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Trading on trading tensions

Biyi Cheng, head of Greater China for CMC Markets, explains what makes its trading platform standout and why clients must observe recession risk and ongoing US-China trade difficulties if they want to trade profitably.

CMC Markets allows clients to trade a broad range of financial instruments through its Next Generation trading platform, supported by sophisticated charting, competitive pricing and automated execution.

As head of Greater China for the company, Biyi Cheng is able to explain what makes CMC stand out, and where its clients should be looking for the rest of the year.

The key advantage that CMC offers is that it has made it as easy as possible for traders to put their money to work.

“We have developed our own technology for professional traders,” he says. “It allows professional traders to assess the global market in one account. They can trade five different assets, FX, index, commodities, treasuries and a lot of global shares.”

That might appear overwhelming – clients can trade almost 10,000 products across all major assets – but Cheng explains that the platform can help traders with their research and points out where the opportunities lie. “It can show, for example, that that the euro/dollar in on the upside and what is the support and what is the resistance. The charting system can pick that up at one click. The client doesn’t need to draw the charts themselves,” he says.

But the way that clients want to trade has changed too. Cheng points out that CMC’s technology does not just apply to the desktop, it also applies to the mobile app. “In 2017 and 2018, our records show that 48% of our clients use the mobile app to trade. And in the last financial year it was up to around 50%,” he explains

As well as a slick system, traders, of course, need to understand the bigger picture. For Cheng, the two main themes at the moment are recession risk and ongoing US-China trade tensions.

A number of central banks have chosen to ease monetary policy to fight against recession risk. Cheng believes that US decision-makers are likely gradually to abandon the strong US dollar policy to reduce the deficit and that the US Federal Reserve will cut rates in September and October. “The possibility of a rate cut is very high at the moment and the US dollar will be under pressure.”

Meanwhile, trade tensions between the two largest economies in the world are on the rise. China announced its retaliation against US tariffs while it tries to stimulate demand against its own potential recession and Cheng doesn’t see tensions easing any time soon. “We expect that a trade deal is unlikely to be done before the US elections in November 2020,” he says.

INDICES RATHER THAN FX

Indices is one of the most popular products traded by CMC clients. “Our major flow all comes from indices rather than FX,” says Cheng.

A great deal of focus this year has been on the German DAX index because it is exposed to the trade war between the US and China. “The DAX is one of the most volatile indices in the market. If there is no volatility there is no price movement, and clients can’t make money from that. The DAX gives sufficient trading space for clients to trade,” he explains.

In contrast, volatility in the FX market has been much lower. “We can see from last year, especially in the US dollar index, traders were very bullish and that extended into the first half of 2019,” he says.

After a recent resurgence in the US dollar, the main performance in the FX market is between it and non-US dollar currencies. “We need to define in the next few months before the end of 2019 which one will outperform – non-US dollar or US dollar currencies,” Cheng says. He reckons the fact the US economy has been more competitive in the global market from a macro view, gives it an advantageous position compared to other major regions in Europe and Asia.

GOLD AS A HEDGING TOOL

The same themes come through in with commodities. It is no surprise that Cheng says that “gold is being used as a hedging tool against geographical risk and trade tensions”. Between July and August gold jumped to almost $100 and he says that there are a lot of buyers in the market

But for traders, base metals and copper, aluminium and industrial metals remain of particular interest. Cheng explains that the lack of any sign of trade deal “has introduced downside risk to base metals”.

China’s reaction to US tariffs has been to allow the renminbi to weaken to an 11-year low. The renminbi is the single most important currency for base metals because “China is both a market consumer but also a margin producer,” he says. The effect on the metal markets therefore has been “immediate”.

For the rest of the year, Cheng is cautious. “As a retail product, we like volatility in the market. We want it to increase to give our clients more trading space and we can generate more flow,” he says. But with the trade tensions and likely cuts to interest rates he expects clients to be more cautious across most asset classes. “I would expect clients not to take too much risk,” he concludes. 

Disclaimer: With derivative products you could lose more than your deposits. You do not own or have any interest in the underlying assets. Investing in derivative products carries significant risks. Seek independent advice and consider our PDS at cmcmarkets.com.au when deciding whether to invest in CMC Markets products. CMC Markets Asia Pacific Pty Ltd (ABN 11 100 058 213 AFSL No. 238054).

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