Yuan - Chinese currency through the eyes of Masterforex-V traders

Main characteristics of the Chinese yuan

Hieroglyphs and symbols denoting money

The abbreviations CNY or RMB are not often used on price tags attached to Chinese goods. What currency comes to mind when you see the ¥ symbol? That's right, Japanese yens are also designated, so the symbol is often used not alone, but together with the Latin letters CN: CN¥.

In addition to the Latinized symbol, the inhabitants of the Middle Kingdom use their own hieroglyph: 元. It is written separately or, like the previous symbol, together with the abbreviation: CN元. This hieroglyph has many meanings, the main one being “head”. It’s not for nothing that they say that “money is the boss of everything.” This hieroglyph is already the third in the history of the designation of banknotes. It is quite simple to write, as it consists of only 4 lines. His predecessor had 10, and his progenitor had 16 traits. Both denoted the word "round", as a nod to the fact that round currency units were used.

What are the reasons for the growth of China's economy and the stability of the yuan?

Analysts note that the growth of the Chinese economy to the second largest GDP in the world (and the first in terms of GDP PPP) is based on such factors as the presence of an “army” of cheap labor, the undervaluation of the yuan, the opening of access to the market in exchange for technology, the stability of the political system, a sharp increase in exports.

Instead of “shock therapy” for Eastern European countries (liberalization of foreign trade and exchange rates, liberalization of prices, privatization of state-owned enterprises), China is following the path of “gradualism”—the gradual introduction of reforms. As a result, China's development dragged on for many decades.

1. Strong growth of the Chinese economy since the 1980s. occurred only after the abandonment of the communist model in the economy. Economic growth began from a very low base - before the start of Deng Xiaoping's reforms, China was not so much a poor, but simply a poor country, which for many years has given low costs to Chinese goods.
2. Since 1994, the yuan exchange rate was fixed at 8.27 yuan per dollar (this rate lasted until 2005) - such a low rate helped stimulate exports and gave another competitive advantage to Chinese goods.
3. In the 90s, China opened access to its market for foreign corporations in exchange for technology, which gave impetus to the transition from sewing cheap clothes (often just counterfeit) to the production of high-tech devices both under global brands and under Chinese logos (already the whole world knows the brands ZTE, Baidu, Lenovo, Xiaomi, Huawei, Haier, Geely, BYD, Gree, etc.).
4. The authorities' policy is manifested in stimulating exports - tax, credit, customs and other preferences are offered to such firms: as a result, private firms provide more than two-thirds of the country's total GDP.
5. Since 1993, the country has received more than $1 trillion in investment (of which more than $700 billion is foreign direct investment)—China is the leader in this indicator, competing with the United States.
6. As a result, GDP growth was an impressive 10% per year (on average , ranging from 16.1% in the 70s to 2.4% in the 90s)
7. The refinancing rate of the Bank of China for commercial banks remains at 4.35% in yuan, which slightly reduces the development of the real sector of the economy.
8. The government maintains a balance between exports and imports
   exports $2.5 trillion (2019). Main partners for 2022 - USA 19.25%, European Union 16.43%, ASEAN 12.83%, Hong Kong 12.16%, Japan 5.91%, South Korea 4.37%, India 3.08% , Russia 2.64%
9. imports $2.05 trillion (2019). The main partners for the same year are the European Union 12.82%, ASEAN 12.58%, South Korea 9.58%, Japan 8.45%, Taiwan 8.32%, USA 7.24%, India 4.03% , Brazil 3.63%
10. External debt is “only” $6.645 trillion. (2018), however, this is less than half of GDP (47%). Compare with Japan - 250.9% of GDP, Italy - 131% of GDP, Portugal - 127%, USA - 105% of GDP, etc.

Difficulties:

1. The share of the poor population has decreased several times (if in 1981 there were more than 60% of people living on less than $1 a day in the country, then in the 2000s it was already less than 10%), which automatically removes one of the advantages of exports - the low cost of goods.
2. Ineffective investments in infrastructure that are unlikely to pay for themselves - the longest, highest bridges, empty cities with a population of over a million.
3. Declining growth rates due to the “trade war” with the United States , the gradual withdrawal of foreign companies from the country, and the government’s decision to reduce the impact of exports and foreign investment on the economy by stimulating domestic consumption.
4. The Bank of China is not an independent monetary authority, but is directly subordinate to the government.

When is the best time to trade the USDCNH currency pair?

If you open the chart, you can clearly see periods of activity and periods of calm.

The currency pair's activity periods are from approximately midnight to 13:00 GMT. That is, if we translate this into the language of trading sessions, these are Asia and London. You can easily see this on the chart and compare it with your broker's time. It's pretty clear to see. If you trade this currency pair, then from midnight to 13:00 GMT. Greenwich time can be viewed on the website: greenwichmeantime.com.

As for time frames, I advise you to trade on charts from hourly (H1) and higher. There is no point in going lower. 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 is too large for day trading.

Also, please note that closer to night the spread widens to 10 points, which accordingly excludes lovers of night scalping. It is worth paying attention to the price of the item. It is significantly lower than that of other couples.

For example, let's 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 two points:

Profit becomes zero. That is, although our lot is 1.00, the profit has changed only a little. Because the price of one point for one lot is approximately $1. For a 0.1 lot, one point costs approximately 10 cents. For a 0.01 lot, one pip 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 taking into account. If you want to open a position with a lot of 0.1, then open a position with a lot of 1.0 for this pair.

Another very important point, especially for those who trade on daily charts, is swap. The fact is that here it is a noticeable quantity. If you don’t hold trades for more than a week on regular pairs, then you don’t have to pay much attention to this indicator. Because he is very small. In the USD/CNH currency pair, you will have to pay attention to the swap.

Why?

In order to show the swap, I have open buy and sell positions at the same time.

Please note that for purchases the swap is negative. It is equal to approximately 13 points plus for selling short positions. And 13 points minus for buying long positions. Thus, if you hold a purchase for three days and a swap is charged, then automatically the price has changed regardless of whether or not you lose an additional 39 points.

But there is also another side to this coin. If you hold the purchase for 3 days, and the price has not budged, then you will be in the black by 40 points. If you trade on the daily charts or leave the position overnight, then you can proceed in two different ways. Either open only short positions and earn extra money on swaps, or use swap-free accounts, that is, without swaps. There are special types of accounts where there are no swaps, but additional commissions are charged.

Bank of China key rate for the yuan

The next important factor influencing the yuan exchange rate is the key rate of the Central Bank - the Bank of China (this is the percentage at which the Central Bank issues loans to commercial banks). With this percentage, the Central Bank tries to find a “golden mean” between

• low interest rate, which will provide low loans for the national manufacturer (currently in China the key rate is 4.35%). But a low key rate is not beneficial to investors and they withdraw their capital from the country, thereby putting pressure on the exchange rate (the currency devalues);
• a high key rate - which is not beneficial for producers, but beneficial to investors - currency enters the country, the exchange rate strengthens.

For comparison, see the table of key rates of the Central Bank:

Sources for fundamental analysis of the Chinese Yuan

• The economy of China - gold and foreign exchange reserves by countries of the world, countries of Asia, Beijing - the capital of China, nominal GDP by countries of the world, retirement age by countries of Asia, inflation by countries of the world;
• Currency of China - Chinese yuan, banknotes (bills) of China, money of China, exchange rate of the Chinese yuan, small change coins of China, Chinese yuan - the world reserve currency, is the Chinese yuan a freely convertible currency?;
• Financial regulators of China and its exchange rate (CNY) - CSRC - China Securities Regulatory Commission and People's Bank of China (PBC);
• Exchanges of China : Dalian Commodity Exchange, SZSE (Shenzhen Stock Exchange), HKE (Hong Kong Exchange), SSE (Shanghai Stock Exchange);
• Chinese stock market and its stock indices : SSE 50, SZI, SSE Composite;
• Brokers in China: FXCM, FOREX.com, Admiral Markets, HYCM, FXPro, GKFX, EXNESS, FBS, Dukascopy Bank SA;
• National payment systems of China - Bank of China, WeChat Pay, AliPay, UnionPay;
• International payment systems with CNY conversion - Apple Pay, Neteller, JCB, Global Payments, Paysafecard, VISA, Sofort, Wallet One, Mastercard, Western Union, Shopify, Pay pro, etc.

Epilogue

In general, trading the Chinese yuan seems quite interesting and very promising. In Forex, the Chinese Yuan can be predicted quite accurately using both technical analysis and fundamental analysis. In addition, in the latter case, for example, the same PMI production index creates very significant pressure on the economy of the Pacific and Asian regions, which is why the AUD/USD instrument, and not just USD/CNH, can be used to earn money.

Definitely, such a strong economy as the Chinese economy must be taken into account by a Forex trader who is trying to increase his capital and ensure a comfortable existence for himself.

Recommended Brokers for Yuan Trading on the Forex Market

Forex brokers provide the opportunity to open a deposit (trading account) for Forex trading. For more than 12 years, the Masterforex-V Academy has been collecting data and compiling an independent rating of Forex brokers, which is based on more than 30 objective criteria (for example, the size of spreads and swaps, the presence or absence of licenses from financial regulators, the presence of NDD, ECN, STP technologies, as well as PAMM and LAMM accounts, whether hedging or scalping is allowed, whether there is a large variety of financial instruments, whether there is access to stock, futures, cryptocurrency, foreign exchange and commodity exchanges.

Below are just 12 “best forex brokers” of the major league and another 20 reserve companies from the 2nd league (out of more than 400 brokers present on the market).

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How to decipher the price of a product

What currency is RMB (or CNY)? Whatever currency is indicated on the price tag, only yuan and its components will be accepted as payment. The monetary unit of the People's Republic of China is non-standard, since it is divided not into one hundred parts, but into ten: the yuan consists of 10 jiao, in turn, the jiao is divided into 10 fen. If the price is indicated as 5.24, it will be announced as: 5 yuan 2 jiao 4 fen.

Local residents often replace these names when communicating. Yuan becomes "kuai" (from the word "piece"), and jiao becomes "mao" (from the word "small part"). Thus, the same amount equal to 5.24 will sound like this: 5 kuai 2 mao 4 fen. In writing, most likely, the following abbreviation will be used: 5.24 RMB. What kind of currency, besides the Celestial Yuan, can boast of so many designations?