Forex traders always look for various news releases to make profitable trading decisions. One of the most significant reports is called non-farm payroll. To make the term clear, non-farm payroll stands for the employment data that aims to represent the absolute number of paid U.S. workers. However, employees for the general government, private households, farms and nonprofit organizations are not included in the report.
NFP serves as an economic indicator. Expanding non-farm payrolls sign a growing nation’s economy and conversely diminishing payrolls mark a shrinking economy.
Why is it important for currency traders? The NFPs reports are the main drivers of the largest movements of rates in the Foreign Exchange market. In other words, non-farm payroll data causes serious directional moves of all major currencies, especially U.S. dollar. As this data is released on the first Friday of every month, trading this event over the weekend can turn out to be profitable. This is because the general trend is more or less determined. However, we highly recommend you to avoid trading or speculating during the NFPs reports.
Extreme volatility and increased risks
The period right before the NFP report release is already marked with the highest uncertainty causing volatility in the Forex market. During non-farm payrolls reports, this volatility becomes extreme as retail traders do not have a solid data to define the possible outcome of this news release. In such unpredictable short term fluctuations, either technical or fundamental analysis would not provide any sufficient information to justify an open position.
During NFPs currency exchange rates are characterized by large swings or whipsaws. This occurs when the market moves for a few seconds in one direction and then instantly reverses to the completely opposite direction. Although this immense risk might look as the possibility to capitalize on such market movements, for the majority of speculators the premature interpretation of the report will most likely end in enormous losses if not blowing up the whole account.
Slippage and delays in order execution
Another logical reason to avoid trading during NFPs is a considerable slippage. Just to remind the definition, slippage is the difference between the anticipated price of a trade and the actual price at which the trade is executed. Even if you trade with such great brokers as ETX Capital, slippage during non-farm payrolls reports is unavoidable because of the high volatility level in the market. Moreover, the period during NFPs creates serious obstacles for the fast order execution, resulting in substantial delays. Taking into account whipsaws during these hours and a slippage level, chances to lose money on a single trade are quite high.
Perhaps one of the main problems during such volatility is that spreads can widen tremendously (up to 20-25 pips), thus leading to increased trading costs. The FX market simply has a massive number of orders to process. Frankly speaking, even ECN and STP brokers are forced to provide wider spreads. However, what they offer is an actual retail market price for your trades.
The Bottom Line
Non-farm payrolls are important for FX traders and can present a real investment opportunity. Nevertheless, you have to make sure that you trade it in the proper way. Considering the reasons provided above, we advise you steer clear from trading Forex during the NFPs.
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