Investment USD Beginner's Guide: How can beginners earn profits through foreign currencies?

Why Is Now a Good Time to Invest in USD?

Taiwan’s fixed deposit interest rates have been consistently low, averaging only 1.7% annually, prompting more investors to seek higher returns in foreign currency markets. Investing in USD has become an important asset allocation strategy for many Taiwanese, especially in an era of constantly changing global interest rates.

In comparison, U.S. fixed deposit rates once exceeded 5%, making the roughly 3% interest rate differential highly attractive for passive income seekers. However, while earning the interest spread, investors must also be cautious of exchange rate risks—something many beginners tend to overlook.

Core Differences Between Foreign Currencies and Forex Trading

Many beginners confuse these two concepts. Foreign currency refers to all currencies other than the domestic currency (New Taiwan Dollar), while forex (foreign exchange) refers to assets held in foreign currencies, including bank deposits, government bonds, corporate bonds, and other financial instruments.

Simply put, buying and selling foreign currencies is a branch of forex trading. When investors engage in foreign currency operations, they are participating in the forex market. Whether through fixed deposits, funds, or margin trading, understanding how the forex market operates is essential.

Three Main Channels to Invest in USD

1. Foreign Currency Fixed Deposits — Stable Interest Spread Returns

This is the most beginner-friendly entry method. Investors only need to open a foreign currency account at a bank (available to those aged 20 and above), deposit funds into a fixed-term deposit, and enjoy relatively high interest rates. The advantage of USD fixed deposits lies in their simple, transparent process, with banks paying interest periodically.

However, fixed deposits have lower liquidity. If the exchange rate reaches an ideal level but the deposit has not matured, early withdrawal may incur interest deductions, potentially offsetting the expected gains. Therefore, many investors seek a balance between fixed and savings accounts.

2. Foreign Currency Funds — Flexible Allocation Options

Foreign currency funds do not have fixed terms and can be bought or sold at any time, making them suitable for those needing liquidity. Fund companies handle currency exchange operations, allowing investors to purchase directly with NTD, with returns coming from interest income and exchange rate fluctuations.

Common options include money market funds and currency ETFs. Management fees for these products are usually around 0.5% to 0.6%, falling between savings account and fixed deposit interest rates, offering a balanced solution.

3. Forex Margin Trading — A Tool for Short-term Profit Pursuits

For investors with some trading experience, forex margin trading offers higher profit potential. This method is entirely different from fixed deposits or funds; its goal is to profit from currency price fluctuations rather than simply earning interest.

The biggest advantage of forex margin trading is flexibility: the global market operates 24 hours a day, allowing investors to enter and exit at any time; T+0 mechanisms enable same-day transactions; and low initial capital requirements mean young investors can participate. Leverage multiples typically range from 50x to 200x, but caution is advised—using leverage above 30x can easily lead to margin calls and liquidation risks.

How to Profit from Investing in USD: Balancing Interest and Exchange Rate Differences

Returns from investing in USD come from two parts: interest spread and exchange rate difference.

Interest spread refers to the difference between benchmark interest rates set by central banks of different countries. For example, if Taiwan’s rate is 2% and the US is 5%, the 3% differential represents a potential profit.

Exchange rate difference is the profit or loss resulting from currency fluctuations. If you enter at an exchange rate of 33 NTD/USD but can only convert back at 30 NTD/USD, even if you earn interest on USD, you may still incur overall losses. This is commonly known as “earning interest but losing on the exchange rate.”

Investors must clarify their goals before entering: are they seeking stable interest income, or aiming to profit from short-term currency fluctuations? These strategies carry different risks, time costs, and expected returns.

Popular Foreign Currencies Besides USD

Taiwan banks typically offer about 12 foreign currencies, including USD, EUR, JPY, AUD, CAD, GBP, CHF, NZD, SGD, HKD, ZAR, SEK. These currencies can be categorized based on their characteristics:

Policy Currencies (USD, EUR): Their exchange rates are highly correlated with central bank monetary policies. When central banks loosen policy, exchange rates tend to fall; when tightening, they rise. Investing in these currencies requires close attention to policy decisions.

Safe-Haven Currencies (JPY, CHF): These countries are politically stable and economically developed, with long-term low interest rates. During global instability, funds tend to flow into these currencies for safety. Many investors use the low-interest nature of safe-haven currencies for arbitrage.

Commodity Currencies (AUD, CAD): These nations rely heavily on exporting commodities. When commodity prices rise, their currencies often appreciate; when they fall, the currencies weaken. For example, Australia, as the world’s largest iron ore exporter, saw its AUD weaken when iron ore prices declined from 2021 to 2024. These currencies’ price trends are relatively easier to analyze, suitable for trend trading by beginners.

Emerging Market Currencies (CNY, ZAR): These countries are in rapid development, with higher interest rates but often volatile exchange rates due to political instability. The high yields come with higher risks.

2025 Outlook for Foreign Currency Investment

After the Federal Reserve began cutting interest rates in late 2024, the policy outlook for 2025 is becoming clearer, with significant implications for global currencies:

Euro vs. USD Strengthening: Amid Fed rate cuts, the European Central Bank maintains steady rates and expresses optimism about economic prospects. Uncertainty around US monetary policy increases, while the ECB’s independence and cautious stance attract capital inflows, pushing the euro to a four-year high.

Short-term Fluctuations of JPY: Expectations of narrowing US-Japan interest differentials are forming, with the Bank of Japan expected to raise rates again by year-end, diverging from the Fed’s rate cuts. In the short term, the yen may continue to fluctuate within a range.

Pound Facing Correction Risks: The recent strength of the GBP has mainly been due to dollar weakness rather than UK economic improvement. As US policy clarity emerges, the GBP may face revaluation risks. Considering sluggish UK economic growth and rate cut expectations, the pound is expected to remain within a range.

Swiss Franc’s Safe-Haven Appeal: With the US facing trade and fiscal challenges, the dollar’s safe-haven status is challenged. The Swiss franc, a traditional safe-haven currency, is attracting large inflows, leading to significant appreciation. In the medium to long term, continued Fed rate cuts and a weakening dollar index will support the Swiss franc.

Key Factors Influencing Currency Exchange Rate Fluctuations

To succeed in investing in USD or other currencies, understanding the core factors affecting exchange rates is essential:

Inflation Rate: Countries with low inflation tend to see their currencies appreciate, as prices for goods and services rise slowly, maintaining purchasing power.

Interest Rate Changes: Higher interest rates attract foreign capital seeking better returns, boosting the currency’s value; lower rates have the opposite effect.

Government Debt: High government debt can lead to foreign investors selling bonds, causing the currency to depreciate.

Trade Conditions: When export prices rise relative to imports, trade income increases, boosting foreign exchange demand and causing currency appreciation.

Political Stability: Countries with low political risk attract more foreign investment, strengthening their currencies; political turmoil can lead to depreciation.

Practical Steps for Beginners Investing in USD

Step 1: Define Investment Direction. Analyze the central bank policies, interest rates, and main export industries of the target country to decide whether to go long or short. For example, if US rates are expected to fall while Japan’s remain steady, consider going long JPY/USD.

Step 2: Develop a Trading Strategy. Based on your risk tolerance and experience, set entry and exit points, stop-loss, and take-profit levels. Plan leverage ratios and holding periods in advance.

Step 3: Maintain a Stable Mindset. Avoid panic reactions to short-term volatility. Many beginners overtrade by reacting to price swings, which erodes profits through transaction costs.

Step 4: Continuous Learning and Practice. Use demo accounts to gain experience, monitor international news outlets (like CNBC, Bloomberg), and gradually develop market judgment.

Five Core Tips for Investing in USD

1. Only Invest in Currencies You Know Well: The forex market offers many options, but the most traded are USD, JPY, and other major pairs. Beginners should start with these highly liquid currencies to avoid being lured by high-yielding but obscure currencies.

2. Constantly Monitor Exchange Rates. Currency prices are influenced by market conditions, economic data, and news events. Regularly review your holdings and stay updated on international news.

3. Diversify Your Portfolio. Don’t concentrate all funds in a single currency or investment type. For example, holding both USD fixed deposits and AUD funds can hedge risks.

4. Strictly Enforce Stop-Loss and Take-Profit. Especially in short-term trading, setting automatic stop-loss points is crucial to prevent large losses. Limit daily trades to around 2 to avoid overtrading.

5. Be Careful with Entry Timing. Avoid chasing highs or selling lows. Develop a detailed trading plan and only execute when the trend is clear. Waiting for a confirmed trend (often 5 minutes or longer) is a good approach.

Conclusion

Success in investing in USD and other currencies depends less on complex technical analysis and more on understanding fundamentals, proper risk assessment, and disciplined execution. Beginners should start with low-risk fixed deposits to build experience, then gradually move to funds and margin trading. Regardless of the method chosen, remember the principles of “Don’t touch what you don’t understand” and “Risk management comes before profit,” which are the foundation for long-term gains in the foreign exchange market.