The International Monetary Fund has what is called special drawing rights, and it is comprised of a huge fund comprised of the U.S. dollar, the euro, the Japanese yen, and the British pound sterling. China, despite being the second largest economy in the world, does not have the yuan included in this fund. For most Western countries, inclusion in the SDR is not considered to be a big deal. However, for China, it would mean full integration into the worldwide economy. It would mean that the yuan could be more heavily traded, and that the Chinese market would be taken more seriously.
There’s also the possibility that the Shanghai Composite—China’s main stock index—would get a huge boost as investors and traders would find more opportunities for money making.
One of the reasons why the yuan has not been included in the SDR, experts say, is because it is too overvalued. By decreasing the value of the yuan, there is a more likely chance that the IMF would pick it up, and once the yuan goes down in value, suddenly investing in Chinese businesses becomes much cheaper for international investors to do. If you look at what has happened over the last year on the Shanghai Composite, there has been a serious loss of money as people pull their money out of Chinese companies. The Composite has fallen from a high of up around 5,000 points to under 3,000. It’s now sitting around 3,500 and there’s a lot of uncertainty about its future.
In other words, if the IMF does accept the yuan for the SDR, the yuan, and by consequence the entire Chinese economy, becomes an international force. If the country with the world’s second largest economy is able to secure this, there’s a strong chance that it would pour tons of money into the country, boost the economy quickly, and improve the standard of living for the average Chinese person. It might not be a big deal for the Western nations already included, but for the Chinese government, this is a very big deal. And rightly so.
Traders observing this and hoping to profit from it need to keep an eye on IMF decisions. Trading in the Chinese market is not an easy thing to do for those based in the U.S., but we do have easy access to binary options, and trading the Shanghai Composite as a binary option is very easy. Until a decision is made, the volatility of the Composite is likely to continue, but if a decision is made, the Composite will likely respond quickly. Taking out short term positions to reflect this will be the best move. Although 60 second binary options are probably not the best way to respond to this, looking at expiries of 5 to 15 minutes is completely realistic for building profits. Pay attention to the indicators and the outside influences upon the price, and as always, don’t enter a position you are uncomfortable with.
It’s also a good idea to keep your eye on the yuan compared to other currencies. There will be a ton of Forex trading opportunities that will arise if the yuan is accepted to the SDR. The immediate impact is most likely going to push the yuan up against all but the very strongest of the currencies. If you do feel most comfortable with the major four currencies, look to see which are struggling. For example, if the dollar is strong against the euro, pit the yuan against the euro rather than the dollar. This will create a higher likelihood of success with your trades, regardless of what type of market you decide to go with.