The NFP report is a yearly report made by the US Bureau of Labor Statistics. The report measures how many people in the United States are unemployed and actively looking for work. They have taken specific steps to find a job within four weeks before being surveyed. The survey also asks whether these individuals found a job during the same time frame.
The NFP report doesn’t measure how much individuals earn or what type of job they have been able to find, but it does provide insight into broader employment trends in the US economy. The NFP report always generates a lot of interest among traders around the world. The report is released on the first Friday of every month and contains essential information on the country’s employment situation.
Strategies to trade around the NFP report
The NFP report has always been one of the most critical indicators in the US, but its importance is felt worldwide. While many analysts will be watching this report to get a sense of where the American economy is headed, there are plenty of opportunities for traders both in and out of America. Here are some strategies to trade around the NFP report.
Look at past examples
It’s easy to look through past unemployment reports and find what happened to specific stocks or indices in response when bad news was released. For example, when February 2012 NFP was initially reported as 157K, it looked like an incredible number. However, the market reacted violently when it turned out to be a massive error and was revised down to 36K. The US dollar rose sharply, and gold dropped like a rock (though this had more to do with where we were in the commodities cycle).
Keep an eye on Real-Time Market Reactions
There is plenty of data about past NFP reports, which you can use to guide how the market might react. Keep in mind that something that has happened in response before doesn’t mean it will happen again, but there is no harm in playing safe when trading around these events.
Use CFDs to trade volatility
Trading the NFP report can be a bit nerve-wracking, especially if you’re not used to it. CFDs can be an excellent way for those who want to trade this event but don’t want to hold any positions through the volatility. You can open a position before the report is released, ride out the volatility and then close your position afterwards.
Hedging should only be done if you have a very good understanding of what’s happening in the market. If you think that the market might react negatively to the NFP report, you could hedge your portfolio by shorting an index or stock that you think will drop. Again, this is something that new traders should only attempt if they know what you’re doing.
Risks associated with trading around the NFP report
In Hong Kong, there are concerns that the release of the NFP report may cause a stampede of investors out of local stocks and into US Treasuries as they seek to avoid potential market volatility. This could lead to a sharp fall in the Hang Seng Index (HSI).
New investors can mitigate this risk by trading around the release of the report. For example, shorting stocks before or after the announcement may be more profitable than going long if the data is expected to show negative results. Conversely, if good news is expected, buying stocks before or after the announcement may be more prudent than selling.
For traders in Hong Kong, the NFP report presents an opportunity to make profitable trades based on expectations. Using the strategies mentioned above, traders can profit from the volatility often seen around significant news events. It is recommended that you use a reputable online hong kong stock broker from Saxo Bank and start trading on your demo account today.