With over 1.4 billion residents, the People’s Republic of China easily wins the race for the world’s most populous country. Governed by the Communist Party of China, this single-party state generated a nominal gross domestic product of $13.4 trillion in 2018.
China has risen to the status of an economic powerhouse in recent years due to various factors, including its high literacy rates (over 96% in 2018), high life expectancy, vast workforce, and thriving economy. The country also ranks as the world’s biggest manufacturer and exporter of goods.
Considering these conditions, it is not surprising that an increasing number of foreign exchange brokerages turn their eyes to China, trying to attract the interest of local traders by offering them websites available in both English and Chinese alongside various convenient funding methods.
China Forex Legislation
Penetrating the Chinese Forex market has not always been easy for foreign brokerages due to the unique business environment and regulations in the country. Trading foreign currencies against each other is legal here but is hindered by the closed-capital policy China maintains.
This prevents the free flow of money from and into the country unless it is conducted under stringent rules. The two main regulatory bodies responsible for the oversight of the Forex market in China are the State Administration of Foreign Exchange and the central banking institution in the country, the People’s Bank of China (PBOC).
Non-domestic brokerages can penetrate the local Forex market by partnering with local foreign-exchange companies, which assume the role of introductory brokers, enabling foreign firms to build a network of trusty customers.
However, foreign brokerages must be structured in a certain way before they can approach a Chinese introductory broker (IB) as this would enable the country’s government to adequately oversee their activities.
Foreign companies regulated by respected financial watchdogs like the UK Financial Conduct Authority (FCA) or the Australian Securities and Investments Commission (ASIC) are safe from revocation by the local authorities provided that they have established China-owned offices within the mainland part of the country.
Most well-respected brokerages that have set up offices in mainland China have done so either through partnerships with fully Chinese-owned companies or through direct ownership. This allows foreign Forex brokers to run their business on Chinese infrastructure, in turn enabling the local government to keep a close watch on all of their activities through internet surveillance.
Thanks to these requirements, the Chinese government can track the brokerages’ order flow, the way they execute the trades, and where funds are being stored. All activities, from depositing and market execution to withdrawals and customer-support interactions, are strictly monitored by the Chinese authorities.
Companies without a physical presence in the country and little-to-no infrastructure in mainland China are likely to face the boot. They risk having their websites blocked because it is not possible for the government to adequately monitor them and determine whether they service Chinese customers properly or not. By the end of 2018, local authorities had given the boot to over 600 unauthorized margin-trading platforms because of complaints from losing investors.
Very importantly, retail customers from the country are permitted to trade Forex currencies but there are restrictions on how much they can buy annually. Margin trading is officially prohibited in China.
This method enables one to trade with money provided by third parties, giving them access to larger amounts of capital through leverage. For example, if a person wants to open a $100,000 position with leverage of 10:1, they would need to provide $10,000 of their own funds. In turn, this can greatly amplify both the profits and losses the traders realize.
China Financial Regulators
All entities operating in the country must obtain proper licenses from China’s regulatory bodies before they can engage in any financial activities. The State Administration of Foreign Exchange (SAFE) is responsible for the oversight and regulation of the Forex market in the country.
Along with the People’s Bank of China (PBOC), SAFE oversees the foreign-exchange flow to and from China. The two entities are also responsible for setting exchange rates through a managed float regime.
SAFE, in particular, assumes a variety of other functions apart from drafting laws and regulating the Forex markets in China. The entity also regulates cryptocurrencies and monitors the balance of payments and external debt.
Companies operating on local soil, foreign exchange brokerages included, are expected to report all overseas payments within the designated timeframes, or else they will not be permitted to arrange such transactions.
Between 1994 and 2008, trading with margin was allowed in the country as long as the brokers had authorization from the respective Chinese regulatory authorities. Subsequently, the situation changed in 2008 when direct or indirect margin trading became illegal under Chinese law.
Those who violate this condition face various administrative and criminal penalties under the Administrative Regulations on Forex Exchange. Some of the sanctions imposed on violators include formal warnings, fines, confiscation of illegal proceeds, and conviction for conducting illicit business operations.
China Forex Payment Methods
China-friendly Forex brokerages generally offer high-standard services and competitive prices to Chinese customers. Traders from the country commonly prefer to fund their live accounts with China UnionPay, a very popular payment method among Chinese residents.
China UnionPay is the biggest issuer of debit and credit cards in the world, surpassing even established brands like Visa and Mastercard in this respect. Fully approved by the People’s Bank of China (PBOC), its cards are accepted by some of the largest international banks on a global scale.
Additionally, China UnionPay boasts an interbank network that connects all Automatic Teller Machines (ATMs) and banking institutions across mainland China. Payments conducted with China UnionPay are fast, efficient, and reliable, which is why many traders from the country choose it when funding their Forex accounts.
It also offers support across all devices and allows for payments in almost all currencies. Another advantage of this local method results from the fact Chinese traders can deposit and withdraw without paying any extra charges for currency conversion.
Some Forex brokers that service clientele from the Middle Kingdom also support the locally available Alipay solution. This third-party platform allows Chinese traders to conduct mobile and online payments. It was established at the beginning of 2004 by the Alibaba Group. As of March 2018, Alipay facilitated payments from more than 850 million users, surpassing even PayPal in terms of mobile-payment volume.
Alipay payments normally require traders to scan a QR code with their mobile phones’ cameras and then confirm the money transfer. The method poses as a very convenient and time-efficient way to fund one’s Forex trading account but is usually unavailable for withdrawals, which is something to keep in mind.
Another local method accepted by some China-friendly brokerages is WeChat Pay, which services more than 650 million active users each month. WeChat Pay is primarily recommended to those who prefer to trade on the fly because its main focus falls on mobile payments. It is convenient, easy to use, fast, and reliable.
Perfect Money is another suitable alternative for Chinese residents who want to quickly top up their live accounts. It is available in a variety of other countries as well including the Philippines, Singapore, India, Indonesia, Malaysia, Thailand, Mexico, and Austria.
This financial service was established in Switzerland but is presently based in Hong Kong. Before they can use it, Chinese traders must set up a Perfect Money account and then fund it, via their online banking accounts, cards, or standard bank wire transfers. The method is relatively easy to use and quite cost-effective.
Popular Trading Software in China
When it comes to software, many Chinese traders lean toward brokerages that offer them a choice from multiple platforms. Some brokers develop proprietary trading platforms with a unique design and features and offer them in parallel with the third-party software developed by the Russian company MetaQuotes.
One popular option is the MetaTrader 4 platform, which is freely available for download, either from its developers’ official website or from the majority of the China-friendly brokerages. This is undoubtedly the most broadly implemented platform in the world when it comes to trading on the foreign exchange markets.
MetaTrader 4 is very user-friendly and easy to implement if you are a Forex beginner. At the same time, the platform appeals to veteran traders because it features various useful tools for technical analysis, including numerous technical indicators and graphical objects. Traders will also benefit from nine different timeframes and the availability of thirty or so languages.
With that said, it is also important to mention that MetaQuotes announced in January 2018 that it is to cease issuing licenses for MetaTrader 4 to new brokerages. The company also stated in its official announcement that it will no longer provide technical updates and support for this platform. Nevertheless, this is no reason for concern for Chinese traders who have joined an established broker as they should be able to continue using the software.
The other alternative is the more advanced and newer MetaTrader 5 platform, which comes with several improvements. There is a greater choice of timeframes here while the architecture of the platform is far more reliable.
MetaTrader 5 is equipped with numerous add-ons that would be of great benefit to experienced traders. For example, indicators can be added to the customizable charts, enabling traders to interpret price action. Nevertheless, many retail customers still lean toward MetaTrader 4 and prefer it over its successor.
Mobile Trading in China
China is home to one of the largest tech markets on a global scale, especially where mobile devices are concerned. Statistics show there were roughly 713 million smartphone users in the country as of 2018 but this number is projected to increase to 868 million by 2023.
It makes sense for China-friendly brokers to give customers from the world’s most populous nation the option to manage their accounts and execute trades on the fly. This usually happens via free native applications available for Android and iOS although in-browser access to the brokerages is also a possibility.
The apps of established brokers ensure a full-feature trading experience on the go which closely mimics that on desktop devices. Chinese traders can remain on top of the price action, keeping a close eye on the latest market movements in real time.
Most apps typically enable users to create customer watchlists with the markets they are most interested in. Of course, the exact features would differ between brokers but mobile traders normally benefit from advanced drawing tools, different technical indicators, numerous timeframes, and a variety of chart types.
Reputable China-friendly brokerages strive to deliver optimal performance on mobile in all aspects, from trade execution to account management, deposits, withdrawals, and customer support. In many cases, the apps support standard Mandarin, making it hassle-free for Chinese customers who are not fluent in English to easily manage their accounts and orders.
1. Is Forex trading legal in China?
2. Can Chinese citizens trade with margin?
3. Can Chinese traders realize significant profits through Forex trading?
Whether or not an individual trader from China (or any other country for that matter) turns up substantial profits all depends on their level of understanding and experience. Beginner traders can avoid huge losses through learning and practice.
For this purpose, reliable China-friendly brokerages offer free demo accounts funded with a specific amount in demo credits. This enables customers to acquaint themselves with the features of the trading platforms and build some experience with Forex until they feel ready to commit with real-money investments.
4. What currency pairs are popular among Chinese Forex traders?
China Forex brokers offer nationals of the country a broad range of major and minor currency pairs, although more exotic options like the CNY/USD rank among the most popular pairs among Chinese traders.
This market offers less liquidity because it pairs a major currency with an emerging one. In turn, this results in higher costs of trading. Nevertheless, there are various advantages to trading the CNY/USD pair.
The smaller trading volume leads to a slower trading pace for this market, which makes it easier for long-term traders to make accurate predictions about the price action. This exotic pair also provides great opportunities for portfolio diversification and thus, attracts more seasoned investors.