Beginner's Guide: The Complete Guide to Making Money with Foreign Currencies | Investment Strategies, Currency Selection, Risk Management

Want to make money through foreign currencies but don’t know where to start? Instead of blindly following trends, it’s better to understand the essence of foreign currency investment — fundamentally, it’s about earning from ‘exchange rate differences’ and ‘interest rate spreads’.

Foreign Currency vs Forex: Understand the Difference Before Getting Started

Many people easily confuse “foreign currency” and “forex”. Simply put:

Foreign Currency = All foreign currencies other than your own country’s currency (banknotes, coins, etc.)

Forex = The entire international payment system including foreign currencies (bank deposits, government bonds, stocks, etc.)

In layman’s terms, buying and selling foreign currencies is just one way of trading in forex. If you just want to do simple currency exchange, that’s foreign currency investment; if you want to participate in various derivatives trading, that’s forex trading.

Why Invest in Foreign Currencies? Four Main Reasons

1. Low Barrier — Opening a bank account is easy, applying via app takes 5 minutes, with no high minimum limits.

2. Risk Diversification — If all assets are valued in your own currency, a sharp devaluation (like the Ukraine hryvnia event) can cause huge losses. Holding multiple currencies is a basic asset protection strategy.

3. Fairer Trading — Participants in the foreign currency market are worldwide; no single player can manipulate the trend. Compared to stock markets, information asymmetry is much less.

4. 24/7 Market — Forex markets operate year-round without closing. If you find yourself at a loss, you can stop-loss anytime, unlike stock markets with fixed trading hours.

How to Make Money with Foreign Currencies? The Game of Exchange Rate and Interest Rate Spreads

The two sources of profit from investing in foreign currencies are:

Exchange Rate Difference (匯差) = Profit from buying low and selling high. For example, if you exchange 33 TWD for 1 USD, and when USD appreciates to 35 TWD, you sell and earn a 2 TWD exchange gain.

Interest Rate Spread (利差) = The difference in interest rates between countries. Taiwan’s fixed deposit rate is 2%, the US is 5%, so this 3% interest rate difference is a potential profit.

But beware of pitfalls: You might earn 5% interest, but if the exchange rate drops 20%, you could lose money. This is the classic trap of “interest gain but exchange loss.” So, before investing, think carefully — are you after interest income or quick gains from exchange rate fluctuations?

Three Ways to Invest in Foreign Currencies

Method 1: Foreign Currency Fixed Deposit — The safest choice

This is the simplest approach: open a foreign currency account, deposit money, and periodically earn interest. Beginners generally won’t fall into traps, but the downside is low interest and low liquidity. If the exchange rate reaches your target but the deposit hasn’t matured, early withdrawal may incur interest penalties.

Method 2: Foreign Currency Funds — More flexible

Not wanting to be tied to fixed deposits? Foreign currency funds are a compromise. You can buy and sell anytime, with interest rates between savings and fixed deposits, and you can invest directly in TWD, letting the fund company handle currency exchange. Common types include USD money market funds and USD ETFs, with fees mostly around 0.5%-0.6%.

Method 3: Forex Margin Trading — High risk, high reward

If you have trading experience and are willing to take risks, forex margin trading is a “fast money” tool. Its advantages include high leverage( usually 50-200x), low volatility, low fees, 24-hour trading, and T+0 mechanisms. But the risks are also significant — using 50x leverage, a 1% exchange rate move means a 50% loss, even liquidation.

The 12 Most Popular Foreign Currencies for Taiwanese Investors

Taiwan banks typically offer these 12 currencies: USD, AUD, CAD, HKD, GBP, CHF, JPY, EUR, NZD, SGD, ZAR, SEK.

These currencies can be grouped into four categories based on what influences their exchange rates:

1. Policy-driven currencies: USD & EUR

Exchange rates mainly affected by central bank policies. Easing policies → depreciation; tightening → appreciation. Investing in these currencies requires watching central bank rate decisions.

2. Safe-haven currencies: JPY & CHF

These countries are politically stable and economically developed, with near-constant interest rates. During global turmoil, investors flock to these currencies for safety. Experienced investors may even borrow low-interest JPY to invest in high-yield assets, then exchange back when the economy recovers — earning both interest and exchange gains.

3. Commodity currencies: AUD & CAD

These countries export major commodities. Iron ore price increases → AUD appreciation; oil price rises → CAD appreciation. The reverse also applies. Commodity currencies are friendly to beginners because their trends are easier to grasp — just follow commodity prices.

4. Emerging market currencies: RMB & ZAR

High interest rates are tempting, but risks are high. Volatile exchange rates, low liquidity, large bid-ask spreads. Profitable from interest spreads, but political turmoil can wipe out gains. Best avoided by beginners.

Currency selection tip: Don’t just look at interest rates; consider exchange rate stability and international liquidity. USD, EUR, AUD are relatively stable. Beginners can prioritize safe-haven and commodity currencies for diversified investment.

2025 Major Currency Trend Analysis

In the current market environment, which currencies should you invest in? Let’s look at the main currency pairs:

EUR/USD — The Fed cuts rates while the European Central Bank maintains rates, causing concern over US policy risks and strengthening the euro. EUR/USD has hit a four-year high. Compared to the ECB, the Fed’s monetary policy is more independent, with less short-term political influence.

USD/JPY — The Bank of Japan may raise interest rates by year-end, but the Fed’s policy direction is uncertain, narrowing the interest rate differential. The yen will fluctuate in the short term, with a tug-of-war between bulls and bears.

GBP/USD — The pound’s rise is mainly due to dollar weakness, not UK fundamentals. The UK economy is weak and may cut rates, so GBP is expected to fluctuate within a range rather than trend strongly.

USD/CHF — US economic outlook is uncertain, boosting the Swiss franc’s safe-haven appeal. Long-term, the franc has support.

Five Major Factors Influencing Exchange Rate Fluctuations

To profit in the foreign currency market, you must understand what drives exchange rate changes:

Inflation Rate — Countries with low inflation see their currencies appreciate, as goods and services prices rise less, maintaining stronger purchasing power.

Interest Rates — Higher interest rates attract foreign capital inflows, increasing demand → currency appreciation.

Government Debt — Countries with high debt levels struggle to attract foreign investment, risking currency depreciation.

Trade Conditions — When export prices rise faster than imports, trade surplus expands → currency appreciation.

Political Stability — Political chaos leads to currency depreciation; stable countries’ currencies tend to appreciate.

How Can Beginners Profit from Foreign Currencies? Practical Steps

( Step 1: Choose Investment Targets

Research the currency pairs you want to invest in — policy trends, interest rates, changes in export commodities. For example: if you expect the US to cut rates this year and Japan to keep rates steady, you might go long JPY/USD. This step determines your success or failure.

) Step 2: Develop a Trading Strategy

Based on your risk tolerance and experience, set a plan. Clearly define: entry points, stop-loss, take-profit levels. How much of your account are you risking per trade? Answering these questions helps protect your capital.

( Step 3: Control Emotions and Be Patient

Market volatility is where mistakes happen. Trust your plan, avoid chasing highs or cutting losses prematurely. Limit to 2 trades per day to keep a clear mind.

) Step 4: Keep Learning

No one can consistently profit from the start. Practice with demo accounts, test your strategies, and gain real trading experience over time.

Five Core Tips for Foreign Currency Investment

1. Stick to familiar currencies — The most traded pairs are USD, JPY, etc. Beginners should avoid obscure currencies.

2. Watch exchange rate fluctuations closely — Currency rates are affected by market, economic, and news factors. Follow international financial news to grasp the big picture.

3. Diversify holdings — Hold both USD fixed deposits and AUD funds to hedge risks. Once diversified, avoid frequent trading.

4. Learn to set stop-loss and take-profit — The lifeline of forex trading. Set stop-loss to prevent liquidation; set take-profit to lock in gains.

5. Time your entries — The simplest way is to wait for a trend to form. Trends usually take 5 minutes or longer to establish. Once confirmed, follow through. Choose a timeframe like 30 minutes, 120 minutes, or others based on your trading style.

Final Words

Making money in foreign currencies isn’t difficult; the challenge is doing it consistently. Any investment strategy is just theory without practice. Beginners should start with fixed deposits or funds, accumulate experience, then consider leverage trading. Remember: protecting your principal is always more important than chasing high returns.