With the rise of China in the global arena, the Chinese currency - the Renminbi has been touted as one of the leading currencies in global transactions.
In fact, the Renminbi surpassed the Euro to become the second top trade currency in 2023:
That said, how can an investor or trader gain exposure to Renminbi? In this post, let’s learn about the Renminbi futures and how a trader can trade Renminbi futures (USD/CNH)!
CNH vs CNY – what are the differences?
Many might not be aware that the Renminbi exists in 2 forms: the CNH and CNY.
CNH, also known as the Offshore Chinese Yuan, is used outside of mainland China, such as in Hong Kong and the global financial markets. CNH is freely convertible, which means it can be used for international trade and financial activities.
Meanwhile, CNY refers to the Chinese Yuan, and is used for transactions within mainland China.
When it comes to price movement, CNH and CNY generally move in tandem with each other:
The basics of currency quote:
The currency of any country is always represented relative to the currency of another country. In other words, currencies are always displayed in pair instead of individually.
For instance, USD/CNH represents the value of 1 USD relative to CNH. It also tells us how much CNH is needed to exchange for 1 USD.
As an example, should the value of USD/CNH is 7.1400, this means that 1 USD can be used to exchange for 7.14 CNH. This also indicates that 7.14 CNH is required to obtain 1 USD.
To break it down further, this is how one should perceive a currency pair:
USD/CNH = USD (base currency)/CNH (quote currency)
Buying USD/CNH involves the buying of USD AND selling of CNH at the same time
Selling of USD/CNH involves the selling of USD AND buying of CNH at the same time
Appreciation and Depreciation of USD/CNH:
As we read a price chart of USD/CNH, there are 4 ways to interpret USD/CNH, namely:
Direction of USD/CNH Chart | What it means to USD | What it means to CNH |
|---|---|---|
Up | Appreciates against CNH | Depreciates against USD |
Down | Depreciates against CNH | Appreciates against CNH |
How to trade Renminbi (USD/CNH) Futures?
3 key exchanges in Asia offer Renminbi futures (relative to the USD), namely:
USD/CNH futures from Singapore Exchange (SGX)
USD/CNH futures (Symbol: CUS) from Hong Kong Exchange (HKEX)
USD/CNH futures (Symbol: FCNH) from Bursa Malaysia Derivatives (BMD)
Below are the key specifications of each product:
| SGX USD/CNH Futures (MUC) [Mini Contracts] | SGX USD/CNH Futures (UC) [Full-Sized] | HKEX USD/CNH Futures (MCS) [Mini Contracts] | HKEX USD/CNH Futures (CUS) | Bursa USD/CNH Futures (FCNH) |
|---|---|---|---|---|---|
Underlying Instrument | USD/CNH | USD/CNH | USD/CNH | USD/CNH | USD/CNH |
Settlement | Cash Settled in CNH | Cash Settled in CNH | Cash Settled in CNH | Cash Settled in CNH | Cash Settled in CNH |
Contract Size | USD 25,000 | USD 100,000 | USD 20,000 | USD 100,000 | USD 20,000 |
Min. Price Fluctuation | CNH 2.50 per tick | CNH 10 per tick | CNH 2 per tick | CNH 10 per tick | CNH 2 per tick |
Trading Hours | 0725 - 1755 (SGT) 1815 - 0515 (SGT) | 0725 - 1755 (SGT) 1815 - 0515 (SGT) | 0830 - 1830 (HK Time)
1915 - 0300 (HK Time) | 0830 - 1830 (HK Time) 1915 - 0300 (HK Time) | 0900 – 1800 (MYT). 2100 – 0230 (MYT, Mon – Thurs) |
Contract Months | 13 monthly plus the next 8 quarterly months | 13 monthly plus the next 8 quarterly months | Spot month, the next three calendar months and the next six calendar quarter months | Spot month, the next three calendar months and the next six calendar quarter months | Spot month, the next 3 calendar months, and the next 6 calendar quarter months (Mar, Jun, Sept, Dec) |
Final Trading Days | 2 HK Futures Exchange Limited (HKFE) business days prior to the 3rd Wednesday of the contract month. | 2 HK Futures Exchange Limited (HKFE) business days prior to the 3rd Wednesday of the contract month. | 2 HK Futures Exchange Limited (HKFE) business days prior to the 3rd Wednesday of the contract month. | 2 HK Futures Exchange Limited (HKFE) business days prior to the 3rd Wednesday of the contract month. | 2 HK Futures Exchange Limited (HKFE) business days prior to the 3rd Wednesday of the contract month. |
Calculating trading profit while trading Renminbi (USD/CNH) Futures
Calculating trading profits while trading Renminbi futures is straightforward. The example below shows a calculation of trading gains while trading the SGX's USD/CNH mini contract futures (MUC):
Enter 1 MUC contract at 6.7500
Exit at 7.3000
Gains: 0.55 pips
Gains in CNH: 0.55 pips x 25,000 (contract size) = CNH 13,750
Why trade Renminbi futures?
Renminbi futures offer various benefits and versatility to traders and investors regardless of their goals.
Here are some reasons why one should consider trading Renminbi futures:
Short-term speculation on the direction of the Renminbi.
Hedging against a weakening investment portfolio that is denominated in USD. For instance, an investor with a mainly USD-denominated stocks portfolio, with the expectation that USD is going to weaken, could take a short position in USD/CNH via the futures market to protect his portfolio against the drop in value due to currency depreciation.
Longer-term investment to express conviction for either USD or CNH. As an example, an investor that has confidence in China's long-term growth, or a lack of confidence towards the prospect of the US, could take a short position in USD/CNH via the futures market to express his/her conviction towards the country.
Fundamentals that impact Renminbi futures (USD/CNH)
While researching Renminbi futures, it is important to understand the underlying fundamental factors that will affect the movement of the currency pair.
An interesting angle to note is since currencies are listed in pair (in this case, the USD and Renminbi), the fundamental factors from BOTH the US and China will influence the movement of USD/CNH.
We'll discuss this in-depth in our upcoming article, but here are some factors to begin with:
Interest rate decisions (eg. The US raises interest rates leading to more attractive interest returns, which increase the demand for USD due to capital flowing into the US)
International Trade, and conflicts such as Trade War or embargo.
Economic growth indicators such as GDP and employment.
Political stability (or uncertainties).
Verdict: Explore the exciting opportunities of Renminbi futures!
With China taking a more potent role in global market these days, it is important for us to extend our knowledge and exposure to China, such as the currency - Renminbi.
I hope this gives you a good basic understanding on Reminbi futures!
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Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.
Leverage is a financial tool that comes with its advantages and risks. Please learn and understand both the upsides and downsides of leverage before using it for trading.
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