Must-read before buying foreign currency to make money: 5 key insights for forex investment beginners

“Can buying foreign currency make you money?” This question is asked by novice investors every day. The answer is yes—there are indeed opportunities to profit in the Forex market, but the premise is that you understand the market’s rules.

As the most liquid financial market globally, the Forex market has a daily trading volume exceeding 6 trillion USD, far surpassing the total of futures and stock markets. Historically, this market was mainly controlled by financial institutions and high-net-worth individuals, but with technological advances, ordinary investors can now participate. Today, over 30% of daily Forex trading comes from retail traders, including derivatives such as futures and Contracts for Difference (CFDs), with the number of retail investors growing exponentially.

However, statistics also warn us of a harsh reality—more than 70% to 90% of individual investors experience losses in Forex trading. This is not to scare you but reflects the market’s true feedback.

Before Entering the Forex Market, Understand the Investment Channels

If you decide to buy foreign currency to make money, first understand the available avenues. Forex investment is not limited to one method; different approaches carry different risk-reward ratios.

Currency Exchange is the most basic method. When you exchange currency in daily life, you are engaging in Forex trading—for example, converting TWD to JPY when traveling to Japan. This method carries virtually no risk but yields minimal profit, mainly serving practical needs rather than investment purposes.

Foreign Currency Fixed Deposits are a slightly more advanced option. Investors can open foreign currency fixed deposit accounts at banks, buying or selling foreign currencies to hedge or preserve value, classified as “spot Forex trading.” Banks usually offer various terms, with large transaction volumes, and relatively low risk and return, making it suitable for beginners new to Forex investment. However, note that each bank has minimum deposit amounts for different currencies, and early withdrawals may result in losing interest. It’s best to use idle funds that won’t be needed in the short term.

Forex Margin Trading involves higher risk and higher potential returns. This is the common “Forex trading,” requiring investors to analyze the currency markets, predict exchange rate trends, and profit from the bid-ask spread. The entry barrier is relatively low, with minimum account opening funds starting from $50 USD, supporting multiple currency pairs. Brokers typically offer leverage ratios of 1:30, 1:100, 1:200, 1:500, etc.

The biggest advantage of margin trading is low deposit requirement, 24-hour trading, support for both long and short positions, and high flexibility. If you believe EUR/USD will appreciate, you can buy EUR/USD; if you expect it to depreciate, you can sell. Profits or losses depend on whether the price movement aligns with your position.

However, this method also carries the risk of margin calls—a sudden market move can wipe out your principal. Therefore, strict risk control, setting stop-loss and take-profit points, and prudent leverage use are essential.

Be very cautious when choosing a broker. Forex margin trading scams are rampant; many fake platforms impersonate reputable brokers and lure investors into depositing funds via instant messaging tools. Always verify whether the platform holds proper licenses issued by financial regulatory authorities. Legitimate brokers do not engage in unauthorized trading, signal calling, or deducting funds unlawfully.

Leverage and Margin: The Double-Edged Sword of Trading

Many beginners lose money because they do not understand how to properly use leverage and margin. Leverage is indeed a double-edged sword—it amplifies both gains and losses, as well as human emotions like fear and greed.

The core mechanism of leverage allows investors to establish larger positions with less capital, achieving “small capital, big position.” For example, if a broker offers 20:1 leverage, you only need €2,000 to buy 40,000 units of EUR/USD.

Margin is the minimum capital required to open these positions. It is usually expressed as a percentage of the total position size; brokers may offer margin ratios of 2%, 5%, or 25%. Common leverage ratios include 50:1, 100:1, 200:1, 400:1—higher ratios require less margin.

Taking a $1,000 principal as an example, see how different leverage levels affect outcomes:

From the table, at 200:1 leverage, just a 5% market fluctuation can lead to a 1,000% gain or loss. That’s why beginners should use lower leverage. Most experienced traders keep leverage at 10:1 or below.

Practical advice: When starting in Forex, it’s wise to begin with low leverage. Don’t use 500:1 on your first account—that’s almost suicidal. Successful traders develop disciplined strategies, gradually adjusting as they gain experience, and take profits promptly once targets are reached.

Advantages and Risks of Making Money with Foreign Currency

Compared to other financial markets, Forex has unique advantages.

Main advantages include:

• Dual-direction trading allows you to go long or short, profiting regardless of market direction
• 24-hour operation enables flexible strategy adjustments
• High leverage, up to 200 times your capital, with trading starting as low as 0.01 lots
• Low trading costs, with off-exchange structures significantly reducing fees, no commissions
• Deep liquidity and transparency due to its global nature, making manipulation difficult

Risks that must be acknowledged:

• High leverage means you can lose your entire capital
• Forex prices are highly sensitive to economic data, political events, central bank policies, and unpredictable factors
• Trading relies entirely on personal judgment; market volatility can be rapid and intense, requiring professional knowledge and strong mental resilience

An honest question to ask yourself: “Am I truly suitable for Forex trading?” If you participate as a part-time activity, you may face significant losses. Successful Forex traders continuously learn, master effective capital management, have disciplined trading plans, and possess strong risk tolerance.

Which Currencies Should You Choose to Buy?

There are about 180 different currencies worldwide, but not all are suitable for retail investors. They can be categorized into four types based on characteristics:

Policy currencies—driven by national policies and economic conditions, e.g., USD, EUR
Safe-haven currencies—used to hedge against international trade risks, e.g., JPY
Commodity currencies—affected by exports of commodities, e.g., AUD, RUB
Emerging market currencies—strictly regulated by governments, relatively stable, e.g., CNY

Beginners should start with the first three categories. The top ten most traded (most liquid) currency pairs, accounting for nearly 90% of Forex volume, are:

Benefits of high liquidity pairs: narrower spreads, lower transaction costs, faster order execution, easier access to information, and smoother price movements.

Choosing which currencies to trade depends on your trading style. Experienced traders may operate more volatile currencies for bigger profit or loss opportunities. Novices should avoid highly volatile currencies initially. Starting with EUR/USD, which has high liquidity and lower volatility, can provide better rates, trading conditions, and faster information access.

Key Trading Principles for Buying Foreign Currency

( Understand the factors influencing Forex prices Global political situations, interest rate policies, stock market performance, economic data—all impact exchange rates. Market participants include commercial institutions, investment banks, hedge funds, governments, and private investors, providing ample liquidity. Investors should study fundamental analysis, monitor news and events to grasp currency trends.

) Use leverage’s dual nature wisely You can profit from currency appreciation (long) or from depreciation (short). Dual-direction trading helps investors hedge in bear markets and find opportunities amid volatility.

( Be aware of leverage’s psychological impact Leverage amplifies not only profits and losses but also human emotions like fear and greed. True investors need ongoing education and training; beginners must strictly control leverage ratios.

) Start small Forex’s advantage is trading with small capital. Starting in a low-risk environment helps accumulate experience and reduces psychological pressure.

( Develop and follow a trading plan Avoid frequent strategy changes, but be flexible to adjust when market trends shift or adverse factors emerge.

) Never ignore stop-loss and take-profit Set clear entry and exit points. For example, take profit at 20% gains and exit immediately—regardless of subsequent market movements. Achieving your target means walking away with gains and waiting for the next opportunity.

( Practice with demo accounts Reputable Forex platforms offer free demo accounts, allowing beginners to test strategies in risk-free environments, deepen understanding, and avoid losses in real trading.

Choosing a Regulated Trading Platform Is Crucial

Always trade Forex on regulated platforms. Major global regulators include:

• UK Financial Conduct Authority )FCA(
• Australian Securities and Investments Commission )ASIC(
• US National Futures Association )NFA(
• EU Markets in Financial Instruments Directive )MiFID(
• Cyprus Securities and Exchange Commission )CySEC(

Selecting brokers regulated by these authorities ensures access to over 60 currency pairs, gold, silver, US stocks, stock indices, cryptocurrencies, and other financial products. Quality platforms typically offer zero commissions, low spreads, flexible leverage of 1-200x, minimum trading volume of 0.01 lots, and tools like stop-loss, take-profit, trailing stops, and real-time signals.

Summary

Buying foreign currency can indeed be profitable, with low investment barriers, flexible leverage, and abundant volatility opportunities, attracting more retail traders. However, the high risks associated with leverage trading must be thoroughly understood before entering.

The key is: if you can handle the risks of leverage, are psychologically prepared, and have done your homework to gain experience, you can start practicing on regulated platforms’ demo accounts. Many platforms offer free demo accounts and virtual funds, allowing you to test your trading theories at zero cost.

Forex trading is not gambling but a skill-based activity requiring knowledge, discipline, and patience. Starting small and learning step by step is the right way to profit from buying foreign currency.