Master the规律 of exchange rate fluctuations: How to profit from currency trading? Complete analysis of practical skills

In the global financial markets, foreign exchange trading ranks first in daily trading volume. Compared to stocks, funds, and other investment products, currency trading has lower entry barriers and broader applications, attracting more and more ordinary investors. However, to truly profit from the forex market, the key lies in understanding the nature of exchange rate fluctuations and mastering how to earn profits through currency movements.

The Core Logic of Foreign Currency Investment: Earning the Spread

Many people’s first question about forex investment is “How do I make money?” The answer is simple and clear: profit from exchange rate fluctuations.

What is the spread?

The spread refers to the difference in exchange rates for the same currency at different times or through different channels. The investor’s main task is to predict the trend of currency pairs’ prices and profit through “buy low, sell high” or “sell high, buy low” strategies.

For example, if an investor expects the euro to appreciate against the US dollar, they buy 100,000 units of EUR/USD at an exchange rate of 1.0800. When the rate rises to 1.0900, they close the position, resulting in a profit of:

(1.0900 - 1.0800) × 100,000 = 1,000 USD

This 100-pip movement in the exchange rate generates a profit of 1,000 USD, demonstrating that even with limited volatility, correct operational direction can yield substantial returns.

Three Ways Investors Can Make Money with Foreign Currencies

To profit from exchange rate fluctuations, investors can choose the method that suits their risk tolerance.

Method 1: Foreign Currency Bank Fixed Deposit (Low Risk)

This is the simplest and lowest-risk approach. Just open a foreign currency account at a bank, exchange at the posted rate, and make a fixed deposit. Taiwanese investors often choose USD fixed deposits (high interest, broad use) or South African rand fixed deposits (obvious interest rate advantage).

The income from fixed deposits comes from interest, and also benefits from currency appreciation. However, it’s important to note that the current environment carries a risk of USD depreciation. Early “going long USD” might earn interest but lose on the exchange rate.

Fixed deposits are suitable for investors seeking stable income and not predicting exchange rate trends. Since fixed deposits cannot be traded flexibly during the period, if you want to truly profit from exchange rate movements, more flexible investment options are recommended.

Method 2: Foreign Currency Funds (Medium Risk)

Foreign currency funds combine the dual benefits of exchange rate fluctuations and investment instruments. Investors can earn from currency appreciation and also from capital gains on stocks or bonds held within the fund.

For example, purchasing a Japanese yen-denominated stock fund, when the yen appreciates, gains from exchange rate movements; when Japanese stocks rise, gains from stock appreciation—achieving dual profits.

Method 3: Forex Margin Trading (High Risk, High Return)

Forex margin trading involves trading contracts provided by brokers. Investors only need to pay a certain margin ratio to engage in trades much larger than their capital, allowing small funds to participate in the forex market.

The biggest feature of this method is the built-in leverage mechanism. Leverage multiples typically range from dozens to hundreds. Correctly predicting the direction can double short-term profits; wrong predictions can quickly wipe out the principal. Therefore, leverage trading is a high-risk investment requiring strong risk management skills.

Why Choose Foreign Currency Investment? Three Major Advantages

Among many investment options, foreign currency trading has unique advantages:

Wide range of applications: Traveling abroad, overseas shopping, international trade—all involve currency exchange. Investors can accumulate knowledge of exchange rates through practical use and perform carry trades before traveling, achieving two goals at once.

Relatively clear trends: Although forex market movements are influenced by multiple international factors, compared to stocks and other assets, their trends are more persistent and stable. Investors only need to understand the interest rate policies and currency policies of relevant countries to roughly predict exchange rate directions. Advanced traders can also track key economic data releases (like CPI, FED meetings) to grasp short-term volatility opportunities.

Highest liquidity: The global forex market exceeds $6 trillion in daily trading volume, making it the largest financial market worldwide. Due to the enormous trading volume, major funds find it difficult to manipulate the market, resulting in high transparency and decision-making based on real data.

Forex Market Trading Hours

Investors need to understand market opening hours to plan their trading.

Bank foreign currency trading: Usually conducted during bank business hours, generally from 9:00 AM to 3:30 PM. On weekends and holidays, banks are closed and trading is unavailable.

Forex margin trading: Since there is no centralized exchange, margin trading can be conducted 24 hours a day. The global forex market is divided into four main trading sessions: Sydney, Tokyo, London, and New York. Overlaps between these sessions provide continuous trading opportunities from Monday to Friday.

Among these, the London and New York sessions’ overlap (Beijing time 20:00-02:00) has the highest liquidity and volatility, making it most suitable for short-term trading.

Practical Trading Tips: Five Strategies Explained

Forex investors need to adapt their strategies based on market conditions. Here are five common methods:

Technique 1: Range Trading (Suitable for Sideways Markets)

When exchange rates fluctuate within a certain range, range trading is most effective. Investors need to identify support and resistance levels and perform buy near support and sell near resistance.

For example, during 2011-2015, EUR/CHF(EURCHF) was kept at a lower limit of 1.2000 by the Swiss National Bank. Many investors repeatedly traded within the 1.2000-1.2500 range, earning stable returns.

Use technical indicators like RSI(RSI) or CCI(CCI) to confirm buy/sell signals. Range trading requires strict risk management, setting stop-loss points at support and resistance; otherwise, a breakout could lead to significant losses.

Technique 2: Trend Trading (Suitable for Unidirectional Markets)

When the exchange rate shows a strong one-way trend, trend trading is the best choice. This strategy is usually executed on medium to long-term timeframes, with trading cycles depending on trend length.

For example, from May 2021 to October 2022, the Fed continued aggressive rate hikes while the European Central Bank delayed action. The market kept betting on USD appreciation, causing the euro to decline for 17 months. Investors following this trend gained substantial profits.

Once a trend is established, it tends to have strong inertia. Investors should “go with the trend” rather than against it. Setting reasonable stop-loss levels and ensuring positive risk-reward ratios are key to successful trend trading.

Technique 3: Day Trading (Suitable for News-Driven Markets)

Short-term traders should closely monitor economic data and policy movements. Whenever interest rates are adjusted, important economic data released, or central bank meetings held, exchange rates often experience significant volatility.

For example, during the Fed’s rate hike cycle in mid-2021, the Fed began aggressive hikes with a single increase of 100 basis points—the fastest pace in nearly 30 years—directly driving the USD higher and other currencies lower. Sharp traders could capture profits within 1-2 days from these movements.

Day trading emphasizes speed and decisiveness, requiring “cutting through chaos with a sharp sword” and avoiding prolonged positions that increase risk.

Technique 4: Swing Trading (Suitable for Capturing Large Fluctuations in Sideways Markets)

Swing trading lies between day trading and trend trading, combining technical and fundamental analysis. It focuses on four signals: upward breakout, downward breakdown, trend reversal, and trend retracement.

For example, in 2015, the Swiss National Bank announced the removal of the EUR/CHF 1.2000 lower limit, after years of range-bound trading. The policy change triggered the famous “Swiss franc black swan event,” with exchange rates fluctuating over 1,000 pips instantly. Investors who caught this wave profited handsomely.

The core of swing trading is to take profits when the market looks good, as larger volatility offers bigger opportunities but also higher risks.

Technique 5: Position Trading (Suitable for Long-Term Bullish or Bearish Views)

Position trading is a long-term holding strategy. Investors do not need frequent trading, just correct judgment of the trend and patience. This approach requires minimal monitoring of short-term market fluctuations.

Position traders base their decisions on macroeconomic factors, historical trends, and other long-term indicators. The key is to enter at the lowest possible cost. Usually, forex fluctuates within a broad range, and investors can find optimal entry points within this range to reduce entry costs.

For example, if you believe the USD will decline long-term due to economic recession, you might use the recent 10-year high of (114) as a reference, entering at relatively low levels and waiting for the trend to unfold.

The Core Advantages of Forex Margin Trading

Although leverage trading is high risk, it often comes with high reward opportunities:

Leverage amplifies gains: Forex margin trading typically offers 10x to 100x leverage. For example, if USD/JPY rises from 161 to 141 per dollar with leverage, the gains can be several times larger, making profits very attractive.

Lower transaction costs than banks: Banks’ bid-ask spreads are usually between 0.3% and 0.47%, whereas legitimate forex platforms often have spreads below 0.01%. For example, EUR/USD with a bid of 1.09896 and ask of 1.09887 has a spread of only about 0.0082%, far below banks. Even without leverage, short-term trading profits can surpass bank channels.

T+0 two-way trading: Margin trading supports unlimited intra-day buying and selling, allowing investors to profit from both rising and falling markets. When bullish on USD, go long; when bullish on TWD, go short—trading directions are entirely at the investor’s discretion.

How to Choose Investment Methods Based on Risk Preferences

Different investors should select suitable approaches according to their circumstances:

Conservative investors seeking stable returns: Choose foreign currency fixed deposits, enjoying interest and potential appreciation.

Moderate investors aiming for balanced risk and reward: Choose foreign currency funds, gaining from both exchange rate movements and investment assets.

Aggressive investors with extensive trading experience: Choose forex margin trading, leveraging and flexible mechanisms to seize larger profit opportunities.

Conclusion: Mastering the Key to Profiting from Exchange Rates

There are many ways and techniques to profit from foreign currency trading. There is no absolute best or worst—only what suits you. Investors should gradually explore strategies that match their capital, risk tolerance, available time, and trading experience.

The answer to “how to profit from exchange rates” varies from person to person, but the core principles are consistent: thoroughly study market patterns, strictly implement risk management, and continuously improve your trading system through practice. Many trading platforms offer free demo accounts, allowing investors to gain experience and validate strategies before entering live trading.

“Sharpening the axe will not delay the work of chopping wood.” Opportunities in the forex market always exist; only diligent investors can truly seize them.