Connect with us

Trading

THE UNSTOPPABLE RMB

Published

on

THE UNSTOPPABLE RMB 1

By Evan Goldstein, Global Head of Renminbi Solutions, Deutsche Bank

The rapid progress of China’s currency, the Renminbi (RMB), cannot be denied. Indeed, since internationalisation began in 2009, the currency has altered the face of global markets, although the pace of change is likely to accelerate. Rising sharply in the world trade currency rankings – climbing from the 35th to the eighth most traded currency between October 2010 and August 2013[i] – the RMB has left important, well-known currencies such as the Hong Kong dollar and the Singapore dollar in its wake. What’s more, 2013 also saw the RMB overtake the euro to become the second most used currency in global trade finance (behind the US dollar).

Evan Goldstein

Evan Goldstein

Certainly, the RMB is making its mark on the global stage. Its potential as an international currency that could one day rival that of even the US dollar is being accepted by an increasingly wider audience. Singapore, Germany and Australia are the top three markets for RMB trade settlement outside China and Hong Kong (as at October 2013), evidencing its growing reach. European interest is particularly strong, and London and Frankfurt have recently been designated the first RMB clearing centres outside Asia.[ii]

There are even signs that US businesses – which have been hesitant with respect to RMB trading – may be warming to the idea of RMB adoption. While recent figures show the US continues to lag behind global averages in terms of use and intended use of RMB trade settlement (17 per cent compared with the global average of 22 per cent; and 22 per cent compared with the global average of 32 per cent), this is a significant increase from 2013, when only 9 per cent of US businesses used RMB for trade, with only 8 per cent having future designs to do so.[iii]

And as China continues to strengthen its ties with emerging markets (for example, two-way trade flows between Latin America and China soared from US$13 billion to in excess of US$120 billion between 2000 and 2009 – a staggering 660 per cent increase[iv]), the RMB’s role as a trade settlement currency is likely to explode.

Understanding the benefits

The currency’s continued advance is due to China introducing steps to increase the RMB’s accessibility via a series of policy changes. Documentary requirements, for example, have been significantly eased for corporates with proven track records, and with RMB trade transactions now able to take place electronically, the RMB has become more aligned with current corporate demands for efficiency, speed and ease-of-use.

The growing ease of transacting in RMB is certainly improving the currency’s appeal. Yet many companies, understandably, are continuing to show reluctance towards moving away from the habitual use of US dollar or euro denominated trade settlement. Furthermore, many report a lack of understanding of the RMB or awareness of its potential benefits. But these issues should not deter corporates from exploring the RMB’s potential.

Willingness to transact in RMB offers corporates an array of new opportunities in the Chinese market. Not only can corporates extend their client bases and trade with Chinese businesses that were previously inaccessible (due to their inability to transact in a foreign currency), this shift can allow corporates to negotiate improved sales terms. Indeed, Chinese companies are increasingly interested in conducting business in RMB to mitigate currency risk. Corporates that agree to settle in RMB can, therefore, receive cost reductions of perhaps two to three per cent – some even as high as seven per cent – as businesses in China pass-on the savings they’ve made through avoiding costs associated with FX and hedging on to their counterparty.

Challenges to navigate

Despite the clear advantages of RMB trade settlement, however, corporates must also be alert to the possible risks and complexities involved. For example, a serious consideration for corporates is the FX complications that can arise due to there still being two RMB currencies with different exchange rates: the pegged onshore RMB (CNY), and the floating offshore RMB (CNH). This means that funds still need to be divided into two pools, making it essential that operating systems are able to differentiate between CNY and CNH in order to navigate pricing, interest rates and derivative disparities. Moreover, CNY is the only official ISO code for RMB, and doesn’t allow for differentiation or payments between offshore and onshore pools.

A further complication is keeping abreast of the RMB’s many fluctuations. With the roll out of the People’s Bank of China’s (PBOC’s) RMB strategy ongoing, the capabilities allowed within the currency’s constraints are continually changing. These developments must therefore be monitored closely in order for corporates to remain alert to the intricacies of up-to-date regulatory and legal requirements.

Leveraging Renminbi opportunities

As the RMB’s prominence increases, corporates cannot afford to ignore its potential. Indeed, the currency’s progress thus far is widely believed to be just a scratch on the surface, with the eventual impact transforming global markets as transactions in RMB become commonplace. With the RMB’s progression inevitable, it is important that corporates embrace the currency and begin to fully leverage on the ever-increasing opportunities it presents. The question is, how?

While there is no “one-size-fits-all” solution for RMB adoption, specialist banking partners can work closely with clients, providing knowledge and guidance as they embark on their individual RMB strategy. The first step for all corporates in this respect should involve establishing an implementation timeline that clearly outlines expectations. It is important that the strategy has the backing of major stakeholders and counterparties, who should also be provided with comprehensive information on the processes involved throughout the RMB migration.

The RMB’s complexities mean having access to the support and experience of a specialist banking partner throughout the migration process could prove particularly beneficial. Certainly, those able to offer a holistic suite of cash, trade and FX products and services across the RMB spectrum can provide corporates with one-stop access to invaluable practical advice and assistance. And with the RMB in a state of flux in terms of capabilities and regulatory requirements, having such a banking partner – such as Deutsche Bank – that not only maintains a position at the forefront of RMB developments, but communicates these developments effectively and promptly with clients, is key to successfully transacting in this evolving currency.

Indeed, with the right technical support to address operational challenges – such as payables and receivables management – and through expert communication and consultative help to tackle evolving rules and regulations, the migration process for corporates can be seamless.

Switching to RMB, of course, requires adjustments – particularly to treasury and accounting infrastructures. And the entire migration process needs to be carefully managed. Yet, while the switch might create initial challenges, it is clear that corporates that are RMB-ready will be optimally positioned to capitalise on both current and upcoming opportunities, as the currency continues on its journey towards true internationalisation.

This article is based on a 2014 Deutsche Bank whitepaper, “The Renminbi: 2014 and beyond: Translating developments into tangible business opportunities”, essential reading for corporates considering the switch.

[i] Footnote 1: http://www.swift.com/assets/swift_com/documents/products_services/SWIFT_RMB_Tracker_November2011.pdf

[ii] Footnote 2: http://online.wsj.com/news/articles/SB10001424052702304418404579462971751348440

[iii] Footnote 3: http://www.forbes.com/sites/yunitaong/2014/07/09/more-u-s-companies-are-settling-trade-with-yuan/

[iv] Footnote 4: http://www.ibtimes.com/latin-america-increases-relations-china-what-does-mean-us-1317981

Trading

How has the online trading landscape changed in 2020?

Published

on

How has the online trading landscape changed in 2020? 2

By Dáire Ferguson, CEO, AvaTrade 

This year has been all about change following the outbreak of coronavirus and the subsequent global economic downturn which has impacted nearly every aspect of personal and business life. The online trading world has been no exception to this change as volatility in the financial markets has soared.

Although the global markets have been on a rollercoaster for some time with various geopolitical tensions, the market swings that we have witnessed since March have undoubtedly been unlike anything seen before. While these are indeed challenging times, for the online trading community, the increased volatility has proven tempting for those looking to profit handsomely.

However, with the opportunity to make greater profits also comes the possibility to make a loss, so how has 2020 changed the online trading landscape and how can retail investors stay safe?

Lockdown boost

Interest rates offered by banks and other traditional forms of consumer investments have been uninspiring for some time, but with the current economic frailty, the Bank of England cut interest rates to an all-time low. This has left many people in search of more exciting and rewarding ways to grow their savings which is indeed something online trading can provide.

When the pandemic hit earlier this year, it was widely reported that user numbers for online trading rocketed due to disappointing savings rates but also because the enforced lockdown gave more people the time to learn a new skill and educate themselves on online trading.

Dáire Ferguson

Dáire Ferguson

A volatile market certainly offers great scope for profit and new sources of revenue for those that are savvy enough to put their convictions to the test. However, where people stand the chance to profit greatly from market volatility, there is also the possibility to make a loss, particularly for those that are new to online trading or who are still developing their understanding of the market.

The sharp rise in online trading over lockdown paired with this year’s unpredictable global economy has led to some financial losses, but with a number of risk management tools now available this does not necessarily have to be the case.

Protect your assets

Although not yet widely available across the retail market, risk management tools are slowly becoming more prevalent and being offered by online traders as an extra layer of security for those seeking to trade in riskier climates.

There are a range of options available for traders, but amongst the common tools are “take profit” orders in conjunction with “stop loss” orders. A take profit order is a type of limit order that specifies the exact price for traders to close out an open position for a profit, and if the price of the security does not reach the limit price, the take profit order will not be fulfilled. A stop loss order can limit the trader’s loss on a security position by buying or selling a stock when it reaches a certain price.

Take profit and stop loss orders are good for mitigating risk, but for those that are new to the game or who would prefer extra support, there are even some risk management tools, such as AvaProtect, that provide total protection against loss for a defined period. This means that if the market moves in the wrong direction than originally anticipated, traders can recoup their losses, minus the cost of taking out the protection.

Not a day has gone by this year without the news prompting a change in the financial markets. Until a cure for the coronavirus is discovered, we are unlikely to return to ‘normal’ and the global markets will continue to remain highly volatile. In addition, later this year we will witness one of the most critical US presidential elections in history and the UK’s transition period for Brexit will come to an end. The outcome of these events may well trigger further volatility.

Of course, this may also encourage more people to dip their toes into online trading for a chance to profit. As more people take an interest and sign up to online trading platforms, providers will certainly look to increase or improve the risk management tools on offer to try and keep new users on board, and this could spell a new era for the online trading world.

Continue Reading

Trading

Trading Strategies

Published

on

Trading Strategies 3

By Paddy Osborn, Academic Dean, London Academy of Trading

Whether you’re negotiating a business deal, playing a sport or trading financial markets, it’s vital that you have a plan. Top golfers will have a strategy to get around the course in the fewest number of shots possible, and without this plan, their score will undoubtedly be worse. It’s the same with trading. You can’t just open a trading account and trade off hunches and hopes. You need to create a structured and robust plan of attack. This will not only improve your profitability, but will also significantly reduce your stress levels during the decision-making process.

In my opinion, there are four stages to any trading strategy.

S – Set-up

T – Trigger

E – Execution

M – Management

Good trading performance STEMs from a structured trading process, so you should have one or more specific rules for each stage of this process.

Before executing any trades, you need to decide on your criteria for making your trading decisions. Should you base your trades off fundamental analysis, or maybe political news or macroeconomic data? If so, then you need to understand these subjects and how markets react to specific news events.

Alternatively, of course, there’s technical analysis, whereby you base your decisions off charts and previous price action, but again, you need a set of specific rules to enable you to trade with a consistent strategy. Many traders combine both fundamental and technical analysis to initiate their positions, which, I believe, has merit.

Set-up

What needs to happen for you to say “Ah, this looks interesting! Here’s a potential trade.”? It may be a news event, a major macro data announcement (such as interest rates, employment data or inflation), or a chart level breakout. The key ingredient throughout is to fix specific and measurable rules (not rough guidelines that can be over-ridden on a whim with an emotional decision). For me, I may take a view on the potential direction of an asset (i.e. whether to be long or short) through fundamental analysis, but the actual execution of the trade is always technical, based off a very specific set of rules.

To take a simple example, let’s assume an asset has been trending higher, but has stopped at a certain price, let’s say 150. The chart is telling us that, although buyers are in long-term control, sellers are dominant at 150, willing to sell each time the price touches this level. However, the uptrend may still be in place, since each time the price pulls back from the 150 level, the selling is weaker and the price makes a higher short-term low. This clearly suggests that upward pressure remains, and there’s potential to profit from the uptrend if the price breaks higher.

Trigger

Once you’ve found a potential new trade set-up, the next step is to decide when to pull the trigger on the trade. However, there are two steps to this process… finger on trigger, then pull the trigger to execute.

Paddy Osborn

Paddy Osborn

Continuing the example above, the trigger would be to buy if the price breaks above the resistance level at 150. This would indicate that the sellers at 150 have been exhausted, and the buyers have re-established control of the uptrend.  Also, it is often the case that after pause in a trend such as this, the pent-up buying returns and the price surges higher. So the trigger for this trade is a breakout above 150.

Execution

We have a finger on the trigger, but now we need to decide when to squeeze it. What if the price touches 150.10 for 10 seconds only? Has our resistance level broken sufficiently to execute the trade? I’d say not, so you need to set rules to define exactly how far the price needs to break above 150 – or for how long it needs to stay above 150 – for you to execute the trade. You’re basically looking for sufficient evidence that the uptrend is continuing. Of course, the higher the price goes (or the longer it stays above 150), the more confident you can be that the breakout is valid, but the higher price you will need to pay. There’s no perfect solution to this decision, and it depends on many things, such as the amount of other supporting evidence that you have, your levels of aggression, and so on. The critical point here is to fix a set of specific rules and stick to those rules every time.

Management

Good trade management can save a bad trade, while poor trade management can turn an excellent trade entry into a loser. I could talk for days about in-trade management, since there are many different methods you can use, but the essential ingredient for every trade is a stop loss. This is an order to exit your position for a loss if the market doesn’t perform as expected. By setting a stop loss, you can fix your maximum risk on a trade, which is essential to preserving your capital and managing your overall risk limits. Some traders set their stop loss and target levels and let the trade run to its conclusion, while others manage their trades more actively, trailing stop losses, taking interim profits, or even adding to winning positions. No matter how you decide to manage each trade, it must be the same every time, following a structured and robust process.

Review

The final step in the process is to review every trade to see if you can learn anything, particularly from your losing trades. Are you sticking to your trading rules? Could you have done better? Should you have done the trade in the first place? Only by doing these reviews will you discover any patterns of errors in your trading, and hence be able to put them right. In this way, it’s possible to monitor the success of your strategy. If your trades are random and emotional, with lots of manual intervention, then there’s no fixed process for you to review. You also need to be honest with yourself, and face up to your bad decisions in order to learn from them.

In this way, using a structured and robust trading strategy, you’ll be able to develop your trading skills – and your profits – without the stress of a more random approach.

Continue Reading

Trading

Economic recovery likely to prove a ‘stuttering’ affair

Published

on

Economic recovery likely to prove a ‘stuttering’ affair 4

By Rupert Thompson, Chief Investment Officer at Kingswood

Equity markets continued their upward trend last week, with global equities gaining 1.2% in local currency terms. Beneath the surface, however, the recovery has been a choppy affair of late. China and the technology sector, the big outperformers year-to-date, retreated last week whereas the UK and Europe, the laggards so far this year, led the gains.

As for US equities, they have re-tested, but so far failed to break above, their post-Covid high in early June and their end-2019 level. The recent choppiness of markets is not that surprising given they are being buffeted by a whole series of conflicting forces.

Developments regarding Covid-19 as ever remain absolutely critical and it is a mixture of bad and good news at the moment. There have been reports of encouraging early trial results for a new treatment and potential vaccine but infection rates continue to climb in the US. Reopening has now been halted or reversed in states accounting for 80% of the population.

We are a long way away from a complete lockdown being re-imposed and these moves are not expected to throw the economy back into reverse. But they do emphasise that the economic recovery, not only in the US but also elsewhere, is likely to prove a ‘stuttering’ affair.

Indeed, the May GDP numbers in the UK undid some of the optimism which had been building recently. Rather than bouncing 5% m/m in May as had been expected, GDP rose a more meagre 1.8% and remains a massive 24.5% below its pre-Covid level in February.

Even in China, where the recovery is now well underway, there is room for some caution. GDP rose a larger than expected 11.5% q/q in the second quarter and regained all of its decline the previous quarter. However, the bounce back is being led by manufacturing and public sector investment, and the recovery in retail sales is proving much more hesitant.

China is not just a focus of attention at the moment because its economy is leading the global upturn but because of the increasing tensions with Hong Kong, the US and UK. UK telecoms companies have now been banned from using Huawei’s 5G equipment in the future and the US is talking of imposing restrictions on Tik Tok, the Chinese social media platform. While this escalation is not as yet a major problem, it is a potential source of market volatility and another, albeit as yet relatively small, unwelcome drag on the global economy.

Government support will be critical over coming months and longer if the global recovery is to be sustained. This week will be crucial in this respect for Europe and the US. The EU, at the time of writing, is still engaged in a marathon four-day summit, trying to reach an agreement on an economic recovery fund.  As is almost always the case, a messy compromise will probably end up being hammered out.

An agreement will be positive but the difficulty in reaching it does highlight the underlying tensions in the EU which have far from gone away with the departure of the UK. Meanwhile in the US, the Democrats and Republicans will this week be engaged in their own battle over extending the government support schemes which would otherwise come to an end this month.

Most of these tensions and uncertainties are not going away any time soon. Markets face a choppy period over the summer and autumn with equities remaining at risk of a correction.

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2020
2020 Global Banking & Finance Awards now open. Click Here

Latest Articles

RegTech 2020: Exploring financial crime and the emergence of RegTech in the USA 5 RegTech 2020: Exploring financial crime and the emergence of RegTech in the USA 6
Technology5 mins ago

RegTech 2020: Exploring financial crime and the emergence of RegTech in the USA

with host, Alex Ford, VP Product and Marketing, Encompass, and guests, Dr Henry Balani, Head of Delivery, Encompass; Pawneet Abramowski,...

86% of UK businesses face barriers developing digital skills in procurement 7 86% of UK businesses face barriers developing digital skills in procurement 8
Technology11 hours ago

86% of UK businesses face barriers developing digital skills in procurement

A shortage of digitally savvy talent, and a lack of training for technical and soft skills, hinder digital procurement initiative...

ISO 20022 migration: full speed ahead despite recent delays, says new Deutsche Bank paper 9 ISO 20022 migration: full speed ahead despite recent delays, says new Deutsche Bank paper 10
Finance22 hours ago

ISO 20022 migration: full speed ahead despite recent delays, says new Deutsche Bank paper

Today, Deutsche Bank has released the third installment in its “Guide to ISO 20022 migration” series, which offers a comprehensive...

What Skills Does a Data Scientist Need? 11 What Skills Does a Data Scientist Need? 12
Business23 hours ago

What Skills Does a Data Scientist Need?

In this modern and complicated time of economy, Big data is nothing without the professionals who turn cutting-edge technology into...

The importance of app-based commerce to hospitality in the new normal 13 The importance of app-based commerce to hospitality in the new normal 14
Technology4 days ago

The importance of app-based commerce to hospitality in the new normal

By Jeremy Nicholds CEO, Judopay As society adapts to the rapidly changing “new normal” of working and socialising, many businesses...

The Psychology Behind a Strong Security Culture in the Financial Sector 15 The Psychology Behind a Strong Security Culture in the Financial Sector 16
Finance4 days ago

The Psychology Behind a Strong Security Culture in the Financial Sector

By Javvad Malik, Security Awareness Advocate at KnowBe4 Banks and financial industries are quite literally where the money is, positioning...

How open banking can drive innovation and growth in a post-COVID world 17 How open banking can drive innovation and growth in a post-COVID world 18
Banking4 days ago

How open banking can drive innovation and growth in a post-COVID world

By Billel Ridelle, CEO at Sweep Times are pretty tough for businesses right now. For SMEs in particular, a global financial...

How to use data to protect and power your business 19 How to use data to protect and power your business 20
Business4 days ago

How to use data to protect and power your business

By Dave Parker, Group Head of Data Governance, Arrow Global Employees need to access data to do their jobs. But...

How business leaders can find the right balance between human and bot when investing in AI 21 How business leaders can find the right balance between human and bot when investing in AI 22
Business4 days ago

How business leaders can find the right balance between human and bot when investing in AI

By Andrew White is the ANZ Country Manager of business transformation solutions provider, Signavio The digital world moves quickly. From...

Has lockdown marked the end of cash as we know it? 23 Has lockdown marked the end of cash as we know it? 24
Finance4 days ago

Has lockdown marked the end of cash as we know it?

By James Booth, VP of Payment Partnerships EMEA, PPRO Since the start of the pandemic, businesses around the world have...

Newsletters with Secrets & Analysis. Subscribe Now