Trading Binary Options on Non-Farm Payroll Days


The Non Farm Payroll report, as its name suggests is a report which shows the number of paid employees across the country, not including farm employees, private household employees or general government employees. The report is released monthly and is accompanied with the current rate of unemployment. The report highlights how the economy is doing, whether the rate of employed people is remaining steady or increasing, in conjunction with the number of unemployed people is a good guide to the state of the economy. This report is viewed with interest by countries across the globe as the United States is currently the biggest economy in the world and what the economy is doing in America will affect the rest of the world.

There can be significant returns to be made by investing in the outcome of these reports; however they are almost always accompanied with a fake report which can make it extremely difficult to predict what will actually happen.

Labor Data and the Fed’s Dual Mandate

The effect of these reports is entwined with the central banks and current monetary policies. In fact, the Federal Reserve is working to achieve two different things at the same time; one s to provide stable prices and a steady growth in the economy via a strict control on inflation; this is achieved by manipulating the interest rate. The second objective is to ensure job creation is possible to encourage steady economic growth. The monetary policy of the country will be defined by what is required for the banks to fulfill both objectives.

The NFP is released at the very beginning of each month and it will often cause an initial swing in stock process. However, this is usually the kneejerk reaction which will often revert later in the day; although this is by no means always true. What is true that trying to predict and capitalize on these movements is exceptionally difficult. The market will move very quickly and it is generally not advisable to purchase short term binary options on this day.

Volatility

As monetary policy is controlled by an attempt to achieve two different goals it is generally considered that the release of the NFP is the most important economic activity every month. The Federal Reserve is attempting to create jobs and keep the inflation rate at or below two percent, the NFP report confirms how well they are doing at achieving this aim and will provide an insight as to future monetary policy. This information can be used by traders to invest in the right options as the report is released each month. The NFP report is a critical part of this process and any trader will look for clues as to what it might say long before it is released. In fact the following economic releases might help any trader to know what the report will say and, therefore, how it will affect the market:

  • ADP

This is a similar report to the NFP but is based on the private payrolls. It is usually released two days before the NFP and whilst its information has no connection with the NFP it does provide a strong indication of what the economy is doing and what the NFP may contain. Of course, relevant economic factors such as a change in private household employment rules must be taken into consideration. If the AFDP shows a strong upward movement, especially if that is better than expected then it is relatively safe to assume the NFP will do the same. This could prompt you to invest in the US dollar versus a foreign currency as it is likely the dollar will surge in value.

  • Initial Jobless Claims / Continuing Claims

This report is released every Thursday and highlights any changes in the quantity of people who are claiming unemployment. This is split into two figures; those who have been claiming and are still doing so, and, those who have just started claiming. Although this report may be based on figures from a month or two ago it can still provide clues as to which direction the economy is moving in. The direction of the economy will provide additional clues as to what the NFP report will say.

  • State of the US Economy

There are several reports which are issued monthly as a guide to the state of the economy. However, it is the Institute for Supply Management report, which contains an employment element. The employment trend in this report can give a good indication as to the current trend in the economy and, hence, what the NFP will contain. Unfortunately this report is sometimes released after the NFP, making it redundant!

When the NFP is good and shows a strong economy the influence on the monetary policy will be positive. This is simply because the monetary policy is designed to help improve job creation, the longer the trend of good NFP reports the more expansive the monetary policy will become.

This will then create a trend of highs around the release of the NFP and dips between releases. You should then be able to purchase a call option during a dip and capitalize on the high as the report is released. The trick is in getting the timing right. If you can achieve this you are likely to see a better return on your investments than attempting to trade the short term changes in prices, which may rise and fall marginally and can be extremely difficult to predict. Trading on the actual movement of the economy based on all the information you can collate is a far more satisfying experience! It is also known as Fundamental Analysis.

Technical or Fundamental?

A technical analysis and investment in the market is based upon looking at the date you have available on a chart and superimposing this into the future. Yu can then make a trade based on what you believe the market will do; assuming it continues to following an existing trend. Fundamental binary options trading involves studying the economy and assessing what factors are in play and how they are likely to influence future outcomes. They are both different ways of trading and there are many people who exclusively use one method or the other. However, the most effective trades are generally those which look at both types of analysis; this should provide the clearest picture possible of the market and help you to anticipate and profit on a huge range of options.

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