Thursday, July 18th, 2019

Yuan Options Trading

 

Western news sources quote the Shanghai Daily as saying that the Chinese government will soon allow Yuan options trading within China. Because hedging foreign currencies is a common and effective means of reducing currency risk in international business one can expect to see Chinese companies taking advantage of Yuan options trading in China when it starts in 2011. As China’s economy and those of others in Asia lead the world out of the recession the Yuan may well continue to rise in value versus the dollar, Yen, Euro, and others. As China has allowed the Yuan to rise Western governments have been pleased at the fact that a stronger Yuan will make Western products more competitive on the world stage. To start Yuan options trading China will need to set up rules, regulations, and the options trading infrastructure necessary for trading. How to trade options, specifically, on Yuan will have to wait for the Chinese to set up the necessary paperwork not to mention regulatory agencies. The Shanghai daily notes that trading may well start in mid February.

These may well be good times for trading options on the Yuan as increased in country trading of the Yuan against other currencies may cause the Yuan to float to its real market value. Those traders who can correctly anticipate price direction and trade market fluctuation accurately will likely profit. Any increased trading of the Chinese currency will be a welcome sign for the West, especially the USA. China has followed the path of Japan and Taiwan over the years in buying dollars and US Treasuries in order to artificially support the price of the dollar against its own currency. This is an export driven strategy in that it keeps the Yuan, also known as the Renmibi, low. This makes Chinese products less expensive in overseas markets and has greatly assisted China’s rise as an industrial state. China has been, of late, gradually loosening its controls on its currency. Part of this may be in response to political pressure and threats of trade sanctions from the West. Part is likely also because China imports raw materials which are more expensive because of its policy of keeping the value of the Yuan low. As China becomes more prosperous it is also importing more consumer goods from across the world. Any move to allow the Yuan to float to its true market value will probably make imported consumer goods cheaper in China. Those choosing to engage in Yuan options trading may well prosper as the currency seeks its true value.

Succeeding in options trading of the Yuan will require the usual due diligence of keeping in touch with fundamentals and watching technical price patterns to spot trading opportunities. The addition of many Chinese companies trading the Yuan in various currency pairs against foreign currencies could well increase trade volume substantially. Higher trade volume in Yuan options trading will likely lead to a more liquid market and more predictable trading. Higher volume will typically make technical trading more accurate and profitable as well.

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