USDCNH Trading tutorial

CNH is an abbreviation of China’s currency, Renminbi, traded outside Mainland China’s capital markets.

There are 2-versions of the Chinese Renminbi. 

Before 2010, the Cny, the national currency used in mainland China, was the only version. The Chinese government controls the exchange rate for this currency, and its capital market has some major restrictions.

The CNH was introduced to internationalize the Yuan and encourage offshore trading. It would serve as the Chinese offshore currency in the global financial market.

The CNH exchange rate is influenced by financial market activities, unlike the CNY.

What is the difference between CNH and CNY?

For the Chinese in the mainland, there is only one Renminbi. Its symbol is the same ¥, though its abbreviation is CNY.

But for forex traders offshore or in the global market, there’s a big difference between the 2-versions.

Their exchange rates are not the same. As I mentioned, the CNY’s rate is controlled by the Chinese government and in the past, it was only traded in China’s capital market. But demand and supply in the financial market determine the CNH exchange rate.

The People’s Bank of China is responsible for publishing daily reference rates for the CNY.

In Summary

• China’s government regulates the CNY, while the CNH is a free-floating currency and is under no one’s control.

• China central bank publishes reference rates for the Cny. Market forces determine the Cnh’s exchange rate.

• The CNY is used in mainland China by individuals and businesses. The Cnh is traded in the global forex market.

What currency is CNH?

The CNH is the abbreviation for China’s national currency. The H stands for Hongkong, indicating that this is the version traded in Chinese offshore capital markets, such as Hong Kong, Singapore, South Korea, and London. 

It should not be mistaken for the CNY. China’s official currency, CNY, is used and traded inside mainland China.

What is the offshore Yuan?

People refer to the Chinese Yuan with this short form CNH as the offshore Yuan.

As we’ve explained, this version of Chinese currency was specifically created in a bid to make the Renminbi tradable in the global forex market.

The first version, CNY, is fully controlled by the CCP, and its market isn’t fully open to international traders.

These restrictions would have to be lifted if China wishes to fully participate in the global financial markets. Or they would have to operate a currency that’s free from government control. Hence, the creation of the offshore Yuan.

The CNH is traded alongside other currencies in the global forex market. Its most common pair is the US dollar, represented in the chart as USD/CNH.

What is USDCNH?

The USDCNH is a forex pair that stands for the US dollar and the Chinese Yuan/Renminbi.

The exchange rate shows the value of the Yuan to the US dollar, that is, the amount of Yuan equivalent to 1 dollar.

UsdCnh 6.3689 means ¥6.3689 is equal to $1.

This exchange rate is fully controlled by market forces. And these forces are influenced by both countries’ economies, political status, and GDP.

Trade wars may also impact exchange rates, as witnessed during the US-China trade war. During this time, the value of the Yuan weakened immensely against the dollar, as China’s foreign investors pulled out of the country and settled in Vietnam instead. 

How to trade the USDCNH cross?

Though the UsdCnh consists of 2-currencies from 2 of the world’s largest economies, it is considered an exotic pair.

That’s because the Chinese Yuan is an emerging market currency. 

Not many brokers offer this pair as they are not as liquid as the major ones.

To trade the USDCNH, here is a step by step guide

Step-1: Research the best strategies for successful trade with this pair

Using the best approach at the most suitable time will make your trades profitable. We will explain some useful strategies in this tutorial.

Step-2: Find a good broker

A good broker is licensed, offers competitive spreads plus good trading conditions and good customer service.

Step-3: Test the platform with a free demo 

A good broker usually offers a free demo account. That way, customers can test their trading platforms without risk. Take advantage of this and get acquainted with your selected broker. And to see all the features of their platform.

Step-4: Sign up 

After your demo, you’re satisfied with the platform, register with them by filling in the required details on their website. Your broker may request an ID as part of KYC to complete your registration. But the process should be straightforward.

Step-5: Fund your new account 

Your broker will give you a few options through which you can credit your account easily. Your account would have at least the minimum required deposit before you can trade.

Step-6: Choose the USDCNH pair

Click on quotes on your dashboard and scroll to the currency pair USDCNH. Once you click on the pair, a display appears on your screen to show you the details of that trade, and the 2-positions. 

Step-7: Choose your position

The 2-positions indicate a long trade(buy) or a short(sell). If you go long, you’re speculating that the USD(the base currency) will strengthen against the CNH. If you go short, you are betting on the opposite. 

Step-8: Close your trade to secure your gains

After the trade has matured and reached your specified time, it is time to exit the position and close the trade. You do this by clicking on the X’ or close sign. You can close it anytime you want. Traders often monitor their positions and exit before time if the market moves against them.

Now, we’ll explain some functional strategies that work well with the UsdCnh pair. Then we’ll share some noteworthy features of a few recommended brokers.

Strategies for trading the USDCNH forex pair:

Some successful ways to trade this cross include

Day trading strategies 

In day trading, you open and close all your trades within 24-hours. That is, you exit all your trades by the end of the day and begin afresh with new positions the next day.

Essentially, day traders take advantage of minor price fluctuations by buying and selling multiple pairs within the same day.

This approach requires time and dedication, and a few factors should be taken to account before you day-trade any pair:

The pair should be considerably liquid

The UsdCnh is one of the most liquid exotic pairs, so it’s suitable for day trading.

Volatility is an advantage 

The more volatile the currencies, the better for day-trading, since there will be constant price moves in the day. Being an exotic pair, the UsdCnh is very volatile and gives you many opportunities to trade on the continuous price moves.

The good thing about day trading is that it cuts out any overnight fees, thereby lowering the cost of trading.

Also, risks are minimized since your trade won’t be subject to any overnight moves.

There are many types of day trading. We’ll examine some of them below

Scalping

Scalping is the most common form of day trading. With this strategy, traders focus on gaining small profits from numerous short-term trades before the day’s end. 

Some scalpers live positions open for as long as 5-minutes, make between 5 – 20 pips profit, then exit the trade to reopen it again. And they ensure to close all trades to avoid overnight charges.

Stop-loss is an essential risk control tool in this approach. With it, you get to secure a portion of your profit at all times when scalping. That way, you avoid or minimize loss if the trend changes suddenly.

Mean reversion

In this trading strategy, you believe that the price of the UsdCnh will always return to its average(mean) price.

All prices have a normal pattern, a mean price. It is assumed that in the long run, the price will revert to the mean. So you use the mean reversion strategy by trading around the central value or the moving average. 

The approach works best when you notice a sudden extreme move in the price.

The market often reacts quickly to new information, causing sudden moves. And most times, it takes a while for participants to assimilate the information.  

A good indication to open positions is when the price deviates from the simple moving average. Or when it stretches off resistance and support.

Three important things to remember are:

1. Win rate is high when the timeframe is short.

2. Set your take profit on the average price.

3. The strategy is most suitable in a range of market conditions.

Money flow indicator

The money flow indicator uses price and volume to measure if the asset is overbought or oversold. With this strategy, you’re literally ‘following the money by looking at the volume traded at a certain price.

The MFI works by moving back and forth between 0 to 100. If its reading is above 80, traders consider the asset overbought, while below 20 shows oversold conditions. 

There are 4 steps to determining the MFI

1st step – calculate the typical price(TP). 

The formula for this is high+low+closing price/3. Where high is the average high and low is the average low.

2nd step – calculate the money flow.

Using the formula, typical price × volume.

If the TP is higher than the previous day’s typical price, it means the money flow is positive. Implying that traders are opening more positions. If it is lower, then it is a negative money flow, meaning more traders are exiting their trades.

3rd step – Ascertain the money ratio. (MR)

Mr = Positive Money flow(PMF)/Negative money flow(NMF)

4th step – Calculate the money flow index.

Mfi = 100 – (100 / (1 + MR))

Note that the default timeframe for Mfi is 14-days, and its value moves between 0 and 100.

If the MFI reads above 80, it means the UsdCnh is overbought. Traders see this as a signal to enter a SELL position as they expect a reversal in the trend. 

If it reads below 20, it denotes an oversold market condition. And is the best time to enter a BUY position as you expect a trend reversal.

Similar to all other indicators in this regard, the MFI may provide a false buy or sell signal. So some traders avoid it entirely or combine it with other technical indicators to get stronger trade signals.

Trend trading strategy 

Trend trading is the use of technical indicators to identify momentums in price movements. Every asset, including the UsdCnh, have a certain predictable quality. Traders use this approach to guess the next price moves by analyzing past trends and market behaviors. 

This strategy is suitable for any timeframe, either long-term or short-term trade.

Long-term trend trading

Also known as positional trading, it involves holding your trade till the trend comes to an end. Some traders can hold their positions for up to 6-months. 

We do not recommend position trend trading for the UsdCnh because, as an exotic pair, long-term trends are uncommon here. And you stand a higher risk of losing your funds to sudden trend reversal if you leave positions open for too long.

The short-term trend trading strategy 

This approach is more appropriate for the UsdCnh cross. Swing trading is another name for short-term trend trading. 

Here, you leave your trades open for a shorter time frame, between a few hours to 2 or 3 days.

How to use trend trading strategy?

There are 3-types of market trends

Uptrend

An uptrend means that quoted prices are going up. For instance, if the exchange rate of UsdCnh goes up 50pips, then drops by 30pips, then increases again by 60pips, then reduces by 20pips, this is considered an uptrend. 

To take advantage of this, you place a BUY trade to exit when the price finally peaks.

Downtrend

Decreasing price indicates a downtrend in the market and is an opportunity to enter a SELL position.  

Sideways trend

This market condition is featured by prices neither going higher than its previous high nor lower than its previous low.

This trend allows traders to trade on the minor fluctuations that occur within the trend.

Moving average strategy. 

This approach uses the Moving average indicator to identify market trends. With this indicator, you get to analyze past trends. Through this analysis, you can know if the market is in an uptrend, downtrend, or sideways.

It is common for traders to calculate moving averages using 50-day or 200-days data.

The 2-types of moving averages are

Single moving average.

In a Single moving average, if the price is above, it indicates an uptrend(increasing prices). If below, that is a downtrend (falling prices).

Exponential moving average.

The Exponential Moving average is the point at which 2 MAs crosses. One of the moving averages will be faster than the other. You should seek to enter a BUY position when the fast EMA crosses the slow one from below. And enter a SELL position when it crosses the slow EMA from above.

The EMA approach provides a stronger signal than the single MA, so traders prefer it.

These strategies presented do not guarantee 100% wins. But they’re effective with the UsdCnh pair. We advise you to test several approaches and stick with the ones you find most comfortable. 

Remember that the market condition should determine the strategy you use. 

Many forex brokers offer free demos with which you can test out their indicators and the strategies you’ve learned. Markets.com, Roboforex, Vantagefx, and a few others offer the opportunity to trade UsdCnh. 

Below, we present the basic offerings of the 3-brokers listed

Markets.com

  • Regulations

Markets.com is regulated in its headquarters, Cyprus, by CySec. It also has licenses from well-known global bodies such as FCA and the FSCA. The licenses from these financial bodies give us enough proof that the broker is legit and operates according to required international standards.

  • Minimum deposits and fees 

The broker accepts a $100 deposit before trading. Payments can be made through multiple famous channels online or through bank transfers. There are no funding or withdrawal fees and no commission. Swap fees are 2.5% and a $10 monthly inactivity fee is charged if your account stays inactive for 3-months

  • Leverage

You will receive between 1.30 – 1.400 as leverage, giving you an opportunity to make greater gains than your capital.

  • Other assets offered

Up to 67 Forex pairs, commodities, bonds, indices, shares provide you with the chance to diversify your investments. 

  • Customer rating and support services

The broker has a 4-star rating on Trustpilot. Its support service is allegedly excellent and available 24-5 on live chat, email, and phone.

  • Platforms

Traders have the option to trade on the Mt5, Marketsi, MarketX, web trader.

Pros

  • Its account opening process is Straightforward and stress-free.
  • Traders can use multiple trading platforms, including markets.com proprietary platforms. 
  • A free demo is offered to allow you to test the broker’s platform before you commit to it.

Cons

  • Some forex pairs and CFDs may attract high fees.

Vantagefx

  • Regulations and safety

Vantagefx is licensed in its home country Australia, by Asic. It also operates under international regulations by the FCA and CIMA, the Cayman Islands Monetary Authority. 

  • Minimum deposits, leverage, and fees

Before trading, you will need to fund your accounts with at least $200 through any of the funding methods provided. There are multiple methods, including credit, debit cards, or bank transfers. Leverage up to 1.500 is available to increase your stake if you choose to. You will not be charged for deposits or withdrawals. Average spreads for UsdCnh is 2.80pips per unit.

  • Customer service rating

The broker earned a 4-star on Trustpilot, showing that its service is better than average. Support is available 24-5 on live chat, email, and phone.

  • Platforms

Platforms used are Mt4, Mt5, Vantage app, ProTrader.

Pros

  • Free demo for tests
  • Multiple currency accounts 
  • Auto-trading is available. 

Cons

  • Higher fees on standard accounts.
  • Withdrawals may take longer to process(sometimes up to 7-days)

Roboforex.

  • Regulations

Roboforex is authorized by CySec and the Ifsc(International Financial Service Commission) in its home country, Belize.

  • Minimum deposits

It accepts a low minimum deposit of $10 through popular payment methods such as credit and debit cards.

  • Leverage

Traders can access competitive leverage between 1.30 and 1.1000.

  • Customer service rating 

Roboforex earned a 3.4 rating on Trustpilot for its good and responsive support services. Customers can reach its multilingual support 24-7 via phone, email, and live chat. 

  • Platforms 

Mt4, Mt5, cTrader, RTrader are available for trading.

Pros

  • Good trading conditions 
  • Copytrading service is offered
  • Fast withdrawal processing. 

Cons

  • Limited currency pairs are available to trade.
  • Crypto trading is unavailable on the RTrader.

Conclusion 

Trading the UsdCnh allows you to diversify your forex investment. Being an unpopular pair, the right approach is key to benefitting from it. Understanding trends and using the right indicators will increase your win rates. We hope the strategies presented are a helpful start to learning to trade this exotic cross.

Witzeltrading.com

Contact

Witzel Capital LTD.

Cyprus, 7557 Larnaca, Mazotos Hills 4, Block D, Flat 203

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