFP. A strong number of jobs added could cause the market to be bullish. This is because when more people are employed, more people have spending power, ultimately generating more profit for businesses. This period is also where traders can expect price movements in major stock indices, and bond yields.
How to prop trade during the NFP
1. Don’t break the rules
Some prop firms restrict news trading. Ensure you’re not violating any terms, and check the firm’s FAQ for their news policy. The last thing you want is to nail a trade but lose your account.
2. Keep updated with the news
You need to stay updated with the latest news via news websites or by subscribing to news providers. In addition to news sources, you can keep yourself up to date with platforms like TradingView. They offer live updates on Non-Farm Payroll (NFP) data to help you stay ahead of the market’s reactions.
3. Check your limit orders
Make sure you don’t have any limit orders that can be inadvertently triggered during the NFP's release. Moreover, avoid entering positions just before or immediately after the release, as markets may be volatile and chaotic.
4. Manage your risks
Managing risk is key to prop trading and should be a key component of your trading strategy. With or without the NFP, a good prop trader should always be disciplined in managing risks. If you want more tips on risk management, you may check out our article here. During the NFP, you may want to widen your stop-loss, reduce lot size, or consider staying out entirely until the markets calm down. If you need more risk management tips, read our previous blog article Top risk management tips for prop trading success.
Conclusion
The NFP is more than just a job number report, it’s a health check for the U.S. economy. Whether it’s showing strong job growth, or a slowdown, it can send ripples through global financial markets. Traders around the world are paying attention and you should too.
Due to the volatility and volume of price movements, effective risk management is crucial when trading around the NFP release. Traders should carefully consider their position sizes, stop-loss orders, and potential for slippage.
Now that you’ve learned how the NFP report affects financial markets, you may be looking for resources to help you monitor such changes in a practical trading setup. We have a wide range of tools for prop traders in our Tools section. In particular, you may find the Volatility chart and Sentiment tool handy to help you monitor changes.
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