The interventions from China’s central bank make trading the yuan riskier than other currencies, but it does create opportunities for traders looking for volatility. Find out about the yuan and how to trade it.
What is the Chinese yuan?
The Chinese yuan is a unit of renminbi (RMB), which is the official currency of the People’s Republic of China, and one of the oldest global currencies. In the same way that a pound is a unit of Britain’s sterling currency, the yuan is a unit of renminbi.
The Standard Mandarin term ‘yuan’ literally translates to round object or coin. The official symbol is "Ұ" – it’s different to the Japanese yen symbol which has two lines across the Y.
The words yuan and renminbi are used interchangeably, so you’ll often hear yuan used to describe the Chinese currency on global markets.
Why trade the Chinese yuan?
China’s economic growth in recent years has made the yuan an increasingly attractive investment.
Historically, the yuan hadn’t been recognised as an international currency due to the Chinese government’s strict market control. The Chinese government takes a very active role in making sure the exchange rate is favourable, keeping the yuan low against other global currencies, to ensure the country’s exports remain competitive.
However, the growth of the Chinese economy has made the RMB one of the most-used global currencies and the Chinese government has renewed its commitment to achieving a more prominent position in the global financial system.
Another marker of the RMB emerging as a global currency came in 2022, when the Chinese renminbi became an international reserve asset of the International Monetary Fund. The move will mean that the renminbi is used more frequently in trade and international transactions of commodities, such as crude oil and gold. This puts it alongside other reserve currencies such as the US dollar, euro, British pound and Japanese yen.
It’s important to note that while the yuan is no longer fixed to the US dollar, it’s only allowed to trade in a range, which limits the upward price movement of the currency. There are also strict capital controls in place which limit the free movement of capital out of China. Until the government relinquishes control over the yuan completely, it’s unlikely that it will rise to the same status as the US dollar.
Government policy in China is constantly changing, so it’s important to stay up to date with economic and political news.
Trading the yuan on forex markets: CNY vs CNH
Due to China’s cross-border currency controls, there are two markets for the yuan. The onshore yuan, which is traded in mainland China, is known under the ticker CNY. The offshore yuan, which is used on international markets, is known by the ticker CNH. Both CNH and CNY are worth the same amount of renminbi – if they were traded against each other, they’d work on a 1:1 basis. But they do have different values on global markets.
Most trading of the CNY currency is performed by exporters who want to buy the renminbi against other foreign currencies. CNY is government-controlled, so it has far stricter measures in place in order to ‘empower’ trade between Chinese companies.
The CNH currency is used by international investors who want to invest in or speculate on the yuan. It is not as closely monitored by China’s central bank as it is freely traded and its price is determined by the will of the market.
The two currencies can move differently, but there is a strong correlation between the two.
Popular yuan FX pairs
Despite being the currency of a major economy, the CNH is still considered an exotic currency, because the volume of trade is so much lower than other major forex pairs. This means it sees a lot more volatility – spurred on by central bank interventions – and less liquidity.
With City Index, you can trade the offshore yuan: CNH. Some of the most popular pairs include:
- USD/CNH – this pair has always been the most popular way of trading the yuan, as it’s the most to Chinese political and economic announcements. The tensions between the US and China have increased the popularity of the pair considerably, as a means of speculating on the competition between the two economies
- EUR/CNH – this pair is less volatile than USD/CNH because the relationship between the eurozone and China is less fraught than the US. The two economies are closely interconnected through trade
- CNH/JPY – China and Japan have a close economic relationship. The Japanese yen is another currency that is kept artificially low against other global currencies, but it is considered a safe-haven currency, so its value rises during economic crises
- AUD/CNH – the Australian economy is tied very closely to China, as it’s one of the country’s largest trading partners and receives the majority of Australian exports. When Australia’s exports increase, its currency strengthens against the Chinese yuan due to the increase in demand
How to buy and sell the Chinese yuan
You can speculate on the yuan with City Index in just four easy steps:
- Open a City Index account, or log in if you’re already a customer
- Search for ‘CNH’ in our award-winning platform and choose a currency pair
- Choose your position and size, and your stop and limit levels
- Place the trade
Or you can practise trading CNH pairs risk free by signing up for our demo trading account.
The most common way of trading the yuan is using derivatives that enable you to buy and sell currencies using leverage. As the yuan (like any currency) moves in smaller increments than other financial markets, leverage is a common way of getting a larger exposure to market movements. However, just as leverage can magnify gains, it can magnify losses – this makes it vital to have a risk management strategy in place before you take a position.
With City Index, you can trade spot FX, deciding how much of a base currency you want to buy or sell. Or, you can use FX derivatives to speculate on the market price.
Learn more about trading FX with City Index.
You can also buy the yuan via a currency exchange traded fund. You’d buy the ETF through your broker or trading provider as you would a stock, but instead of buying shares in a company, you’re buying into a fund that tracks a basket of currencies that includes the Chinese yuan.
Learn more about trading ETFs with City Index.