Complete Investment Guide to Profiting from Forex Spreads | Master Trading Timing and Strategies from Scratch

Why Has Forex Become the World’s Largest Financial Market?

When it comes to investment products, names like stocks, gold, and bonds are familiar to everyone. But if we talk about the financial instrument with the largest daily trading volume worldwide, the answer is always Forex. The international currency exchange volume has long surpassed all other asset classes, and it’s not just investors participating—any ordinary person with international travel, overseas shopping, or import/export needs is indirectly involved in the forex market.

In recent years, even stable, mature market currencies have experienced significant fluctuations. This volatility brings opportunities, and it’s precisely why more and more people are paying attention to how trading foreign currencies can generate stable income. If you want to enter this most active global market but don’t know where to start, this article will thoroughly analyze the core logic of forex investing, practical techniques, and the best trading times.

What is the core of buying and selling foreign currencies? Understanding the essence of the exchange rate difference

The profit method in forex trading is quite straightforward: making money through exchange rate differences.

Exchange rate difference refers to the price disparity in the exchange of the same currency at different times or through different trading channels. Investors predict the future trend of currency pairs and adopt a “buy low, sell high” or “sell high, buy low” approach to capture profits from these price fluctuations.

A simple example of calculating exchange rate difference

Profit = (Close price - Open price) × Trading volume

Suppose you believe the euro will appreciate against the US dollar, so you buy 1 standard lot (100,000 units) of EUR/USD at an exchange rate of 1.0800. A few days later, the rate rises as you expected to 1.0900, and you close the position:

((1.0900 - 1.0800)) × 100,000 = $1,000 profit

A tiny fluctuation of 100 points can generate over $1,000 in profit—that’s the appeal of currency trading.

The three main ways to invest in foreign currencies: balancing risk and reward

To profit from exchange rate differences, there are three options. Based on risk tolerance and time commitment, investors should proceed gradually:

Method 1: Foreign currency bank fixed deposit (lowest risk)

This is the safest entry into the forex world. Simply open a foreign currency account at a bank, exchange at the daily announced official rate, and deposit regularly.

Taiwanese investors most commonly choose USD fixed deposits (high interest, high liquidity) or ZAR fixed deposits (interest rates far higher than TWD). Banks update rates daily, and you can operate via app or counter.

Features of fixed deposits: mainly profit from interest, not exchange rate differences. As long as the TWD exchange rate doesn’t plummet and combined with interest income, profits are usually achievable. But the downside is the lack of flexibility—early withdrawal incurs penalties and you miss out on two-way trading opportunities.

Current tip: The US is in a rate-cut cycle, and the USD/TWD may face depreciation risk. It’s not suitable to heavily long USD now.

Method 2: Foreign currency funds (medium risk)

These funds invest in stocks or bonds of specific countries, allowing you to profit from both currency fluctuations and asset appreciation.

For example, if you expect the yen to appreciate and believe Japanese stocks are undervalued, buying a yen-denominated Japanese stock fund allows you to earn from yen appreciation and stock price gains simultaneously.

Method 3: Forex margin trading (high risk, high reward)

This is the choice of active traders. Using contracts offered by brokers, investors only need to deposit a certain margin to conduct trades much larger than their capital—leverage can range from dozens to hundreds of times.

When the market moves in your favor, profits can multiply rapidly; if wrong, your capital can be wiped out quickly. This high risk is designed to match high returns.

Why is forex margin trading so popular? An in-depth look at three major advantages

Despite its high risk, forex margin trading is favored by professional traders due to its unique advantages:

Leverage amplifies gains

Popular currency pairs like USD/JPY can offer up to 200x leverage on some platforms. If JPY rapidly appreciates from 161 to 141 per USD (like in early August last year), traders using leverage could see returns multiple times higher, making gains substantial.

Lower transaction costs than banks

Banks’ bid-ask spreads are usually 0.3%-0.47%. For USD/TWD, the spread can be 0.47%. In contrast, some forex platforms have spreads as low as about 0.0082% for EUR/USD, often with no commission.

This means that even without leverage, short-term trading to profit from price differences is more cost-effective with forex margin trading than currency exchange at banks.

T+0 two-way flexibility

Margin trading allows unlimited buy and sell operations within the same day and supports two-way trading. If you expect USD to appreciate, you buy (Long) USD/TWD; if you expect TWD to appreciate, you sell (Short) USD/TWD. This flexibility enables profits from both rising and falling markets.

Practical trading strategies: five classic methods

Once you understand the market basics, you need to develop a trading strategy suited to your style. Here are five common approaches:

Range Trading

Effective when forex prices fluctuate within a certain range without a clear trend. Traders repeatedly buy at support and sell at resistance.

Historical example: Between 2011-2015, the Swiss National Bank announced to maintain EUR/CHF at a lower limit of 1.2000. Traders repeatedly traded within the 1.2000-1.2500 range, and the market oscillated within this zone for years.

Risk warning: Once the range is broken, losses can escalate rapidly. Strict stop-loss settings are essential.

Trend Trading

When a strong upward or downward trend appears, follow the trend for medium to long-term holding.

Case review: From May 2021 to October 2022, aggressive US rate hikes and delayed European Central Bank moves caused EUR/USD to decline nearly a year. Traders who caught this trend reaped significant gains.

Trading tip: Trends tend to persist once established. The key is accurately identifying the start and reversal points.

Day Trading

Short-term traders must pay close attention to key economic data releases and central bank meetings. When US CPI, FOMC meetings, or quantitative easing/tightening policies occur, forex markets often experience intense volatility.

In mid-2021, the Fed raised rates by 100 basis points over several FOMC meetings—the fastest pace in nearly 30 years—offering huge profit opportunities within months.

Trading tip: Enter and exit quickly, avoid overnight risks, and don’t let short-term trades turn into long-term positions.

Swing Trading

Between day trading and trend trading, this medium-short-term strategy combines technical and fundamental analysis. It seeks volatile instruments and four key signals: upward breakout, downward breakdown, trend reversal, and retracement.

Classic event: On January 15, 2015, the Swiss National Bank suddenly removed EUR/CHF 1.2000 lower limit, causing market chaos—an essential “black swan” event for swing traders.

Trading tip: Larger volatility means higher profits but also greater risk. Take profits when the market looks favorable.

Position Trading

A long-term strategy suitable for buy-and-hold investors. Traders don’t need frequent monitoring but base decisions on macroeconomic fundamentals, historical trends, and long-term cycles.

The trick is to enter at a lower-cost position. Forex prices won’t skyrocket or zero out; they fluctuate within a range. Entering at the lows of the exchange rate cycle can significantly reduce holding costs.

Trading tip: Correctly judging the big picture is crucial. Entering at the right position makes half the battle won.

Why is foreign currency investment worth paying attention to?

Compared to stocks, bonds, and other assets, forex trading has three major advantages:

Wide applicability: Traveling abroad, overseas shopping, international trade—ordinary people have long been involved in forex. Understanding different countries’ economies also enables carry trades or hedging.

Relatively clear trends: Although influenced by multiple factors, forex price movements tend to be more persistent and easier to grasp than stocks. As long as you understand the interest rate policies and currency policies of two countries, you can infer the basic direction.

Highest global liquidity: Daily forex trading exceeds $6 trillion, with a 24-hour global market linkage. The enormous trading volume ensures high transparency and makes manipulation by major players very difficult.

How to identify the best times for forex trading

Bank foreign currency trading hours

Generally from 9:00 AM to 3:30 PM (varies slightly by bank). Most banks stop trading on weekends and holidays.

Forex margin trading hours

Margin trading operates globally without fixed opening or closing times. The market is divided into four main sessions:

London session (most active, highest volume): Taiwan time summer 3:00 PM–midnight, winter 4:00 PM–1:00 AM

Sydney session: Taiwan time summer 6:00 AM–3:00 PM, winter 5:00 AM–2:00 PM

Tokyo session: Year-round 7:00 AM–4:00 PM Taiwan time

New York session (high volatility, many trading opportunities): Taiwan time summer 8:00 PM–next morning 5:00 AM, winter 9:00 PM–next morning 6:00 AM

Due to overlapping hours, you can nearly trade 24 hours from Monday to Friday—this is why professional forex traders operate around the clock.

Final advice

Making money from exchange rate differences doesn’t have a fixed formula; different trading methods suit different investors. The key is to choose a strategy aligned with your risk appetite, time commitment, and capital, and stick with it.

The forex market is like a never-closing arena—if you study diligently, opportunities are everywhere. Beginners are advised to practice with demo accounts first, and once you’ve mastered your style, start trading with real money. Remember: sharpening your tools won’t delay your success; the forex market always welcomes prepared investors.