How to trade Chinese Yuan? Secrets of the USDCNH currency pair
Hello ladies and gentlemen, Forex traders. Recently, Alpari has the opportunity to trade the American Dollar / Chinese Yuan pair - USDCNH. This aroused considerable interest in this currency pair among forex traders, because the Chinese economy is the second largest in the world. Interestingly, Yuan, or what it is officially called in China, Renminbi, has a lot of interesting features that you need to know before you start trading this tool. We'll talk about the secrets and opportunities that USDCNH gives us.
Why are we interested in the Chinese yuan?
Firstly, China is the second largest economy in the world. Immediately after the USA. Next comes Japan, Germany, etc. Russia is currently in 8th place. China has a very developed economy. Huge production of various companies from around the world are located in China. And so a very large amount of money goes in RMB. And we, accordingly, as currency traders, are interested. In general, the official name of the Chinese yuan is renminbi. Literally translated as "people's money." However, outside of China, most often the currency is called the Chinese yuan.
It controls the circulation of the Chinese currency, its exchange rate, development and interest rates - People’s Bank of China. Which is essentially the central bank of China. In English, People's Bank of China. Or in abbreviated form PBoC.
In the picture above you can watch its official website. There is an English version here, so if you're interested, you can study it.
Every day, the People's Bank of China publishes the Central Parity Rate. This is the recommended price of the RMB against other currencies. Moreover, the price cannot go above this value or below this value by more than 2% at the current moment. Otherwise, the Central Bank will begin to intervene in the situation, conducting an intervention to buy or sell its currency.
This is done in order to keep the course within a controlled framework. You can view the current price values published by the Central Bank of China at //www.chinamoney.com.cn/
Here we find the USDCNY currency pair and see the data for today. Why do we need this? We know that the price cannot go higher or lower by more than 2%. Otherwise, the Central Bank will intervene. But it is worth considering that the recommendation for the USDCNY currency pair is indicated here. We will trade USD / CNH. They have a certain difference. In the future, we will consider it.
Let's first open the chart of the USD / CNH currency pair.
First we need to add this pair to the characters. In the “Market Watch” window, right-click and select the tab characters.
Here we find the “FxExotics” tab and select the USD / CNH currency pair. Please note that the last letter is different. In our terminal, the USD / CNH currency pair, and the Central Bank of China controls the USD / CNY currency pair. What is the difference?
The fact is that USD / CNY is usually traded only inside China. And the USD / CNH currency pair is trading outside of China. Mostly in Hong Kong. Their courses are different, but not much. The difference is usually 10-15 points. They try to follow each other. And their main difference is that the Central Bank of China cannot directly control USD / CNH. He will only intervene in a pair of USD / CNY. But, since they follow each other, accordingly, speculators look at the price and quotation of the USD / CNY currency pair. In general, they are related. They have general restrictions that apply to both currency pairs. Therefore, it is worth taking into account the restriction in the growth or fall of 2%, both for the pair USD / CNY, and for the pair USD / CNH.
Central Parity Rate is the average of recent days. That is, the Central Bank of China cannot take the price from somewhere from the ceiling. This is just the average price that has been in recent days. And the price will not go above it, or lower by more than two percent.
So, we found a currency pair, chose it by double-clicking the left mouse button. Close the window with the symbols. And right-click on our currency pair, choose to open the chart:
I have a daily chart. Our currency pair is USD / CNH. We will trade it to her. Since we are outside of China.
The offshore version of CNH RMB has only been traded since 2010. Therefore, we do not have data before 2010. This is not some kind of mistake or bug. Currency pair has been trading since 2010. There is simply no data previously. If you need any kind of historical research, then search the Internet for USD / CNY charts. That is a pair that is traded inside China.
But it should be borne in mind that previously there was a tight pegging of the dollar to the Chinese yuan and for this reason the old quotes are not so interesting. The most interesting period from a speculative point of view begins in 2010. And later to the present.
To get started, let's give the chart away.
With the naked eye, you can see that the global trend is pointing down. Why? Because there are constant injections into the economy. That is, people need yuan. They buy yuan. And the pair USD / CNH is falling. If we had a pair of CNH / USD, then it would grow. But since we have the opposite, first comes the American dollar, and then the Chinese yuan, then the price falls accordingly.
Why is the Chinese yuan so in demand?
Everything is very simple. Let's say you have a big company and you open factories in China. You will need millions, or even billions of dollars, to be converted into Chinese yuan. You buy them, which in itself affects the course. Every year more and more companies open factories and plants in this country. Plus, there is an economic development within China. Therefore, we see a global trend down.
However, from 2014 to this day, one can observe an upward trend. The last 5-6 months. What is the reason for this? The fact is that the Chinese government is interested in the Chinese yuan being a convertible currency, along with the dollar and the euro. So that people do not try to somehow speculate on it, but use it for an exchange, without thinking about various speculations and changes in the exchange rate. And, accordingly, the government is interested in the growth of the dollar against the Chinese yuan. At least I did not fall much. Therefore, today we are observing this situation.
If we consider the global trend as a whole, we will clearly see that the trend is going down.
And maybe now there is a correction up, and in the future again, for many months the price will fall. Growth is possible, but at the moment, the global trend of the currency pair should be down. Both EUR / USD has a fundamental upward trend, and USD / CNH has a fundamental downward trend. This should be considered. The RMB volatility is pretty good. Over the past six months, an average of 110 points passes this pair in one day. That is, the average candle size is 110 points. For comparison, in EURUSD this value is 75 points. That is, it turns out that the yuan is more volatile than the euro.
What time is it worth trading the USDCNH currency pair?
If you open the graph, then quite clearly visible periods of activity and periods of calm.
The currency pair has periods of activity from about midnight to 13:00 GMT. That is, if you translate this into the language of trading sessions - this is Asia and London. You can easily see it on the chart and compare with the time of your broker. This is pretty clear. If you trade this currency pair, then from midnight to 13:00 GMT. GMT can be viewed at: greenwichmeantime.com.
As for time frames, I advise you to trade on charts from sentries (H1) and higher. Going below is not worth it. Because if we open the M15 chart, we will see that the situation here is not very beautiful and not very clear.
Plus the spread, if we open a new order, we will see that the account for day trading is too large.
Also, note that closer to night the spread expands to 10 points, which accordingly excludes night scalping enthusiasts. It is worth paying attention to the price of the item. It is significantly lower than other couples.
For example, open an order with a volume of 1.00
Initially, we have -3.20 points, the price is now 6.2557 and as soon as the price moves by two points:
Profit becomes zero. That is, although we have a lot of 1.00, but the profit has changed only a little. Because the price of one point for one lot is approximately equal to $ 1. For a lot of 0.1, one point costs about 10 cents. For a lot of 0.01, one point costs a little more than one cent. That is, the cost of a point is 10 times less than, for example, EUR / USD. This is also worth considering. If you want to open a position with lot 0.1, then open a position with lot 1.0 for this pair.
Another very important point, especially for those who trade on daily charts, is a swap. The fact is that here it is a notable quantity. If you do not hold transactions for longer than a week on regular pairs, then you can especially not pay attention to this indicator. Because he is very small. In the USD / CNH currency pair, you have to pay attention to the swap.
In order to show a swap, I have open buy and sell positions at the same time.
Please note for purchases the swap is negative. It is equal to about 13 points in plus for sales in short positions. And 13 points minus for purchases of long positions. Thus, if you hold the purchase for three days and at the same time a swap is charged, then the price has automatically changed independently or not, you lose an additional 39 points.
But there is a flip side to this. If you hold the purchase for 3 days, and at the same time the price has not budged, then you will be up 40 points. If you trade on the daily charts or leave the position at night, then you can act in two different ways. Either open only short positions and earn extra on swaps; Or use swap-free accounts, that is, without swaps. There are special types of accounts where there are no swaps, but an additional commission is charged.
What strategies to use to trade the yuan?
In my opinion, it seems interesting to develop a special strategy exclusively for short positions. Where only sales transactions are opened, which are left for several days. Naturally, they do not just open up, but according to the trading system. But for this you need to work out everything. The option is interesting because the swap for short positions is very large. The price will move quite a bit, but if you hold the position for a long time, you will be in the black.
Also, a rather interesting option is the development of a breakdown strategy for the renminbi on hourly charts. When at about midnight GMT some pending orders are placed either at the borders of the channels, after breaking through which we enter the market and take up some position. Depending on where the price went. Such situations occur frequently. Let's mark them with the figures on the chart.
For example, when after a period of calm, before the Asian session, breakdown occurs and an active increase or decrease in price.
In the picture above, I noted periods of calm in recent days. Just they end at about midnight GMT, and then there is a breakdown and some movement. It is not always big. For example, in the photo below it is very small:
But it’s quite realistic to develop a strategy and work out options. Because on some days we can see false breakdowns
You can, for example, create a variation not on the breakdown of the box, but enter directly after the breakdown candle. Place a pending order just above its high if the breakdown is up, slightly above its low if the breakdown is down. And thus insure yourself against false breakdowns. Add some more elements of technical analysis. But in general, the idea seems very interesting and is on the surface. So breakdown strategies on H1, on this pair should work well.
Let's summarize all of the above.
- The global trend of the USD / CNH currency pair is moving down.
- Below H1 for trading do not fall.
- The use of breakdown strategies after periods of calm seems promising on H1.
- The average volatility of a currency pair is 110 points per day at the moment.
- The cost of a price movement point is about 10 times less than for EUR / USD.
- If you trade on daily charts, then you should use accounts without swaps, or open only short positions. It is also possible to develop a trading model specifically for short positions, since quite a large swap is charged for them.
- In general, the couple is seen as quite interesting and promising.
I hope this article was useful to you and helped to understand the nature of the USDCNH pair, how it should be traded and what interesting opportunities it conceals in itself.
Brokers with whom USDCNH is available