Foreign currency investment from scratch: Master three main methods, four types of currencies, and five key risk points

Want to make money through foreign currency investments but don’t know where to start? The NT dollar fixed deposit rate is only 1.7%, but a US dollar fixed deposit can offer up to 5%. The 3% interest rate difference is your opportunity. Today, let’s discuss how ordinary people can profit through foreign currency investments.

What exactly is foreign currency investment? How can you make money?

First, clarify a concept—foreign currency investment doesn’t profit from company growth in stocks, but from the “exchange difference” and “interest rate spread” between two currencies.

Interest rate spread is easier to understand. You exchange NT dollars for USD and put it in a fixed deposit. Since USD interest rates are higher than NT, this interest difference is your income.

Exchange difference is a bit more complex. For example, you exchange 33 NT dollars for 1 USD. After some time, the USD appreciates, and when you convert back, it becomes 35 NT dollars. The 2 NT dollar difference is your exchange income.

But there’s a trap to watch out for—many people earn from the interest rate spread but lose on the exchange difference. For example, you earn 5% interest on USD, but during your holding period, the USD depreciates by 8%, resulting in a net loss. This is why when choosing foreign currencies, you must consider both interest rates and exchange rate trends.

Comparing three mainstream foreign currency investment methods

Taiwanese investors mainly have three options:

Foreign currency fixed deposits are the safest choice—simply open an account at a bank, deposit money, and wait for interest. The only downside is poor liquidity; early withdrawal may deduct interest.

Foreign currency funds are much more flexible, allowing buy/sell at any time. Options like UBS USD funds or USD ETFs are good choices, with management fees around 0.5-0.6%.

Forex margin trading is where you can really make big money but also easily lose. You only need to put up 5-10% margin to control 100% of the position, and trading is 24/7 with T+0 mechanisms. But if your judgment is wrong, losses can be magnified. Australian regulators recommend leverage not exceeding 30x.

The four main categories of major global currencies—choosing the right direction is crucial

Banks offer 12 major currencies, which can be categorized into four types based on their characteristics:

1. Policy-driven currencies (USD, EUR)

These currencies follow central bank policies closely. For example, the US Federal Reserve recently cut interest rates in 2025, directly affecting EUR/USD and other euro-cross rates. To invest in these currencies, you must closely monitor central bank meetings and policy statements.

2. Safe-haven currencies (JPY, CHF)

Japan and Switzerland are known for stability, with low political risk and developed economies. During global turmoil, these currencies become “safe havens,” attracting capital inflows. Recently, with worsening US trade and fiscal issues, the Swiss franc’s safe-haven value has increased significantly, appreciating sharply.

3. Commodity currencies (AUD, CAD)

These countries rely on exporting bulk commodities. Their currencies are directly linked to commodity prices. Australia is the world’s largest iron ore exporter; when iron ore prices fall, the AUD depreciates. The advantage of these currencies is that price movements are relatively predictable, making them suitable for trend trading by beginners.

4. Emerging market currencies (CNY, ZAR)

These have the highest interest rates and the greatest temptation, but also the highest risks. For example, the ZAR’s high interest rate looks attractive, but its exchange rate is highly volatile, and liquidity is poor, so you might “earn the interest spread but lose on the exchange difference.”

New investors are advised to prioritize a combination of safe-haven and commodity currencies—the former is stable, the latter easier to grasp. Combining both can help balance risk and return.

The most noteworthy currency pairs to watch now

EUR/USD(EUR/USD) is the world’s most traded currency pair. With the Fed cutting rates and the European Central Bank maintaining high rates, plus optimistic eurozone economic data, the euro has reached a four-year high. Markets are still concerned about US policy uncertainties, while the ECB’s monetary policy remains more independent and stable.

USD/JPY(USD/JPY) is the most common carry trade pair. The Bank of Japan has paused interest rate hikes, but may raise by 25 basis points before year-end, narrowing the US-Japan interest differential. Short-term, policy divergence causes yen fluctuations, with intense battles between bulls and bears.

GBP/USD(GBP/USD) has risen significantly this year, mainly due to dollar weakness rather than pound strength. The UK economy is sluggish, and the Bank of England may cut rates. Expect the pound to remain range-bound with difficulty breaking upward.

USD/CHF(USD/CHF) is a true safe-haven pair. As US economic momentum slows and the Fed cuts rates, the dollar index weakens, making the Swiss franc increasingly attractive as a safe haven. Medium to long-term, there is considerable upside potential.

What influences exchange rate fluctuations?

The core question in foreign currency investment is why do exchange rates go up and down?

Inflation rate is the primary factor. Countries with low inflation see their currencies appreciate because goods and services don’t increase in price, maintaining purchasing power. Conversely, high inflation countries see their currencies depreciate.

Interest rates are also crucial. Rising interest rates attract foreign capital, causing the currency to appreciate; falling rates have the opposite effect.

Government debt—high debt levels can scare off foreign investors, leading to currency depreciation.

Trade conditions influence exchange rates. When export prices rise faster than imports, the country earns more foreign currency, increasing demand for its currency and causing appreciation.

Political stability affects foreign investment confidence. Countries with political turmoil see their currencies plummet, while stable nations’ currencies tend to hold value.

How to actually profit from foreign currency investments?

The basic logic of foreign currency investment is “buy low, sell high,” but the forex market allows two-way trading, meaning you can sell first and buy later (short selling).

For example, if you expect the euro to weaken, you can sell EUR/USD. When the euro depreciates, you buy it back at a lower price, earning the difference.

But to truly make money, just buying and selling isn’t enough:

Step 1: Choose the target Understand the central bank policies, interest rates, and main exports of the two currencies you’re trading. For example, if you believe the Fed will keep cutting rates while the Bank of Japan remains steady, you can go long JPY/USD.

Step 2: Develop a trading strategy Based on your risk tolerance and experience, set entry points, stop-loss, and take-profit levels. This is key to success. For beginners, limit to 2 trades per day and avoid frequent in-and-out.

Step 3: Manage your mindset Forex markets fluctuate frequently. Don’t be scared by short-term swings. Trade according to your plan, and avoid chasing highs or selling lows.

Step 4: Choose a good platform Trading platforms should be secure, low-cost, feature-rich, offer diverse instruments, and execute quickly. This directly impacts your trading costs.

Five pitfalls beginners must avoid in foreign currency investment

1. Avoid currencies you don’t understand There are many currencies, but the most traded and transparent are USD, EUR, JPY, AUD. Start with familiar ones.

2. Constantly monitor exchange rate trends Exchange rates fluctuate daily, influenced by market, economic, and news factors. Develop a habit of following international financial news from CNBC, Bloomberg, Yahoo Finance, etc.

3. Don’t put all eggs in one basket Hold both USD fixed deposits and AUD funds to hedge risks. Different currencies don’t move in sync, so diversification reduces risk.

4. Always set stop-loss and take-profit Especially in margin trading, stop-loss is life-saving. Decide beforehand; if losses exceed your limit, exit immediately to prevent liquidation. Place stops near recent high/low points.

5. Timing your entry is crucial Avoid chasing highs or selling in panic. Wait for a trend to form before entering. Usually, a trend takes more than 5 minutes to establish. Once confirmed, place your order. Different trading styles can refer to 30-minute, 120-minute, or longer timeframes.

Final advice

Foreign currency investment is simple in theory but complex in practice. Opening a currency account is easy; making real money requires understanding exchange rates, interest rates, and economic-political conditions.

Instead of risking real money immediately, practice with demo accounts to test your strategies, judgment, and risk management. Only when confident should you invest real funds. Remember, any perfect trading plan that isn’t tested in practice is just a paper plan.

The barrier to entry in foreign currency investment isn’t high, but to become a winner, continuous learning, experience accumulation, and discipline are essential. Wishing everyone success on their foreign currency investment journey.