Mastering the Forex Market Trends | How to Profit from Currency Exchange in Foreign Currency Investment?

Foreign exchange is the most actively traded financial product worldwide, with a daily trading volume exceeding 6 trillion USD. In recent years, many traditional investment markets have performed well, but when it comes to the most active trading commodities, foreign exchange is unmatched. Coupled with volatile currency fluctuations, it can be used for investment and daily life applications, attracting more and more ordinary investors to participate.

Many people feel unfamiliar with forex investing, worried that their lack of experience prevents them from getting involved. In fact, as long as you master the correct methods and techniques, currency investment is not complicated. This article will comprehensively introduce the profit logic, practical strategies, and trading schedules of currency buying and selling, helping you find the most suitable way to make money in the foreign exchange market.

What is the profit from the exchange rate spread in currency buying and selling?

The core profit method in forex investment is earning the exchange rate spread.

Definition of the spread is simple: the difference in exchange rates for the same currency at “different times” or “different channels.” Traders predict the future trend of currency exchange rates and take “buy low, sell high” or “sell high, buy low” operations to profit from the price difference. This is the most common form of retail forex trading.

How to calculate the spread profit? The formula is: Profit amount = (Close price - Open price) × Trading units

For example, suppose you are bullish on the euro appreciating against the US dollar, and you buy 1 standard lot of EUR/USD (100,000 units) at an exchange rate of 1.0800. Later, the rate rises as expected to 1.0900, and you close the position in time. The profit earned is: (1.0900 - 1.0800) × 100,000 = 1,000 USD. Just a 100-point fluctuation can bring significant gains.

After understanding the profit mechanism, let’s look at the specific ways to earn from the spread.

The three main types of currency investment: from low to high risk

1. Bank foreign currency fixed deposit｜Stable but limited

This is the lowest risk and entry barrier among currency investments. Simply open a foreign currency account at a bank, exchange at the posted rate, and deposit. Common choices for Taiwanese include USD fixed deposits (high interest, versatile use) and ZAR fixed deposits (interest rates much higher than TWD).

The main income from fixed deposits comes from interest income. As long as the foreign currency to TWD exchange rate remains stable or appreciates, combined with interest, you can profit. Even if the exchange rate depreciates, as long as the depreciation is less than the interest spread, there is still a net gain.

Note: Currently, the US is in a rate-cut cycle, and USD to TWD faces depreciation risk. During this period, it’s not recommended to be overly bullish on USD alone, or you might earn interest but lose on the exchange rate.

The downside of fixed deposits is the lack of flexibility in entering and exiting. To truly profit from spread arbitrage, margin trading is preferable, as it offers the flexibility of frequent and two-way trading.

2. Currency funds｜Risk and return in one

This is a medium-risk currency investment, combining the advantages of currency and investment tools. Funds invest in bonds or stocks of specific countries, so besides gains from exchange rate fluctuations, they can also profit from the appreciation of the underlying assets.

For example, if you are optimistic about the yen appreciating and believe Japanese stocks are undervalued, you can buy yen-denominated Japanese stock funds. This way, you can earn from both yen appreciation and stock price increases, achieving dual profits.

3. Forex margin trading｜High returns with high risk

Forex margin trading is a high-risk investment method. Through broker platforms, investors can trade contracts with only a certain margin deposit. This is especially attractive to investors with limited capital.

The high risk stems from the leverage inherent in margin trading. Leverage ratios range from dozens to hundreds times. If you correctly predict the market direction, you can double or triple your profit in a short time; if wrong, your principal can be wiped out quickly. But because of the high risk, the potential returns are also significantly higher.

The core advantages of forex margin trading

Despite the high risk, margin trading still attracts many investors because of its multiple advantages.

Leverage amplifies gains

Margin trading typically offers 10x to 100x leverage. For example, with USD/JPY (USD/JPY), even a 20-point fluctuation can generate substantial profit after leverage is applied. In August last year, USD/JPY rapidly rose from 161 to 141 (against USD). If an investor caught this move and used leverage, the profit could be several times higher.

Much lower transaction costs than banks

Banks’ foreign exchange spreads are usually 0.3% to 0.47%, while forex trading platforms often have spreads below 0.01%. For example, EUR/USD might have a bid of 1.09896 and an ask of 1.09887, with a spread of about 0.0082%, often without additional commission fees.

Even without leverage, short-term buying and selling profits in margin trading can far surpass bank exchange rates, which charge around 0.3% per transaction.

T+0 two-way trading flexibility

Margin trading supports unlimited buy and sell transactions within the same day, allowing both long and short positions simultaneously. When bullish on USD, buy USD/TWD; when bullish on TWD, sell USD/TWD. This flexibility enables capturing profit opportunities in both directions.

Five practical forex trading strategies

Once you understand the trading tools, you also need to learn trading techniques. Here are five practical strategies:

Range trading｜Profiting repeatedly in oscillations

When the exchange rate lacks a clear direction and fluctuates within a certain range, range trading is most effective. Traders identify support and resistance levels and repeatedly buy at the support and sell at the resistance.

A classic example is EURCHF from 2011-2015, after the Swiss National Bank announced to maintain the EUR/CHF floor at 1.2000. Many investors traded within the 1.2000-1.2500 range, earning from the oscillations.

Using oscillators like RSI or CCI can help accurately identify buy and sell signals. However, risk management is crucial—set reasonable stop-loss points at support and resistance levels, because a breakout can lead to rapid losses.

Tip: Strictly execute stop-loss orders in range trading; otherwise, a breakout can cause heavy losses.

Trend trading｜Following the trend for high efficiency

Trend trading involves following the market direction to profit, often over medium to long term. When a strong trend appears, it’s time to enter.

For example, from May 2021 to October 2022, the Fed aggressively raised interest rates (up to 4 hikes at once), while the European Central Bank delayed. Investors became bearish on the euro, causing EUR/USD to decline sharply. Capturing this trend and holding longer yields higher returns.

Buy signals in trend trading are usually confirmed by oscillators, and sell points are set based on risk-reward ratios. The key is to confirm the trend formation and avoid premature stop-loss unless fundamentals change.

Tip: Once a trend forms, it tends to be persistent; patience is key.

Day trading｜News-driven short-term opportunities

If you prefer short-term investing, day trading is ideal. News events are the main drivers. Interest rate adjustments, monetary policies, and central bank meetings can cause sharp forex fluctuations.

Knowing the schedules of key meetings like the Fed and ECB, and reacting promptly to news, can often realize quick profits within 1-2 days. But this requires sharp market responsiveness and clear trading discipline.

Tip: Quick decision-making and timely stop-loss are critical; otherwise, short-term trades can turn into long-term losses.

Swing trading｜Combining technical and fundamental analysis

Swing trading lies between day trading and trend trading, combining technical and fundamental analysis. Look for currencies with high volatility, and catch signals like trend reversals, upward breakouts, downward breakdowns, or trend retracements.

For example, in January 2015, the Swiss National Bank suddenly announced to remove the EUR/CHF floor at 1.2000, leading to the famous “Swiss franc black swan” event. This was a classic downward breakdown signal. Investors who recognized such signals early could profit from it.

Tip: Swing trading profits from volatility differences, but higher volatility also means higher risk. Know when to take profits.

Position trading｜Long-term holding strategy

Position trading involves holding long-term positions, waiting for value appreciation. Suitable for investors who don’t want frequent trading. Traders don’t need to focus on short-term fluctuations or news unless they change the long-term outlook.

This strategy requires combining technical, fundamental, and macroeconomic analysis to identify achievable directions (bullish or bearish). A practical tip is to choose low-cost entry points. Since forex fluctuates within certain ranges, entering near historical support levels can reduce entry costs.

For example, if you expect USD to weaken further amid economic recession, you might enter around 114 (near the 10-year high of the USD index). Even if there’s a short-term rebound, you can withstand it.

Tip: Confirm the long-term trend and find low-cost entry points within volatility cycles.

Why choose currency investment? Three core advantages

Wide application scenarios

Travel abroad, online shopping, cross-border trade—all often require currency exchange. Since it’s frequently used, it’s worth understanding economic differences among countries to arbitrage or hedge. For example, exchanging yen early when the rate is low, preparing for travel, or engaging in carry trade.

Clear overall direction

Compared to stocks and bonds, forex trends tend to be more persistent. Understanding interest rates and monetary policies of relevant countries allows you to infer the general trend. For short-term trading, more details are needed, such as CPI release times and FOMC meeting minutes.

Highest global liquidity

The forex market is globalized, operates 24 hours a day, with high transparency, and is less susceptible to manipulation by major players. Decisions are based on actual data rather than guesses.

Detailed trading hours for foreign currency buying and selling

Bank foreign currency trading hours

Trading through banks requires operating within business hours, usually from 9:00 AM to 3:30 PM (may vary by bank). On weekends and certain holidays, banks are closed, and trading is unavailable.

Margin trading operates 24/7

Since margin trading does not have a centralized exchange, there are no fixed opening or closing times. The forex market is divided into four main sessions: London, Sydney, Tokyo, and New York. Due to overlapping hours, traders can operate 24 hours from Monday to Friday.

Specific opening and closing times (Taiwan time):

• London session: Summer 15:00-00:00; Winter 16:00-01:00
• Sydney session: Summer 06:00-15:00; Winter 05:00-14:00
• Tokyo session: All year 07:00-16:00
• New York session: Summer 20:00-05:00; Winter 21:00-06:00

Choosing the right trading hours is important; high liquidity periods (overlap of London and New York sessions) tend to have higher volatility and more trading opportunities.

Find your own path in currency investment

There are many ways to invest in currencies, and there is no absolute best method. The key is to find one that suits your risk appetite, capital size, and trading habits.

Based on the above analysis, investors are advised to clarify their goals: if seeking stable interest income, bank fixed deposits are most suitable; if aiming for spread profits, currency funds and margin trading each have their features; if you want to maximize profit potential from exchange rate movements, margin trading with proper strategies is most effective.

Beginners are recommended to start with low-risk bank deposits, then gradually try funds and margin trading based on experience. Also, practicing with demo accounts can help hone trading skills. Only by understanding yourself and the market can you achieve steady profits in forex.

The forex market is full of opportunities. With diligent research and strategy optimization, you can find your own profit method. Mastering the skills to profit from exchange rates, it’s never too late to start now.