2025 Foreign Currency Trading Guide: Learn from Scratch How to Buy Foreign Currency, Choose the Right Currency, and Profit from Exchange Rate and Interest Rate Differentials

Looking to make money by buying foreign currencies but don’t know where to start? Are you overwhelmed by the variety of foreign currencies? Don’t worry, this article will thoroughly break down the core logic of foreign currency investment, helping you quickly grasp the correct methods for buying foreign currencies.

The Era of NT Dollar Depreciation Has Arrived—Why You Must Invest in Foreign Currencies

Recently, the NT dollar against the US dollar broke below 32, prompting many investors to reflect: Is putting all assets into NT dollars really safe?

The answer is no. Foreign currency investment is no longer the domain of high-end investors; ordinary people should also allocate some assets in foreign currencies. The reasons are simple:

Low threshold and convenience — You can open a foreign currency account via banking apps in just minutes, completely painless.

Attractive interest rate differential — Taiwan’s fixed deposit rate is around 1.7%, while the US, Australia, and other countries offer rates above 4%. Just earning from the interest rate gap can increase your assets.

Risk hedging — If the home currency depreciates, holding foreign currencies can offset losses. History shows that many countries’ currencies have collapsed, demonstrating how significant single-currency risks can be.

High transparency in trading — The forex market is the world’s largest financial market, with daily trading volume reaching trillions of dollars, making manipulation difficult. Compared to stock markets, forex trading is more fair.

24-hour continuous trading — Unlike stocks with fixed trading hours, foreign currencies can be bought or sold at any time, offering much higher flexibility than stocks.

Foreign Currency vs Forex: Clarify These Concepts Before Investing

Many confuse “foreign currency” and “forex,” but they have essential differences.

Foreign currency refers to all foreign banknotes and coins other than your own country’s currency, such as USD, EUR, JPY, etc.

Forex (foreign exchange) is broader, including foreign currencies, foreign currency payment instruments (notes, deposit certificates, etc.), foreign currency securities (government bonds, corporate bonds, stocks), and other foreign currency assets. Simply put, forex trading involves buying and selling foreign currencies; currency trading is one form within forex trading.

How to Make Money Buying Foreign Currencies? The Core Logic Comes Down to Two Words: Interest Rate Difference and Exchange Rate Spread

The income from foreign currency investments is straightforward—it comes from two sources:

Exchange Rate Spread — Profiting from buying low and selling high. For example, if you exchange NT$33 for 1 USD, and later the USD appreciates so that 1 USD equals NT$35, you’ve earned a NT$2 exchange rate profit.

Interest Rate Differential — The difference in interest rates between countries. If Taiwan’s fixed deposit rate is 2%, and the US is 5%, that 3% interest rate gap could be your potential profit.

But beware of a trap: Many investors earn from the interest differential but lose on exchange rate movements. If you save USD for a year earning 5%, but the USD depreciates by 6%, you might end up with a loss. Therefore, before investing, clarify your goal: Are you aiming for stable long-term interest income or short-term gains from exchange rate fluctuations?

Three Ways to Buy Foreign Currencies? Choosing the Right Method Is Critical

Currently, there are three main ways to invest in foreign currencies, each with pros and cons:

Foreign Currency Fixed Deposit — The safest but lowest yield

This is the most traditional and secure method. You open a foreign currency account at a bank, convert NT dollars into foreign currency and deposit it fixed-term, earning bank interest.

Advantages: Very low risk, no need to worry about market fluctuations.

Disadvantages: Poor liquidity; early withdrawal may incur interest penalties. If the exchange rate has reached your target but the deposit hasn’t matured, you can only watch the opportunity slip away.

Suitable for: Conservative investors who prefer steady interest income.

Foreign Currency Funds — Balancing yield and flexibility

Foreign currency funds sit between fixed deposits and margin trading. You invest in NT dollars, and the fund company handles currency conversion, allowing you to buy and sell anytime without locking in a fixed period.

Common types include money market funds and currency ETFs. For example, a USD money market fund might have management fees around 0.5%, and USD ETFs about 0.6%. The interest levels are between savings and fixed deposits.

Advantages: High flexibility, good liquidity, moderate risk.

Disadvantages: Higher fees than fixed deposits, but also higher potential returns.

Suitable for: Investors wanting stable income with flexibility.

Forex Margin Trading — High returns but high risk

This is the most aggressive method. You only need to put up a small margin (usually 2-5% of the total trade), and with leverage, you can control large amounts of currency. For example, NT$2,000 can control a NT$100,000 trade.

Forex margin trading does not earn interest; profits come solely from exchange rate movements. It’s a 24-hour market with T+0 mechanisms, allowing free entry and exit.

Advantages: High leverage (typically 50-200x), enormous profit potential, flexible trading.

Disadvantages: Leverage is a double-edged sword; losses are amplified. Regulatory recommendations suggest keeping leverage below 30x for major currency pairs.

Suitable for: Experienced traders who can tolerate losses.

The 12 Most Common Foreign Currencies Purchased by Taiwanese Investors — Which Ones Should You Watch?

Taiwan banks generally offer investment options in 12 currencies: USD, AUD, CAD, HKD, GBP, CHF, JPY, EUR, NZD, SGD, ZAR, SEK.

These currencies are not equal; they can be divided into four major categories:

Policy-driven Currencies: USD and EUR

These currencies’ exchange rates are mainly influenced by central bank policies. When the central bank announces interest rate hikes or cuts, exchange rates may fluctuate significantly.

USD has always been a global reserve currency; the Federal Reserve’s moves impact the entire market. From late 2024 to early 2025, expected policy changes will directly influence USD trends.

EUR is led by the European Central Bank, covering 19 eurozone countries. EUR/USD is the world’s most traded currency pair, with even small fluctuations creating ripples in the forex market.

Safe-Haven Currencies: JPY and CHF

Both countries have stable politics, developed economies, and their central banks rarely change interest rates. During global turmoil, investors flock to these “safe havens.”

JPY is often used for carry trade—borrowing low-interest JPY to invest in high-yield assets abroad, then converting back when the economy improves, earning the difference.

CHF is similarly a safe-haven currency, long considered a “trust anchor” for international investors.

Commodity Currencies: AUD and CAD

Economies in these countries heavily depend on commodity exports. When commodity prices rise, their currencies tend to appreciate; when prices fall, they depreciate.

AUD is closely tied to iron ore prices. From 2021-2024, iron ore prices declined, and the AUD weakened accordingly. For beginners, the logic of commodity currencies is relatively easy to grasp—just follow commodity price trends.

Emerging Market Currencies: CNY, ZAR, etc.

These developing economies often have high-interest rates that seem attractive. But risks include political instability, large exchange rate fluctuations, and wide trading spreads, which can turn profitable interest rate differentials into losses from currency movement. ZAR’s high rate comes with significant risk; be very cautious.

Investment tip: Beginners should start with relatively stable, highly liquid currencies like USD and AUD, which are easier to analyze. After gaining experience, consider expanding into other currencies.

2025 Major Currency Pair Trends Analysis

EUR/USD: Euro hits four-year high

This year, the euro has performed remarkably, hitting a four-year high. Two reasons:

One, the Fed is cutting rates, reducing dollar attractiveness; two, the ECB maintains independent policy, less influenced by US politics, making it more stable.

Many analysts suggest increased uncertainty around US policy boosts the euro. The ECB’s stance appears more reliable, giving EUR/USD upward momentum.

USD/JPY: Yen faces upward pressure

The Bank of Japan paused rate hikes early this year but most economists expect a 25 basis point increase later this year. Divergence from the Fed’s easing policy is narrowing the US-Japan interest rate gap.

The yen’s future depends on domestic political stability. New prime minister’s policies and signals from the central bank about rate hikes could reverse current trends. In the short term, USD/JPY may continue to fluctuate.

GBP/USD: Pound strengthens due to dollar weakness

This year, GBP/USD has gained strength largely because the dollar is weak, not necessarily because the pound’s fundamentals are strong. As Fed policies become clearer, GBP might face revaluation risks. Coupled with sluggish UK economic growth, the pound is unlikely to continue a strong upward trend and may instead trade within a range.

USD/CHF: Swiss franc’s safe-haven value highlighted

Although Switzerland is not a global economic giant, the Swiss franc is highly sought after as a safe haven. Amid US economic trade and fiscal concerns, the franc’s defensive value becomes more prominent, attracting significant international capital inflows.

Long-term, slowing US growth and Fed rate cuts will support the Swiss franc.

Five Major Drivers of Exchange Rate Fluctuations You Must Know

Inflation Rate

Countries with low inflation tend to see their currencies appreciate because goods and services increase in price slowly, indicating strong purchasing power. Conversely, high inflation currencies tend to depreciate and often come with higher interest rates.

Interest Rates

Rising interest rates attract foreign investment, pushing up the currency’s value. This explains why a central bank raising rates usually results in currency appreciation.

Government Debt

High government debt can scare away foreign investors, leading to currency depreciation. If markets anticipate a debt crisis, foreign capital will sell off that country’s assets.

Trade Conditions

If export prices rise relative to import prices, it indicates the country’s goods are more valuable, attracting more foreign currency inflows, which boosts the home currency. The opposite is also true.

Political Stability

Countries with unstable politics experience large currency fluctuations and are prone to depreciation. Investors prefer countries with stable politics and sound financial systems.

Practical Tips: How to Profit from Buying Foreign Currencies

Knowing theory is not enough; you also need to understand how to operate. Taking forex margin trading as an example (the most aggressive and popular method):

Step 1: Choose a Trading Pair

Not all currency pairs are worth trading. Focus on liquid, controllable volatility pairs like EUR/USD, USD/JPY, etc.

Also, understand the underlying logic—Will the US raise rates? How’s the European economy? What’s the outlook for the Bank of Japan? Fundamental analysis is crucial.

Step 2: Develop a Trading Strategy

Buying and selling currencies differ from traditional investing—they are two-way trades. Conventional investing only allows “buy low, sell high,” but forex allows “sell high, buy low.”

For example, if you expect the euro to depreciate, you could sell EUR/USD first, then buy back after the euro depreciates, capturing the difference.

Your strategy should include: when to enter, stop-loss points, take-profit points, and risk management per trade.

Step 3: Strictly Execute Stop-Loss

This is the most important point in forex trading. Leverage amplifies both gains and losses. When losses hit your preset stop-loss level, you must exit decisively—don’t hold hopes.

Suggested approach: set stop-loss near previous lows for long positions. If price falls below, exit automatically; if it continues rising, hold for exit opportunities. Limit to 2 trades per day.

Step 4: Timing Is Crucial

Avoid “chasing highs and selling lows.” Wait for a trend to establish before entering. A trend typically takes at least 5 minutes to confirm; once clear, you can consider following.

Different risk tolerances lead to different timeframes—conservatives watch 30-minute charts, aggressive traders look at 5-minute charts.

Step 5: Maintain a Calm Mindset

The forex market is volatile and unpredictable. Don’t let short-term fluctuations affect your emotions. Stick to your trading plan and avoid frequent changes.

Five Investment Tips for Beginners

1. Only trade familiar currency pairs — There are hundreds of currency pairs, but only a few are mainstream. Start with USD, EUR, JPY, and other major currencies, then expand as you gain experience.

2. Stay updated on market news — Forex rates are affected by politics, economics, and news. Get used to reading international news. Official websites and central bank announcements are must-reads.

3. Diversify to reduce risk — Don’t put all your forex investments into one currency. For example, hold USD fixed deposits while also allocating some funds in AUD funds for hedging.

4. Always use stop-loss and take-profit orders — Forex is prone to sudden market moves. Set stop-loss and take-profit levels when opening positions to automate risk management.

5. Don’t chase highs or sell lows — Prepare a plan before investing and stick to it. Enter only once a trend is confirmed, avoid greed for small gains chasing market swings.

Final Words

Making money from buying foreign currencies requires no shortcuts—continuous learning and practice are essential. Choosing the right investment method, the right currencies, and managing risks well will turn forex into a powerful tool for asset growth.

If you haven’t decided which method to start with, try beginning with foreign currency fixed deposits. Once familiar, upgrade to funds or margin trading. The most important thing is to take action, not just watch and wait.