Foreign Currency Trading Cheat Sheet: Learn to Invest in Foreign Currencies from Zero, Choose the Right Coins to Easily Profit from Exchange Rate Differences

Want to make money through foreign currency trading but don’t know where to start? Foreign currency investment may seem complicated, but as long as you grasp a few key concepts, beginners can get started easily. This article will guide you through the complete logic of foreign currency buying and selling, including investment methods, currency characteristics analysis, and practical operation tips.

Foreign Currency Buying & Selling vs Forex Trading: Can’t Tell the Difference?

Many people confuse “foreign currency buying and selling” with “forex trading,” but there are clear distinctions.

Foreign currencies refer to all foreign currencies other than your home currency, such as USD, JPY, EUR, etc. The forex concept is broader, not only including cash and coins but also various assets denominated in foreign currencies—bank deposits, government bonds, stocks, bills, etc.

Simply put: Foreign currency buying and selling is a form of forex trading. If you only exchange dollars at the bank or buy foreign currency fixed deposits, that’s foreign currency buying and selling; but if you involve bonds, funds, derivatives, and other foreign currency assets, that’s full-fledged forex trading.

How Does Foreign Currency Make Money? Understanding Interest Rate Differentials and Exchange Rate Margins

The main profits from foreign currency investment come from two sources: interest rate differentials and exchange rate margins.

Interest rate differential refers to the difference in interest rates between countries. For example, if Taiwan’s fixed deposit rate is 2% and the US is 5%, the 3% gap is potential profit. You can exchange TWD for USD and deposit in a US bank to earn this interest spread.

Exchange rate margin refers to the price fluctuation between currency pairs. If you buy USD at 33 TWD and sell when USD appreciates to 35 TWD, the difference in exchange rate is your profit.

But beware: there’s a trap—earning interest rate differential but losing on exchange rate. Imagine you exchange USD when USD is strong (33 TWD/USD), earn 5% interest on a fixed deposit, but when the deposit matures, USD depreciates (only 30 TWD/USD), resulting in an overall loss. This is why foreign currency investment must consider both interest rates and exchange rate fluctuations.

Before starting foreign currency trading, clarify your goal: are you aiming for stable interest income, or quick profits from short-term price differences? Your goal will directly influence your chosen investment method.

The Three Main Ways to Trade Foreign Currency: Fixed Deposits vs Funds vs Margin Trading

The Taiwanese market mainly offers three foreign currency trading methods, each with pros and cons.

1. Foreign Currency Fixed Deposits — The Safest Choice

Suitable for: Risk-averse beginners
Main goal: Earn interest spread
Features: No leverage, low liquidity, minimal risk

Foreign currency fixed deposits involve opening a foreign currency account at a bank and depositing money to earn interest. This is the simplest and most direct way to trade foreign currencies. If you’re over 20 and bring your ID and bank card, you can open an account at the bank counter or via app.

Advantages are minimal risk and clear fixed deposit rates, providing passive income similar to regular savings. Disadvantages include poor liquidity—if the exchange rate hits your target but the deposit term isn’t over, early withdrawal may incur interest penalties, which can offset gains.

2. Foreign Currency Funds — Greater Flexibility

Suitable for: Beginners and advanced investors seeking flexibility
Main goal: Earn interest or exchange rate gains
Features: Leverage, medium liquidity, moderate risk

Foreign currency funds don’t require lock-in periods and can be bought or sold anytime. The returns are between savings and fixed deposits. Common types include money market funds and currency ETFs.

Money market funds mainly invest in short-term bonds and monetary instruments, with management fees around 0.5%. Currency ETFs track specific currency indices, e.g., USD ETFs track the US dollar index. The benefit is you can invest directly in TWD, with fund companies handling currency exchange, saving you the hassle of manual operations.

3. Forex Margin Trading — High Returns, High Risks

Suitable for: Experienced investors with high risk tolerance
Main goal: Profit from exchange rate differences
Features: High leverage (50-200x), 24-hour trading, highest risk

Forex margin trading involves using a small amount of capital (margin) with leverage to trade large currency positions. You only need to deposit 1-2% of the total amount to trade 100 times or more. Due to low volatility in the forex market, leverage is used to amplify profits—of course, risks are also magnified.

The biggest advantage is 24/7 trading, with T+0 mechanisms, allowing flexible entry and exit. As long as you have internet, you can participate in the global forex market anytime. But leverage is a double-edged sword—careless trading can lead to margin calls and losses.

Which 12 Currencies Do Taiwanese Investors Favor?

Taiwan banks typically offer 12 major currencies for investment: USD, EUR, JPY, GBP, CHF, AUD, CAD, HKD, NZD, SGD, ZAR, SEK.

These currencies can be grouped into four categories based on their characteristics:

Policy Currencies: USD, EUR

Exchange rates are mainly influenced by central bank policies. When central banks cut interest rates or implement easing, the currency tends to depreciate; when they raise rates, it appreciates. USD is the global settlement currency, EUR represents the Eurozone economy. Investing in these currencies requires close attention to central bank meetings and policy statements.

Currently, the Fed has entered a rate-cut cycle (cumulative 100 bps cut after September 2024), while the European Central Bank remains relatively conservative, causing EUR to reach a four-year high against USD.

Safe-Haven Currencies: JPY, CHF

These two economies are stable, politically neutral, and their central banks rarely change interest rates. During global economic turmoil, investors tend to buy these currencies for safety. JPY and CHF are often used in “carry trade”—borrowing in low-interest-rate countries and investing in high-interest-rate ones.

However, note that these currencies often have very low or even negative interest rates, so the interest differential advantage is not always clear.

Commodity Currencies: AUD, CAD

These countries rely heavily on exporting commodities like iron ore and oil. When commodity prices rise, demand for their currencies increases, causing appreciation; when prices fall, the opposite occurs.

For example, Australia is the world’s largest iron ore exporter. Between 2021-2024, iron ore prices declined, and the AUD weakened accordingly. These currencies’ price trends are relatively easier to grasp, suitable for trend trading strategies for beginners.

Emerging Market Currencies: CNY, ZAR

From developing economies, these currencies usually have high interest rates. ZAR has the highest rate and is attractive but also very risky—political instability causes sharp exchange rate fluctuations, and bid-ask spreads are wide. It’s easy to experience “interest differential gains but exchange rate losses.”

Currency selection tips: Besides the popular USD, beginners are better off choosing safe-haven currencies (stable and reliable) and commodity currencies (trend-friendly). USD, EUR, and AUD are relatively stable with strong international liquidity, making them more suitable for entry.

2025 Major Currency Trends Analysis

EUR/USD(: Breakout to Strength

EUR/USD is the most traded currency pair globally, involving two major economies. The Fed has started rate cuts this year, while the ECB keeps rates steady. Market concerns over US policy uncertainty have driven EUR higher, reaching a four-year high.

In the short term, the ECB’s monetary policy remains relatively independent and unaffected by politics, providing stable support for EUR.

) USD/JPY###: Narrowing Interest Rate Spread

The US-Japan interest rate differential is a common carry trade target. The Fed’s rate cuts and the Bank of Japan’s pause in rate hikes have narrowed the US-Japan spread. However, political uncertainties in Japan mean USD/JPY may remain range-bound in the short term.

( GBP/USD): Weakening Dollar Drives Pound

The GBP has strengthened this year mainly because the USD has weakened, not due to fundamental improvements in the UK. As Fed policies become clearer, GBP may face revaluation risks. Coupled with sluggish UK economic growth, the pound’s upside remains limited.

USD/CHF(: Rising Safe-Haven Demand

CHF, known for neutrality and stability, is the world’s favorite safe-haven asset. Since 2025, the US has faced trade and fiscal issues, reducing USD’s safe-haven appeal, while CHF has appreciated significantly. Long-term, US economic slowdown and continued Fed rate cuts will support CHF.

5 Major Factors Influencing Exchange Rate Fluctuations

To succeed in foreign currency trading, you must understand what drives exchange rate movements.

1. Inflation Rate
Countries with low inflation tend to see their currencies appreciate. Low inflation indicates stable prices, strong purchasing power, and attracts foreign investment. Conversely, high inflation often leads to depreciation.

2. Interest Rate Levels
Higher interest rates attract foreign capital, increasing currency value. Central bank rate hikes boost demand for the currency. This explains why USD weakens when the Fed cuts rates.

3. Government Debt
High government debt increases credit risk, leading to capital outflows and currency depreciation. Countries with low debt and healthy finances are more favored.

4. Trade Conditions
If a country’s export prices rise faster than imports, income increases, boosting currency demand and appreciation. Australia, as a major mineral exporter, sees AUD rise when mineral prices go up.

5. Political Stability
Stable governments and transparent policies attract foreign investment, strengthening the currency. Political turmoil or policy uncertainty causes capital flight and depreciation.

Essential Tips for Beginners in Foreign Currency Trading

) Double-Sided Trading — Not Just Buying Low and Selling High

Traditional stocks only allow one-way trading (buy low, sell high). But foreign currency trading is two-way—you can also sell high and buy back low.

For example, if you are bearish on EUR, you can sell EUR/USD. If EUR depreciates as expected, you can buy back at a lower price and profit. This provides more operational flexibility.

Choosing the Right Currency Pair Is Key

Deeply understand the policies, interest rates, and industry structures of the two currencies you want to trade. For instance, if you believe the US will cut rates and Japan won’t, you can go long JPY/USD. The key is to find a solid fundamental logic to support your trade.

( Develop a Clear Trading Plan

Successful foreign currency trading requires planning. Before entering a trade, set:

• Entry point
• Stop-loss (to prevent large losses)
• Take-profit (to lock in gains)

Never chase highs or sell in panic; wait for a clear trend before acting.

) Learn to Use Stop-Loss and Take-Profit

Margin trading in forex is most dangerous when it leads to margin calls. Set reasonable stop-loss points near previous support or resistance levels. Limit daily trades to no more than 2 times.

Mindset Is More Important Than Technique

Markets are volatile, and traders are often emotional. Stay rational, follow your plan, and don’t change strategies after a loss. The best way to learn is through demo accounts to practice and assess your risk tolerance.

5 Warnings Every Beginner Must Know

1. Avoid Currencies You Don’t Understand
There are many currencies and news sources, but the most liquid and traded are major pairs—USD, JPY, EUR. Beginners should focus on these and avoid blindly chasing emerging market currencies.

2. Constantly Monitor Exchange Rate Fluctuations
Rates change every moment, influenced by markets, economic data, and political events. Develop the habit of following international news, US Fed decisions, central bank statements, and key events.

3. Diversify to Reduce Risk
Don’t put all your funds into one currency. Holding both USD fixed deposits and AUD funds can create a complementary portfolio. Once well-diversified, you won’t need to trade frequently.

4. Forex Margin Risks Are High
Leverage amplifies both gains and losses. International regulators (like ASIC in Australia) recommend leverage not exceeding 30x for major pairs. Never use more leverage than you can afford.

5. Opportunities Are Always Waiting
Don’t chase after every rise. Set your trading plan, wait for the right timing, and place orders accordingly. A clear trend usually takes more than 5 minutes to form; once it does, it’s an entry signal. Different traders may use 30-minute, 120-minute, or other timeframes as references.

Final Advice

Foreign currency trading may seem complex, but it boils down to three key points: choose the right currencies, control risks, and maintain discipline. Both interest rate differentials and exchange rate margins can be profitable, but you must understand what you want to earn.

Beginners should start with fixed deposits or funds to gain experience, then consider leverage trading later. Any plan without action is just empty talk. The best approach is to learn by doing—practice continuously and refine your investment skills through real trading.