A Guide To Day Trading The Non-Farm Payrolls (NFP) Report

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Written By
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Written By
Royston Wild
Royston is an experienced investor and writer. His expertise includes stock recommendations through to commodities, forex, and macroeconomic news. Royston's background includes roles as a stocks and commodities reporter, and editor of forex coverage at Shares Magazine.
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Edited By
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Edited By
James Barra
James is an investment writer with a background in financial services. He has worked as a management consultant, where he delivered large-scale operational transformational programmes at some of Europe's biggest banks. James authors, edits and fact-checks content for a series of investing websites.

The non-farm payrolls (NFP) report is one of the most important indicators of the strength of the US economy. It can have a significant influence on the direction of financial markets, and in particular movements in the foreign exchange market, providing opportunities for short-term traders.

Quick Introduction

  • The NFP report is released by the Bureau of Labor Statistics (BLS) on the first Friday of every month, showcasing the monthly change in employment numbers across various US sectors.
  • Its release is a significant event for the forex market, particularly affecting pairs that include the US dollar, such as GBP/USD, EUR/USD and AUD/USD.
  • The NFP’s publication can lead to heightened market volatility, presenting day traders with the potential to capitalize on rapid price movements.
  •  To day trade the NFP report you need a reliable broker, an effective strategy and a sensible approach to risk management.

Best Brokers For Trading The NFP Report

These are our three highest-rated brokers that facilitate NFP trading strategies:

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Understanding Non-Farm Payrolls

The NFP report is one of the most closely watched economic indicators in the US. It quantifies the number of people who are employed in the world’s largest economy, except farm workers, government employees, private household staffers, and employees of nonprofit organizations.

Approximately 80% of the total US workforce is covered in the NFP report. As a result, it is considered an important indicator of where the US economy may be heading.

An excerpt from the February 2024 NFP report
NFP Excerpt. Source: BLS

Generally speaking, rising NFP payrolls indicate that the economy is growing, while a decline is suggestive of economic contraction. As a result, it can used as a guide to how the Federal Reserve might alter interest rates.

Monetary policy is a significant influence on asset prices, so NFP numbers can cause market volatility to pick up considerably.

How Can The NFP Report Affect Financial Markets?

Profitable NFP trading is possible across multiple asset classes including stocks, bonds, commodities and forex.

When the report comes in better than forecast, market confidence typically improves, and riskier assets can rise in value. The opposite usually occurs when the NFP data falls below estimates.

Chart showing historic NFP data, including forecasts and report revisions.
Historic NFP Data. Source: Forex Factory

The impact of NFP numbers can be especially significant in the currency market. While it can impact the movement of many different currencies, it is particularly influential on the direction of major forex pairings involving the US dollar. These include:

Robust NFP data is usually positive for the North American currency. This is because a stronger job market can fuel speculation of rising inflation, and by extension the possibility of Federal Reserve interest rate hikes further down the line.

As well as this, better-than-expected data boosts market confidence in the US economy, which in turn can also improve demand for the buck.

NFP reports concentrate on the change in employment numbers for the previous month. However, they also often include revisions for prior months, changes which can also impact financial markets.
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Royston Wild

An NFP Trade In Action

Doing My Homework

The NFP report is released on the first Friday of the month, at 8.30am Eastern Time (ET). Analysts will have lined up to predict what the headline number will be (i.e. the total number of people in employment) before the release. A consensus of these forecasts will then be drawn up and published by various media outlets for economists and traders to consider.

There are several things I will need to look at as a trader before the NFP numbers come out:

This information will not only help me formulate a better idea of whether analyst forecasts are ‘on the money.’ They may also indicate how volatile financial markets may become in the aftermath of the NFP release.

Making The Trade

As I say, the forex market can be especially choppy following the release of this employment report. This potentially gives me the best chance of making a profit, so I decide to trade the USD/CHF pairing on the day of the report.

Chart showing USD/CHF on eToro platform
USD/CHF on eToro

After doing my research – which also includes conducting technical analysis on the currency pairing – I conclude that the greenback will rise following the NFP release.

I decide to trade the USD/CHF pair at 0.8816 – selecting a standard lot size of 100,000 units – then sit back and wait for the numbers to be published.

At 8.30am the data comes out. It shows that the number of people in employment last month has sailed above forecasts. This huge divergence prompts waves of volatility on forex markets, and the USD/CHF soars during the aftermath.

By 9.30am the pairing is at 0.8892, so I decide to exit my position and book a profit of $862.07.

Here’s how I manage to generate that profit:

Tip: With NFP reports often accompanied by significant volatility, day traders need to take steps to mitigate risk, for example, setting up stop-loss orders that will automatically sell the asset when its price falls to a pre-determined level.

Note: this is a simplified calculation that does not reflect the impact of bid and offer spreads or other trading fees.

How To Start NFP Trading

It’s pretty simple for traders like me to begin trading the NFP report. Here are the 3 key steps that new day traders should take:

  1. Select a suitable asset class
  2. Choose a broker
  3. Open an account

Select A Suitable Asset Class

As shown, the importance of a strong US labour market for the broader economy means NFP releases can have a huge impact on multiple asset classes. The first thing I need to do is to decide which security I wish to deal in.

Equities, commodities, and bonds, for instance, can all experience significant volatility following an NFP report.

The biggest movements usually occur on the forex market, however, as traders hypothesize about the potential impact of employment numbers on interest rate decisions.

Choose A Broker

The next course of action is to choose a broker that allows me to trade my preferred asset class. Fortunately, each of those securities I’ve described are highly popular with retail traders, so I shouldn’t have a problem finding a company through which I can do business.

Other important things I need to consider include the regulatory status of the broker; how user-friendly its trading platform is; the firm’s pricing structure; and whether I can use leverage (or borrowed funds), which is popular with day traders.

I should also consider the quality of the company’s technical analysis tools (using charts effectively is often critical for successful short-term trading).

Open An Account

Once I’ve chosen my broker, I’ll need to provide some personal information and supply identification to open my account.

Then I’ll deposit my funds – usually by making a bank transfer or credit/debit card – and make preparations to execute my first trade following the non-farm payroll release.

Bottom Line

The NFP report is a highlight on the financial calendar for many short-term traders. The volatility it often creates provides an opportunity for them to book considerable profits in quick time. Trading this key economic indicator can be especially lucrative for forex traders who put in place a sound risk management strategy.

See our pick of the best brokers for NFP trading.


What Are The Advantages Of NFP Trading?

The choppiness that can develop following NFP releases provides myriad opportunities for traders to make a profit.

As with other major economic statements, the number of trades tends to rise when the employment report comes out. This makes it easier for market participants to open and close positions, while it also makes for tighter bid/ask spreads and therefore lower trading costs.

Many assets like forex can also be traded with leverage. This strategy can create bigger profits by allowing traders to build larger positions, though beware: it can also lead to whopping losses when markets move in the ‘wrong’ direction.

What Are The Drawbacks Of NFP Trading?

The extreme market movements surrounding the release of NFP data can create large losses if day traders fail to put in place proper risk management measures.

Certain asset classes like currencies also require a high level of understanding in terms of both fundamental and technical analysis. This can be time-consuming to achieve and then maintain.

What Time Is The NFP Released?

The NFP is released on the first Friday of each month at 08:30 EST. Significant NFP trading activity often occurs over the several hours following the release.

Article Sources

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