Foreign Currency Investment Guide: How Do Beginners Choose Investment Channels? Which Foreign Currencies Are Suitable for Beginners?

Looking to increase returns through foreign currency investments but don’t know where to start? The foreign currency market may seem complex, but with the right guidance, beginners can also achieve stable profits. This article will give you a comprehensive understanding of the logic behind foreign currency investing, channel options, currency evaluation, and practical trading tips.

Foreign Currency vs. Forex: Concepts You Must Clarify

Many people confuse the concepts of “foreign currency” and “forex.” Simply put:

Foreign currency refers to all foreign currencies other than the domestic currency, and is the main focus in daily forex market discussions.

Forex has a broader scope, including banknotes, coins, payment instruments (bills, deposit certificates), securities (government bonds, corporate bonds, stocks), and other foreign currency assets. Forex is a general term for international trade settlement, capital adjustment, and national reserves.

In short: forex trading involves buying and selling foreign currencies, and foreign currency investment is the basic form of forex trading.

Why Are Taiwanese People Enthusiastic About Foreign Currency Investment?

In a low-interest-rate environment, Taiwanese banks offer an average annual savings rate of only 1.7%, while many foreign currency deposits can yield 3% to 5%. This interest rate differential (interest spread) is the core attraction of foreign currency investment.

Besides the interest spread, there are three important reasons:

1. Low barrier, simple operation
Foreign currency accounts can be opened at banks via counter or app, available to those over 20 years old, with no complicated approval process.

2. Asset diversification for risk hedging
If all assets are denominated in New Taiwan Dollars, wealth can significantly shrink when the TWD depreciates. Holding multiple foreign currencies can effectively diversify exchange rate risk.

3. More fair and transparent trading
The forex market involves participants worldwide, making it difficult for individual investors to manipulate prices, thus more fair compared to stock markets. Additionally, the forex market trades 24 hours, allowing stop-loss at any time when facing unfavorable situations.

How to Make Money from Buying and Selling Foreign Currencies? The Balance Between Interest Spread and Exchange Rate Difference

Profits from foreign currency investments come from two parts:

Interest spread income

Gains derived from different benchmark interest rates across countries. For example, Taiwan deposits at 2%, US deposits at 5%, the 3% difference is the potential profit.

Exchange rate difference income

The profit or loss from changes in currency exchange rates. For example, exchanging 33 TWD for 1 USD, and later only being able to exchange back at 30 TWD, even if you earned interest on USD, you might still incur a loss overall—this is the risk of “earning interest spread but losing on exchange rate.”

Key tip: Beginners must clarify their investment goals—are you pursuing stable interest income (suitable for long-term holding), or aiming to capture short-term price differences (requiring higher market analysis skills)?

The Three Main Channels for Foreign Currency Investment, Which One Suits You?

Option 1: Foreign Currency Deposit—The Most Stable Choice

Suitable for risk-averse beginners. Advantages are stable returns and low risk; disadvantages include poor liquidity—early withdrawal before maturity incurs interest deductions, and interest rates are relatively low.

Recommended approach: first open a foreign currency account at a bank, then choose mainstream currencies like USD, AUD based on current interest rates.

Option 2: Foreign Currency Funds—Best Flexibility

No lock-in period, can buy and sell anytime. Interest usually falls between savings and fixed deposits. Investors can use TWD to invest, with fund companies handling currency exchange, earning both interest and exchange gains.

Common products include money market funds (e.g., USD funds) and currency ETFs (e.g., USD index ETF), with management fees around 0.5-0.6%. Suitable for investors needing flexible fund management.

Option 3: Forex Margin Trading—High Returns, High Risks

Pure exchange rate trading, no interest earned, amplified by leverage. Trades 24 hours, T+0 mechanism, low entry barrier—small margin required to trade major currency pairs (e.g., EUR/USD, AUD/USD) online.

But leverage is a double-edged sword—it can generate quick profits but also rapid losses. Beginners should use low leverage (recommended not exceeding 30x) and strictly set stop-loss points to prevent margin calls.

Taiwan Banks Offer 12 Foreign Currencies, Divided into 4 Major Categories

Taiwan banks typically offer 12 currencies: USD, AUD, CAD, HKD, GBP, CHF, JPY, EUR, NZD, SGD, ZAR, SEK. These currencies can be grouped into four categories based on exchange rate drivers:

1. Policy Currencies: USD and EUR

Exchange rates mainly influenced by central bank monetary policies. When central banks cut interest rates, exchange rates tend to fall; when they raise rates, they rise. Investing in these currencies requires closely following central bank meetings and policy trends.

2. Safe-Haven Currencies: JPY and CHF

These countries have stable economies, low political risk, and their central banks rarely change interest rates. During global economic turmoil, funds tend to flow into these currencies for safety. Many investors borrow low-interest JPY to invest in higher-yield assets, then convert back when the economy improves—this is known as “carry trade.”

3. Commodity Currencies: AUD and CAD

These countries mainly export commodities. When prices of iron ore, oil, etc., rise, foreign demand for local currency increases, causing the currency to appreciate; when prices fall, it depreciates. AUD is especially easy to track because Australia is the world’s largest iron ore exporter.

4. Emerging Market Currencies: RMB and ZAR

Higher interest rates attract investors, but these countries often have unstable political situations and volatile exchange rates, with large bid-ask spreads. Risks are higher; beginners should be cautious.

Which Foreign Currencies Should Beginners Choose?

Safest combination: USD + AUD + JPY

• USD is the global settlement currency, with the best liquidity and stable deposit interest rates of 4-5%
• AUD is a commodity currency, easy to follow, with relatively high interest rates, suitable for those wanting to profit from exchange rate differences
• JPY is the preferred safe-haven, protecting assets during market volatility

Avoid: ZAR, despite the highest interest rate, has large exchange rate fluctuations and low liquidity, making it risky for beginners—likely to “earn interest but lose on exchange rate.”

Five Major Factors Affecting Exchange Rate Fluctuations

To profit from buying and selling foreign currencies, you must understand how exchange rates fluctuate:

1. Inflation Rate
Currencies of low-inflation countries appreciate because their goods and services prices rise slowly, maintaining purchasing power.

2. Interest Rate Levels
Higher interest rates → capital inflow → currency appreciation. Federal Reserve and European Central Bank rate decisions have the greatest impact on USD and EUR.

3. Government Debt
High debt countries struggle to attract foreign investment, leading to currency depreciation.

4. Trade Conditions
Export prices rising faster than import prices → increased income → currency appreciation.

5. Political Stability
Political turmoil scares away foreign investment, causing currency depreciation; stable governments tend to see currency appreciation.

2025 Major Currency Trends Analysis

EUR/USD

This year, the Fed has cut interest rates by 100 basis points, but the European Central Bank’s rates remain unchanged. The Fed’s rate cuts and optimistic European economic data have pushed the euro to a four-year high. Analysts note increased US policy uncertainty and stronger ECB independence, leading to a more favorable outlook for the euro.

USD/JPY

The Bank of Japan is considering a 25 basis point rate hike before year-end, but US policy remains unclear. Market expects the US-Japan interest rate differential to gradually narrow. In the short term, USD/JPY will fluctuate amid bullish and bearish battles.

GBP/USD

The pound’s strength this year mainly stems from a weak dollar, not improved UK fundamentals. As Fed policies become clearer, the pound’s rally may face risks. The UK economy is sluggish with rate cut expectations, so the outlook is likely to stay within a range.

USD/CHF

US economic difficulties deepen, challenging the dollar’s safe-haven status, while the Swiss franc remains a safe haven. In the medium to long term, Fed rate cuts and a weak dollar index will support the Swiss franc’s appreciation.

How Can Beginners Profit from Foreign Currency Investment?

Step 1: Understand Two-Way Trading

Traditional investments only buy low and sell high, but the forex market supports two-way trading:

• Buy low, sell high: Buy when expecting appreciation
• Sell high, buy low: Short when expecting depreciation, then buy back after the currency falls (close position for profit)

For example, if you expect EUR/USD to depreciate, you can sell EUR/USD first, then buy back after the euro drops to profit.

Step 2: Choose Targets and Trading Direction

Research the currency pairs you want to trade—understand central bank policies, interest rate trends, major export commodities. For example, if you expect the US to cut rates this year and Japan’s rates stay unchanged, you might go long JPY/USD.

Step 3: Develop a Trading Strategy

This is key to success or failure. Based on your risk tolerance, experience, and market conditions, plan your strategy including:

• Entry points
• Stop-loss points (to prevent large losses)
• Take-profit points (to lock in gains)
• Risk per trade

Step 4: Maintain a Stable Mindset

Avoid emotional trading caused by market volatility. Keep learning, reflecting, and accumulating practical experience.

Five Major Taboos in Foreign Currency Investment

1. Don’t trade currencies you don’t understand
Beginners should focus on high-volume, well-informed currencies like USD, JPY, AUD.

2. Constantly monitor market dynamics
Exchange rates are affected by market, economic, and news factors. Follow CNBC, Bloomberg, and other international financial sites to catch policy releases and economic data.

3. Diversify assets
Don’t put all funds into a single currency or investment type. For example, hold both USD deposits and AUD funds to hedge.

4. Learn to set stop-loss and take-profit
Critical for margin trading. Set stops near technical support levels to prevent small losses from becoming big or margin calls. If trading no more than twice daily, it’s easier to control.

5. Pay attention to entry timing
Avoid chasing highs or lows. Prepare a trading plan in advance, and only execute when the timing is right. The simplest method is waiting for a clear trend (usually over 5 minutes), then entering. Different trading styles may use 30-minute, 120-minute charts as references.

Best Learning Methods for Beginners

Any strategy requires practice to be valuable. Beginners are advised to start with demo accounts—no real funds needed—to evaluate strategy effectiveness and risk management in real market conditions. Once confident, test with small real money.

Foreign currency investing is not a mysterious science—by mastering basic logic, understanding risks, and continuous learning, beginners can achieve steady profits. Start by choosing the channel that suits you and gradually build your trading system.