In case you are not quite sure, Renminbi is the official currency of the People’s Republic of China. Because of certain sanctions, it can be difficult to trade this currency, depending on your State government’s laws about trade with China.
But if this option is available to you, or if you take advantage of the offshore Renminbi market, you can take advantage of China’s volatile market, as many other people are right now. This decision isn’t necessarily a recommended one, which will be explained below.
(See Also – Forex trading with smaller currencies)
Everybody knows that there was a big global drop in stock prices due to a financial bubble bursting in China this past month. If you are invested in just about any market, it’s likely that you haven’t yet seen your investments recover. Times of great rise and fall are always interesting moments for investors.
As you know, “buy low, sell high” is the biggest mantra in investment, but it’s not one that’s always easily applied. Some of the best investment advice that you can hear is that it’s not always a good idea to jump into a market after a collapse. Here’s why.
For one thing, one never knows if the bottom has been found yet. Some people compare investing during a collapse, in the hope of getting the lowest possible price, to the act of trying to catch a falling knife. In some cases, you might catch the knife, in which case, great. Free knife, else you cut your finger.
But you also might get all cut up and have to go to the hospital. The same can happen with investment, minus the gore. Lots of people have watched stock prices drop. When the momentarily stabilize, it’s not uncommon for new investors to jump in with lots of money, thinking they’re getting the best possible deal.
This isn’t always the case. When the market takes another, second dive, all that hoped-for profit just turns into loss, loss, loss.
Another reason to potentially stay away from the Renminbi is that currency values are more difficult to determine than a lot of other things that could be invested in. For instance, a currency has a lot to do with behind-closed-door decisions made by world governments.
They’re also tied to a diversity of industries, much more than anybody could possibly understand in a very specific way. Thus, it’s difficult to anticipate with any degree of certainty that an investment in a specific currency will be a good one, especially when that currency is the currency of China, which has less information coming out of it than most.
All that said, China’s economy has been remarkably buoyant, and it has every chance of recovering to its old robust self, meaning that investing in its currency really could pay off.
As with any investment, it’s not a foregone conclusion, and the investor would be well-served to walk into the investment with his or her eyes open.