Foreign currency investment from scratch: How to choose coins, how to buy, and how much can you earn? Complete guide

Want to rely on foreign currency investment to achieve asset appreciation, but don’t know where to start? At a time when the annual interest rate of Taiwan dollar fixed deposits is only 1.7%, many investors have begun to pay attention to the foreign currency market. Compared with the risk of holding a single currency, multi-asset allocation can effectively hedge exchange rate risk. This article will give you an in-depth understanding of the core logic, currency selection methods and practical strategies of foreign currency investment.

The essence of foreign currency investment: interest rate differentials and exchange rate spreads

There are only two sources of profit for foreign currency investment -Interest rate spreads and exchange rate spreads。

Interest rate spreadsIt refers to the difference in benchmark interest rates in different countries. For example, Taiwan’s fixed deposit interest rate is 2%, and the US fixed deposit interest rate is 5%, and the interest rate difference of 3% is a potential source of profit. Hold high-interest currency for a period of time, and interest will automatically accumulate.

Exchange rate differenceIt refers to the price difference caused by changes in exchange rates between currencies. When you exchange 33 Taiwan dollars for 1 US dollar, and then the US dollar appreciates to 35 Taiwan dollars, you can make a profit simply through exchange rate changes. On the contrary, if the currency depreciates, even if interest is earned, it may lose money due to exchange rate loss - this is the risk of “earning interest and losing exchange rate difference”.

Core Tips: Before starting foreign currency investment, you must clarify whether you are pursuing interest rate differential income or short-term exchange rate difference income, and formulate risk countermeasures accordingly.

Which of the four major currency types should I invest in?

The 12 foreign currency investment options provided by the Bank of Taiwan can be divided into four categories according to the influencing factors, each with different investment logic:

Policy currencies: US dollar, euro

The exchange rate trend is highly linked to the central bank’s policy. When central banks implement easing policies or cut interest rates, currencies weaken; When tightening is adopted, the currency strengthens. Investing in these currencies requires paying close attention to central bank meeting dates and policy expectations.

Safe-haven currencies: Japanese yen, Swiss franc

These two countries have stable economies and low political risks, and central banks rarely adjust interest rates. When the global situation is turbulent and the economic outlook is uncertain, funds will pour into such currencies to avoid risks. Many investors will buy when the economy is good and close their positions when the economy is bad, achieving the effect of “double profit from interest rate spreads and exchange rate spreads”.

Commodity currency: Australian dollar, Canadian dollar

Such countries rely on commodity exports as their main economic pillar. When the prices of commodities such as iron ore and crude oil rise, the demand for local currency increases and the exchange rate rises; When commodity prices fall, the exchange rate also depreciates. For example, Australia is the world’s largest exporter of iron ore, and the Australian dollar also experienced a corresponding decline against the US dollar during the period of iron ore price decline between 2021 and 2024.It is relatively easy for newbies to grasp the price logic of such currencies, you can get considerable profits through trend trading.

Emerging market currencies: RMB, South African dollar

Such countries are in a stage of rapid development, with attractive fixed deposit interest rates, but the political situation is unstable, the exchange rate fluctuates violently, and the liquidity is poor. The bid-ask spread is large, and the risk is much higher than that of the other three categories. Be careful not to “earn the interest rate difference and lose the exchange rate difference”.

Coin selection suggestions: Give priority to currencies with attractive interest rates, relatively stable exchange rates, and strong international liquidity. For novices, the combination of safe-haven and commodity currencies is the safest.

Comparison of three investment methods: fixed deposit, fund, margin

Foreign currency fixed deposit: Stable interest rate spread strategy

This is the first step for those new to foreign currency. Just open a foreign currency account at the bank (over 20 years old, prepare documents), exchange Taiwan dollars for foreign currency and deposit them into fixed deposits, and receive interest regularly.

Cons: Extremely poor liquidity. If you cancel the contract early in the middle, interest will be deducted, and even if the exchange rate has reached the ideal price, you will not be able to appear flexibly.

Foreign Currency Funds: A balance of flexibility and returns

No need to bind to a contract, buy and sell at any time, and the interest is between live deposit and fixed deposit. Investors can directly invest in Taiwan dollars, and the fund company will exchange foreign exchange on their behalf. Common options include money market funds and currency ETFs, with management fees typically around 0.5-0.6%.

Advantages: Strong liquidity is suitable for investors who need to flexibly allocate funds.

Foreign exchange margin trading: high leverage, high risk, high return

This is the most flexible way to invest in foreign currency. does not earn interest, purely profits from exchange rate differences. Due to relatively low currency volatility, 50-200x leverage is usually used to amplify returns.

Features:

• 24-hour trading, global markets can participate at any time
• T+0 mechanism, low entry threshold, small margin to trade
• Various currency pairs around the world (EUR/USD, AUD/USD, etc.) can be traded.
• Risks and opportunities coexist, and leverage multiples need to be carefully selected

Risk warning: ASIC regulators in Australia recommend that leverage for major foreign currency pairs should be less than 30 times. Excessive leverage can easily lead to liquidation.

Analysis of major currency pair trends (2025 observation)

EUR/USD: The largest trading volume in the world

This is a competition between two major economies (the US and the European Union), and the slightest fluctuation can affect the entire foreign exchange market. The Federal Reserve will cut interest rates in 2025, while the European Central Bank will keep interest rates unchanged, and the euro will strengthen relative to a four-year high. The market believes that the Fed’s policy uncertainty has increased, compared to the ECB’s more independent and stable stance, making the euro a relatively neutral choice.

USD/JPY: A popular pair for carry trades

The yen interest rate has been low for a long time and has become the main source of borrowed funds. The interest rate differential between the United States and Japan is gradually narrowing, and the Bank of Japan may raise interest rates by 25 basis points before the end of the year.

GBP/USD: A time-honored classic pairing

The strength of the pound this year is mainly due to the weakening of the US dollar rather than the improvement of UK fundamentals. As the Fed’s policy becomes clearer, sterling bulls face repricing risks. Coupled with weak economic growth in the UK and market expectations of interest rate cuts, the pound tends to fluctuate in a range-bound market outlook.

USD/CHF: Represents a safe-haven asset

Switzerland is known for its stability, security, and neutrality, and the franc is the preferred short-term hedging tool. In 2025, the United States will be in deep trade difficulties, economic momentum will slow down, and the Federal Reserve will continue to cut interest rates, and the safe-haven value of the franc will be highlighted, which is expected to receive strong support.

Five factors that affect foreign currency exchange rate fluctuations

If investors want to make money, they must understand the factors that drive exchange rate changes:

1. Inflation rate currency appreciation in low-inflation countries (slow price increases for goods and services); The currency of countries with high inflation depreciates (accompanied by high interest rates).

2. Interest rate level Rising interest rates attract foreign capital inflows, pushing up exchange rates; Falling interest rates are the opposite. Interest rates, exchange rates and inflation are closely related.

3. Government debt Countries with high debt find it difficult to attract foreign investment, and foreign capital withdraws when market expectations are not good, and exchange rates fall.

4. Terms of trade When export prices rise faster than imports, the terms of trade improve, the demand for domestic currency increases, and the exchange rate appreciates.

5. Political stability Countries with low political risks and sound financial policies are more attractive to foreign investment and their currencies appreciate; Countries with political turmoil depreciate their currencies.

Practical operation: How to make money with foreign exchange margin?

The core trading logic of foreign currency investment is “buy low and sell high”, but the foreign exchange market supports itTwo-way trading, that is, “sell high and buy low” can also make a profit.

Traditional long: buy low and sell high

Buy a currency pair when the price is low, sell it when the price rises, and get the difference. For example, when expecting the euro to appreciate, buy EUR/USD.

Reverse shorting: sell high and buy low

When a currency is expected to depreciate, sell the currency pair first, and then buy and close the position after the price falls, which is also profitable. For example, if you expect the euro to depreciate, you can sell EUR/USD first and then buy it back at a low price.

Practical combat in three steps

Step 1: Select the target Gain insights into the fundamentals of both currencies, such as policies, interest rates, export products, and more. For example, if the US is expected to cut interest rates throughout the year but Japan keeps interest rates unchanged, you can go long USD/JPY (yen appreciation). Fundamental analysis is the most critical part of the entire investment decision.

Step 2: Develop a trading strategy Formulate strategies based on your own risk tolerance, trading experience, and market environment, including entry points, stop-loss points, and take-profit points. Consider factors such as market risk, transaction costs, and money management.

Step 3: Mindset management and continuous learning Avoid emotional decision-making due to market fluctuations and continuously accumulate experience. Choose a safe, reliable, low-cost, tool-based, and diverse trading platform (such as a demo account provided by a regular forex platform, which can be practiced with $50,000 virtual funds).

The Five Golden Rules of Foreign Currency Investment

Rule 1: Only invest in currencies you are familiar with Newbies should focus on mainstream currency pairs (USD, JPY, etc.) and avoid chasing smaller currencies with poor liquidity. There is a lot of market news, but the major currencies are still the most traded and easy to grasp.

Rule 2: Monitor exchange rate fluctuations in real time Foreign currency exchange rates are affected by market, economy, news and other factors, so it is recommended to pay more attention to international financial media (CNBC, Bloomberg, etc.) to grasp market trends in a timely manner.

Rule 3: Diversify asset allocation Don’t put eggs in one basket. While holding US dollar fixed deposits, you can use Australian dollar funds to hedge risks, and you do not need to trade frequently every day after proper allocation.

Rule 4: Skillfully use stop loss and stop profit Forex trading is more suitable for short-term operations due to its characteristics. The key is to set a stop loss at the appropriate position to prevent liquidation. When hedging, you can open a long position near the previous low and set a stop loss, and if it falls below the low, the position will be automatically closed, and if it continues to rise, you will continue to hold it.It is recommended to operate up to 2 times a day。

Rule 5: Accurately grasp the timing of entry Never chase high or fall, make a plan in advance and trade according to the plan. The easiest way is to wait for a trend to form – usually 5 minutes or more. After the trend is established, open a position. You can choose different time periods (5 minutes, 30 minutes, 120 minutes, etc.) as a reference according to your own risk tolerance.

Why invest in foreign currency? Four reasons

Low threshold: Foreign currency accounts can be quickly opened at the bank counter or on the App, easy to apply, and can be traded after opening an account.

Risk Hedging: If all assets are denominated in a single currency, they are exposed to exchange rate risk. When the national currency depreciates sharply, assets shrink, and investing in multiple currencies can effectively diversify risks.

Strong market fairness: Investors from all over the world participate, making it difficult to artificially manipulate the movement of any single currency, which is more transparent and fair than the stock market.

24-hour trading: The world’s largest financial market, trading around the clock, once the price is found to be moving in an unfavorable direction, the position can be closed at any time, regardless of the fixed time limit of the stock market.

Summary

Foreign currency investment is not gambling, but a systematic operation based on fundamental analysis and risk management. Whether you choose stable fixed deposits, flexible funds, or high-leverage margin trading, the core principles are:Choose the right currency, formulate a strategy, strictly implement, and continue to learn。

Novices should start with policy and commodity currencies, master fundamental analysis methods, and cultivate market intuition through repeated exercises through demo accounts. The dual benefits of interest rate spreads and exchange rate spreads are waiting for you, but the premise is to do your homework, control risks, and have a peaceful mind. Start your foreign currency investment journey!