Buying US dollars and other foreign currencies investments: A comprehensive analysis of the path to wealth through currency trading

Want to increase wealth through foreign currency investments? Many people are curious about buying US dollars and other foreign currencies but don’t know where to start. This article will delve into how the foreign exchange market operates, different investment channels, and how to capture profit opportunities amid market volatility.

Why is foreign currency investment worth paying attention to?

A necessary choice to reduce risk

If all your assets are denominated in the same currency, a significant depreciation of the home currency can seriously threaten your wealth. After the Russia-Ukraine conflict, the Ukrainian currency depreciated nearly to zero, and although the Russian ruble has an exchange rate, few are willing to exchange. This illustrates the importance of diversifying assets across multiple currencies.

Higher market transparency

Compared to the stock market, participants in the foreign exchange market come from all over the world, making it difficult for individual investors or institutions to manipulate exchange rates. The global daily forex trading volume exceeds 5 trillion USD, ensuring the market is large enough to guarantee fairness and liquidity.

Flexible trading hours

The forex market operates 24 hours a day without interruption, allowing investors to trade without being limited by fixed trading sessions. If market trends turn unfavorable, positions can be closed immediately, an advantage that stock markets cannot offer.

Arbitrage opportunities from interest rate differentials

Taiwan’s fixed deposit rates have been low for a long time (around 1.7%-2%), while countries like the US and Australia have relatively higher rates (5%-6%). This 3%-4% interest rate spread is a primary motivation for Taiwanese investors to buy US dollars and other foreign currencies.

Core logic of making money by buying US dollars: exchange rate and interest rate differentials

Profits from foreign currency investments come from two sources:

Interest rate differential income
Refers to the difference between benchmark interest rates of different countries. For example, if the US fixed deposit rate is 5% and Taiwan’s is 2%, holding USD can earn a 3% interest differential. However, this 3% is not a guaranteed return; exchange rate risk must also be considered.

Exchange rate differential income
Refers to profits made from the difference in exchange rates when buying and selling. For example, if you buy USD at 33 TWD/USD and sell when it appreciates to 35 TWD/USD, you can earn a 6% exchange rate profit.

Bidirectional risk warning
A common trap is “earning interest rate differential but losing on exchange rate.” Suppose you buy USD earning 5% interest, but the USD depreciates against TWD by 6%, resulting in a net loss of 1%. Therefore, before investing in foreign currencies, clarify your goal: are you pursuing stable interest income or capturing profits from short-term exchange rate fluctuations?

Comparing three ways to buy USD and other foreign currencies

Foreign currency fixed deposits — Conservative and stable plan

How it works
Open a foreign currency account at a bank (anyone over 20 with ID can apply), and deposit in foreign currency for fixed-term deposits.

Advantages

• Lowest risk, suitable for beginners
• No need to constantly monitor market trends
• Stable and guaranteed interest

Disadvantages

• Lowest returns (usually 2%-5%)
• Limited liquidity; early withdrawal may incur penalties
• Cannot flexibly respond to exchange rate movements

Who is suitable
Conservative investors, those with idle funds.

Currency funds — Balanced and flexible plan

How it works
Purchase money market funds or currency ETFs through banks or fund companies, without needing to exchange currencies yourself; the fund company manages the operations.

Common products

• USD money market funds: invest in USD assets, management fee about 0.5%
• USD index ETFs: track USD index performance, management fee about 0.6%

Advantages

• No lock-in, buy and sell anytime
• Interest rates between savings and fixed deposits
• Can invest directly with TWD without exchanging currencies

Disadvantages

• Moderate yields (3%-5%)
• Management fees apply
• Cannot participate in active trading

Who is suitable
Investors needing liquidity and moderate risk tolerance.

Forex margin trading — Advanced high-return plan

How it works
Leverage trading to control larger currency positions with a small amount of capital. Leverage multiples typically range from 50x to 200x.

Features

• 24-hour trading, T+0 mechanism
• Two-way trading (long and short)
• Low entry barriers

Risks

• High leverage brings high risk
• Requires active position management
• Market volatility can lead to margin calls

Reasonable leverage advice
Australian regulators recommend leverage for major currency pairs below 30x. While high leverage can generate high returns, it also rapidly amplifies losses.

Who is suitable
Traders with experience, capable of handling high risk, and willing to study the market actively.

The 12 most popular foreign currencies among Taiwanese investors

Taiwanese banks typically offer the following 12 currencies: USD(, AUD), CAD(, HKD), GBP(, CHF), JPY(, EUR), NZD(, SGD), ZAR(, SEK).

These currencies can be categorized into four main types based on their characteristics:

( First category: Policy-driven currencies (USD, EUR)

Features
Exchange rates are mainly influenced by central bank monetary policies. Loose policies tend to weaken the currency, while tightening policies strengthen it.

Investment focus
Pay attention to central bank decision meetings and policy content. The Federal Reserve and European Central Bank’s policy directions directly impact global capital flows.

) Second category: Safe-haven currencies (JPY, CHF)

Features
Economically stable, politically neutral, with rarely changing interest rates. During global turmoil, funds tend to flow into these currencies.

Arbitrage potential
Investors often borrow low-interest JPY or CHF to invest in high-yield assets, then close positions when risks subside.

Market status (2025)
As the US economy slows and the Fed begins easing, the Swiss franc attracts large capital inflows due to its safe-haven status, appreciating accordingly.

( Third category: Commodity-linked currencies (AUD, CAD)

Features
Exchange rates are highly correlated with commodity prices. Australia is the largest iron ore exporter; thus, AUD moves closely with iron ore prices.

Historical example
From 2021 to 2024, iron ore prices declined, and AUD/USD also fell. These currencies’ price movements are more predictable, suitable for trend trading by beginners.

Strategy for buying USD/AUD)USD/AUD(
If you expect iron ore to continue falling, consider increasing USD holdings and reducing AUD.

) Fourth category: Emerging market currencies (CNY, ZAR)

Features
Interest rates are usually high (6%-8%), but exchange rate volatility is significant, and international liquidity is low.

Risk warning
Emerging market currencies often have larger bid-ask spreads (e.g., ZAR), and the risk of “earning interest rate differential but losing on exchange rate” is higher.

Investment advice
Unless supported by thorough market research, beginners should be cautious when entering these markets.

Five major factors driving exchange rate fluctuations

( 1. Inflation rate differential

Currencies of countries with low inflation tend to appreciate. When a country’s inflation rate is lower than others, the relative value of goods and services rises, increasing demand for that country’s currency.

) 2. Interest rate levels

Higher interest rates attract foreign capital. Investors seeking higher returns increase demand for high-interest-rate currencies, pushing up their value. Differences in policies between the Fed and ECB directly influence the relative strength of the USD and EUR.

( 3. Government debt levels

Excessive government debt weakens foreign investment appeal. When markets expect a country cannot effectively repay its debt, foreign investors sell bonds, leading to currency depreciation.

) 4. Trade conditions

When export prices rise faster than import prices, trade terms improve, increasing demand for the domestic currency and causing appreciation. The opposite is also true.

( 5. Political stability

Countries with political turmoil find it hard to attract long-term foreign investment. Conversely, politically stable and well-ruled countries’ currencies are more favored.

Current major currency pair trends (2025 outlook)

) EUR/USD###

Market status
Since September 2024, the Fed has started a rate-cutting cycle, lowering rates by a total of 100 bps. Meanwhile, the European Central Bank has kept rates steady and expressed optimism about economic prospects, causing EUR/USD to rise to a four-year high.

Risk factors
Uncertainty from Trump policies has increased the USD risk premium. In contrast, the ECB’s independence and more stable policies make it a safe-haven choice.

Investment insight
In the short term, the attractiveness of buying USD against EUR###USD/EUR### has decreased; contrarian strategies may have more potential.

( USD/JPY)

Market status
The yen is often used for carry trades. The Bank of Japan has paused rate hikes due to concerns over tariff policies, but most economists expect a 25 bps rate increase by year-end.

Policy divergence
Divergence in monetary policy between the US and Japan is expected to narrow the US-Japan interest rate gap, leading to yen appreciation. In the short term, USD/JPY will likely fluctuate within a range amid bullish and bearish forces.

GBP/USD###

Market status
This year, GBP’s strength mainly stems from USD weakness rather than UK economic improvement. The UK economy remains sluggish, and markets expect the Bank of England to have room to cut rates.

Investment outlook
As Fed policies become clearer, the GBP bullish trend faces re-pricing risks. It is expected to remain in a range with no strong upward breakout.

USD/CHF###

Market status
As a safe-haven currency, the Swiss franc attracts significant inflows amid slowing US economic growth and a weakening dollar index.

Long-term outlook
Expectations of Fed rate cuts and weakening US economic momentum will continue to support CHF appreciation. For USD investors, this reflects a declining global risk appetite.

How to profit by buying USD and other foreign currencies?

Establish clear trading goals

Before opening positions, ask yourself three questions:

1. Am I pursuing interest rate differential income or exchange rate profit?
2. What is my investment horizon?
3. How much principal loss can I tolerate?

For example, if you believe the US will cut rates this year while Japan maintains current rates, you might go long JPY/USD. But the success of this decision depends on the actual policy direction of the Federal Reserve.

Leverage the advantages of two-way trading

Traditional investing only allows “buy low, sell high.” Forex markets support two-way trading:

Long strategy
Expect EUR/USD to appreciate → buy euros, sell dollars → if EUR appreciates as expected, close position for profit

Short strategy
Expect EUR/USD to depreciate → sell euros, buy dollars → if EUR depreciates as expected, close position for profit

Develop detailed trading plans

Every trade should include:

• Entry point: specific price based on technical or fundamental analysis
• Stop-loss: level to exit if the market moves against you
• Take-profit: target profit level for closing
• Position size: risk no more than 1%-2% of total capital per trade

( Choose the right timing to enter

The most common mistake is “chasing highs” or “selling at lows.” Correct approach:

1. Wait for a trend to form: usually takes 5 minutes to several hours
2. Enter early in the trend: avoid chasing after high peaks or bottom-fishing
3. Use multiple timeframes for confirmation: check 5-minute, 30-minute, 2-hour charts simultaneously

Five key tips for beginners investing in foreign currencies

1. Only trade familiar currency pairs
Forex offers many pairs; beginners should focus on major currencies like USD, EUR, JPY, avoiding obscure currencies.

2. Continuously monitor market developments
Exchange rates are affected by economic data, political events, central bank policies. Subscribe to international financial news (Bloomberg, CNBC, Investing.com) to stay alert.

3. Diversify to reduce risk
Don’t concentrate all funds in one currency. For example, hold USD fixed deposits, AUD funds, JPY margin positions to create risk hedges.

4. Strictly implement stop-loss and take-profit
Discipline is crucial in forex margin trading. Set automatic stop-loss points; when losses reach a preset percentage, close positions to prevent margin calls. Limit daily trades to no more than two to avoid overtrading.

5. Choose leverage according to risk tolerance
Beginners should start with low leverage (below 10x), and increase gradually with experience. Remember: leverage is a double-edged sword—it amplifies gains and losses alike.

Criteria for choosing trading tools

Whether using bank fixed deposits, fund companies, or forex trading platforms, evaluation should include:

• Safety and regulatory compliance: Is the institution authorized by proper financial regulators?
• Trading costs: Are fees, spreads, management charges competitive?
• Completeness of trading tools: Can it cover all necessary currency pairs?
• Trading speed and execution quality: Are real-time quotes and fast execution available?
• Customer support: Is there 24-hour Chinese-language support?

The importance of practical learning

Any theoretical knowledge is useless without practice. Before investing real money, it’s recommended to use demo accounts for practice. Simulated environments provide real market conditions, allowing traders to evaluate strategies without risking actual losses.

Through repeated demo trading, you can test your timing for buying USD, risk management skills, and psychological resilience, laying a solid foundation for real trading.

Foreign currency investment has no shortcuts—only continuous learning, practice, and gradual optimization. Persist in this process, and ultimately, you can steadily profit in the complex and volatile forex market.