Foreign currency investment beginner's guide: Choosing the right coins and methods to make money

Would you consider increasing your assets with foreign currencies? During Taiwan’s low-interest-rate era, foreign currency investments have become a popular choice for many. But to truly make money, it’s not just about buying coins randomly; you need to understand the market and strategies first.

First, clarify: What’s the difference between foreign currencies and foreign exchange?

Many people confuse foreign currencies with foreign exchange, but these two concepts are entirely different. Foreign currency refers to currencies of other countries besides the New Taiwan Dollar, such as USD, JPY, AUD. Foreign exchange covers a broader scope, including foreign currencies, government bonds, bank deposit certificates, and other assets denominated in foreign currencies. Simply put: Foreign exchange includes foreign currencies, but foreign currencies are just one part of foreign exchange.

Investors in the foreign exchange market mainly watch the exchange rate fluctuations of various currencies to identify the most valuable investment opportunities.

How to make money with foreign currencies? The core is exchange rate differences and interest rate spreads

What do you earn from buying foreign currencies? Basically, two things: exchange rate differences and interest rate spreads.

Exchange rate difference: The price difference between buying and selling. For example, if you buy USD at 33 TWD and sell when it appreciates to 34 TWD, the difference is your profit.

Interest rate spread: The difference in fixed deposit interest rates among countries. Taiwan’s fixed deposit rates are low, while the US rates are high. Holding USD fixed deposits allows you to earn this interest rate spread.

But there’s a trap: You might earn the interest spread but lose on the exchange rate. Suppose USD interest gives you a 5% return, but during the same period, USD depreciates by 8%, then overall you still lose money. So, before entering, think carefully whether you’re aiming for long-term interest income or short-term exchange rate fluctuations.

Three ways to invest in foreign currencies, which one should beginners choose?

Taiwanese investors usually have three options:

1. Foreign currency fixed deposits - safest, lowest return

Open a foreign currency account at a bank and deposit money to earn interest. The advantage is low risk; the downside is a return of only 1-3%, and poor liquidity. If the exchange rate rises and you want to withdraw early, you may be charged interest. Beginners can try this, but don’t put all your funds here.

2. Foreign currency funds - flexible, moderate returns

Invest directly in foreign currency funds with TWD, no need to exchange currencies yourself; the fund company manages it. You can buy and sell anytime, with returns between fixed deposits and margin trading. Common options include money market funds or USD ETFs, with management fees around 0.5-0.6%. Suitable for those who want flexibility but don’t want high risk.

3. Forex margin trading - high leverage, high returns, high risk

This is true forex trading. You use a small amount of capital with leverage to trade various currency pairs, available 24 hours. Because leverage is high (usually 50-200x), the potential returns are significant, but so are the risks. One careless move can lead to a margin call and losing everything. This method is only suitable for experienced investors; beginners should avoid rushing in.

Which foreign currencies do Taiwanese prefer to invest in?

Based on historical data, Taiwanese banks offer 12 main currencies for investors: USD, AUD, CAD, HKD, GBP, CHF, JPY, EUR, NZD, SGD, ZAR, SEK.

But these currencies are not equal; each has its characteristics:

Policy currencies: USD and EUR

Their trends mainly depend on central bank policies. When interest rates rise, they appreciate; when lowered, they depreciate. USD is the most invested because it’s the global settlement currency with the best liquidity.

Safe-haven currencies: JPY and CHF

These countries are politically stable, economically developed, with almost unchanged interest rates. During market turmoil, everyone rushes to buy them as “safe harbors.” Especially JPY, often used as a borrowing currency in carry trades.

Commodity currencies: AUD and CAD

Australia relies on iron ore exports; Canada on oil and natural gas. When commodity prices rise, these currencies appreciate; when they fall, they depreciate. The pattern is strong and relatively easy for beginners to grasp.

Emerging market currencies: CNY and ZAR

Interest rates are very high, but political stability is uncertain, and exchange rate volatility and spreads are large. Easy to earn interest spread but risk losing on exchange rate—be especially cautious.

Best choices for beginners are USD paired with AUD or JPY. USD is stable and easy to operate, AUD has strong regularity and trend clarity, JPY is a safe-haven tool.

Why do exchange rates move? What factors influence them?

To profit from foreign currency investments, you need to understand how exchange rates fluctuate:

Inflation: Countries with low inflation see their currencies appreciate because goods are cheaper, attracting buyers.

Interest rates: Countries with high interest rates see their currencies appreciate as more people want to earn interest.

Government debt: Countries with high debt levels tend to see their currencies depreciate because foreign investors lose confidence and sell off assets.

Trade conditions: When export prices rise, the country’s currency appreciates; vice versa.

Political stability: Countries with political turmoil see their currencies depreciate as foreign capital exits.

How to view the major currencies’ trends in 2025?

The Federal Reserve started cutting interest rates in September 2024, with a total reduction of 100 basis points by 2025. However, since inflation has not been fully resolved, the Fed is expected to keep rates steady in 2025.

The Fed’s moves will directly impact major global currencies because the US dollar index is composed of six currencies: Euro (57.6%), Yen (13.6%), Pound (11.9%), CAD (9.1%), SEK (4.2%), CHF (3.6%).

EUR/USD: The European Central Bank maintains steady rates and has an optimistic economy, while the Fed is cutting rates, strengthening the euro, which even hits a four-year high.

USD/JPY: The Bank of Japan has paused rate hikes but is expected to raise again by year-end. This policy divergence narrows the yen interest rate differential, leading to intense short-term battles.

GBP/USD: The pound’s strength mainly results from a weak dollar, not improved UK economy. The UK economy remains sluggish, likely to fluctuate within a range.

USD/CHF: US economic challenges make the Swiss franc’s safe-haven appeal more attractive. In the medium to long term, the Swiss franc will continue to be supported.

How can beginners actually profit from foreign currency investments?

Once you understand the theory, let’s move to practical steps:

Choose the right targets

Research the policies, interest rate trends, and main export changes of the two currencies you want to trade. For example, if you think the US will cut rates this year and Japan’s rates stay unchanged, you might go long on JPY/USD, but only if the US rate cut announcement is highly significant for you.

Develop a trading plan

Include entry points, exit points, stop-loss, take-profit, and maximum tolerable loss. Trading without a plan is a big mistake.

Discipline and mindset

Follow your plan, don’t panic from market volatility. Avoid chasing highs or selling lows; be patient for good opportunities. Usually, a trend takes at least 5 minutes or longer to form; once confirmed, you can follow.

Choose the right trading tools

If using fixed deposits or funds, banks or brokers are enough. For margin trading, select a reputable platform with proper regulation, reasonable fees, and diverse trading options.

The five golden rules of foreign currency investment

1. Don’t touch currencies you don’t understand

There are many foreign currencies, but the most traded and easiest to grasp are USD, JPY, EUR. Beginners should focus on these.

2. Constantly monitor exchange rate movements

Foreign exchange rates are affected by news, market sentiment, economic data, and change rapidly. Follow international financial media for first-hand information.

3. Diversify to reduce risk

Don’t put all your money into one currency. You can allocate some to USD fixed deposits, some to AUD funds, and use them together. Even if one loses, others might profit.

4. Always set stop-loss and take-profit

Especially in margin trading, setting stop-loss is the last line of defense against margin calls. Limit daily trades to no more than 2 times to reduce the chance of being trapped.

5. Timing your entry is crucial

Don’t rush to buy at the top; wait for a clear trend to form before entering. Different trading styles may use 5-minute, 30-minute, or longer K-line charts, but the principle remains: don’t enter when the trend is unclear.

Why should you invest in foreign currencies now more than ever?

Taiwan’s interest rates are too low

Taiwan bank fixed deposit average annual interest is only 1.7%, which can’t even beat inflation. In contrast, the US and Australia have rates above 4-5%.

Multi-currency asset allocation is necessary

If all your assets are in TWD, your wealth shrinks when TWD depreciates. Holding more foreign currencies can hedge against exchange rate risks.

Foreign exchange markets are more fair and transparent

Participants are investors worldwide, making manipulation difficult. Compared to some stock markets, which may have room for operation.

24-hour trading

Stock markets have fixed hours, but forex is open 24/7. When prices move against you, you can always stop-loss and exit.

The increasing proportion of Taiwanese investing in foreign currencies is driven by these reasons. But remember, all investments carry risks—be sure to understand thoroughly before entering.