KVB Kunlun International, the largest licensed Chinese-owned forex financial institution in Oceania, announced on the 23rd that it will officially launch RMB/Australian Dollar and RMB/New Zealand Dollar (Kiwi) forex margin cross-rate trading. Experts noted that this move will not have a major impact on the RMB exchange rate in the short term, but the frequent emergence of overseas RMB derivatives highlights the shortage of RMB derivative products in the domestic market.

This follows the announcement in June this year by the Chicago Mercantile Exchange (CME), the world's largest and most product-diverse financial exchange, of plans to trade RMB/USD, RMB/EUR, and RMB/JPY futures and options on August 27. KVB Kunlun International has taken the lead in enabling RMB/AUD and RMB/NZD forex trading in the global forex market, becoming the first global forex market maker to offer RMB-derived forex products with leveraged trading. It is understood that the RMB/Australian Dollar and RMB/New Zealand Dollar forex margin cross-rate trading products launched by KVB will go live on the ForexStar electronic trading system at 8:00 New Zealand time on August 28 (20:00 GMT on the 27th).

It is understood that, unlike the RMB options and futures products launched by CME, the products launched by KVB this time represent a currently popular form of forex trading. They share some characteristics with futures but do not fall within the futures category. Zheng Xiang, a trader in the Financial Institutions Department of Minsheng Bank, explained that margin trading amplifies both returns and risks to a greater degree than futures trading. Therefore, forex margin trading is highly leveraged, meaning multiplied profit potential and multiplied risk burden.

Zheng Xiang believes that KVB's move brings greater convenience to many overseas investors, offering them an additional financial derivative product. KVB Group Executive Director Liu Xinnuo stated that this move demonstrates the growing demand for the RMB in international offshore financial markets. The company's Oceania Regional Marketing Director, Howard, said he believes these new RMB trading products will attract more clients to participate in forex market investment, while also providing investors with tools for hedging RMB investment risk and preserving investment value.

What impact will the successive launch of RMB derivative products overseas have on the RMB exchange rate and the existing exchange rate formation mechanism? Zheng Xiang stated that China's financial market is not yet fully open, the RMB is not freely convertible under the capital account, and channels for overseas funds to enter the domestic market are quite narrow. Even though price differences between overseas and domestic markets may trigger cross-market arbitrage, the additional costs required to enter the domestic market through these narrow channels would offset the potential profits.

"At the same time, the AUD and NZD do not have as much international influence as major world currencies such as the USD and JPY. Therefore, the launch of these offshore RMB trading products will not have a major impact on the RMB exchange rate in the short term," Zheng Xiang said.

However, Zhao Xijun, Deputy Director of the Financial and Securities Research Institute at Renmin University of China, pointed out that the successive launch of RMB derivative products overseas underscores the lack of trading varieties in the domestic RMB derivatives market. "Derivatives are a kind of financial resource, and the domestic market has already fallen behind overseas markets in this area. If China continues like this and fails to develop such financial products as soon as possible, this portion of resources may end up flowing overseas in the future."

"Where conditions permit, China should attempt to develop offshore trading business with other currencies domestically as soon as possible, in order to command more financial resources and thereby gain greater initiative," Zhao Xijun emphasized.

Financial Glossary

Forex Margin Trading: A country's market exchange rate is a comprehensive reflection of its economic strength and economic performance, and international political and military factors can all cause exchange rate fluctuations. Forex margin trading is when investors conduct forex trading using financing provided by banks, market makers, or brokers. Clients deposit a certain amount of funds as trading margin, and based on this margin, they can trade with available funds amplified at a certain ratio through financing.

Cross Rate: Also known as cross exchange rate, this refers to the exchange rate between two non-USD currencies.

Offshore Financial Business: Business in which both trading parties are non-residents is called offshore financial business. Offshore centers are characterized by low or zero tax rates, primarily serving non-residents, little or no regulation, geographical advantages, favorable government policies, and political stability. Currently, the main offshore centers include London, Tokyo, Switzerland, Hong Kong, Singapore, Luxembourg, as well as island nations and regions in South America, Europe, the Middle East, and the Asia-Pacific region.

KVB Kunlun International offers a Chinese-language website and a Chinese-language hotline to serve Chinese clients. Website: www.kvbkunlun.com