How to profit steadily from buying and selling foreign currencies and US dollars? Master the secrets of exchange rate trading | Forex earning guide

The largest financial market in the world is not actually stocks or bonds, but the Foreign Exchange Market. With a daily trading volume exceeding 6 trillion USD, currency exchange transactions between countries remain highly active. In recent years, even traditionally stable and mature market currencies have experienced noticeable fluctuations, creating numerous opportunities for ordinary investors.

For beginners interested in participating in currency trading, the most important thing is to understand the nature of spread and to master trading methods suitable for their risk tolerance. This article will delve into the core logic of currency investment, five practical trading tips, and various trading schedules to help you find your own profit path.

What is the core profit in buying and selling foreign currencies?

Simply put, buying and selling foreign currencies is mainly to profit from the spread. The spread is the difference in exchange rates of the same currency at different times or through different channels. Investors profit by predicting currency trends and employing “buy low, sell high” or “sell high, buy low” strategies.

Spread calculation formula

The profit amount for a single trade is as follows:

Profit Margin = (Close Price - Open Price) × Trading Volume

For example, suppose you expect the euro to appreciate and buy 1 standard lot (100,000 units) of EUR/USD at an exchange rate of 1.0800, then close the position when the rate rises to 1.0900. The profit calculation is:

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

A mere 100-point fluctuation can generate a profit of 1,000 USD. This also explains why currency trading is very attractive to many investors.

The three main methods of buying and selling foreign currencies

Based on risk level and operational difficulty, currency investment is mainly divided into three categories:

1. Bank foreign currency fixed deposit (low risk)

This is the simplest method. Just open a foreign currency account at a bank, and convert TWD to foreign currency at the current posted exchange rate for fixed deposits.

Many Taiwanese investors prefer USD fixed deposits (high interest, versatile use) or South African Rand deposits (attractive high yields). Fixed deposits mainly earn interest income, but one must be aware of exchange rate fluctuation risks. For example, if the US is in a rate-cutting cycle, the USD to TWD may face depreciation pressure, requiring cautious assessment.

Tip: Fixed deposits are suitable for conservative investors seeking stable interest income. However, if the goal is to profit from spreads, fixed deposits lack flexibility, as early withdrawal incurs penalties and cannot be shorted, risking missed opportunities.

2. Foreign currency funds (medium risk)

These funds invest in bonds or stocks of specific countries, combining exchange rate fluctuations with asset appreciation to achieve “dual profits.”

For example, if you expect the Japanese yen to appreciate and believe the Japanese stock market is undervalued, you can buy yen-denominated Japanese stock funds. You can profit from both yen appreciation and stock price increases.

3. Forex margin trading (high risk, high reward)

Trading through broker contracts, investors only need to pay a certain margin to conduct trades far exceeding their capital. Leverage ratios range from dozens to hundreds, allowing short-term gains to multiply if correct, or rapid loss of capital if wrong.

When trading major currencies like USD, forex margin trading offers flexibility and leverage that best suit short-term traders.

The three main advantages of forex margin trading

Leverage amplifies returns

Forex markets typically offer leverage from dozens to hundreds of times, magnifying small exchange rate movements. For example, in August last year, when USD/JPY rose from 161 to 141, using leverage could have multiplied profits significantly.

Lower transaction costs

Bank foreign exchange spreads can be as high as 0.3%-0.47%, whereas forex margin platforms usually have spreads below 0.01%, sometimes even no commission. This means that even without leverage, trading major currencies like USD can yield higher returns than bank currency exchange.

T+0, 24-hour two-way trading

Forex does not have a centralized exchange and operates 24 hours from Monday to Friday. Traders can choose to buy or sell flexibly based on market trends, with unlimited trades within a day, greatly increasing operational freedom.

Five practical trading tips

1. Range Trading

When exchange rates fluctuate within a certain range without a clear trend, range trading is effective. Traders need to identify support and resistance levels and buy low, sell high at key points.

Between 2011 and 2015, when the Swiss National Bank maintained EUR/CHF at a lower limit of 1.2000, many investors continued arbitrage within the 1.2000-1.2500 range. Using technical indicators like RSI or CCI to confirm buy/sell signals works well.

Tip: Range trading requires strict stop-loss. Once the range is broken, losses can be severe.

2. Trend Trading

This strategy is used when a strong trend appears, usually in medium to long term. For example, from May 2021 to October 2022, EUR/USD experienced a clear USD appreciation trend due to the Fed’s aggressive rate hikes and the European Central Bank’s hesitation, causing the euro to decline sharply.

Entry points are determined by technical indicators, and exit points are based on risk-reward calculations, with stop-loss levels set below profit targets.

Tip: Once a trend is established, it’s hard to reverse. Capturing the main direction can lead to stable profits.

3. Day Trading

Suitable for investors who prefer short-term trades. News is the main driver—interest rate adjustments, central bank meetings, economic data releases all cause sharp exchange rate movements.

For example, the Fed’s aggressive rate hikes starting mid-2021 (single-digit basis points) triggered a sharp decline in EUR/USD. By seizing these key moments, traders can earn substantial profits within 1-2 days.

Tip: Act decisively, avoid prolonged overnight positions, or short-term trades may turn into long-term losses.

4. Swing Trading

Between day trading and trend trading, this method combines technical and fundamental analysis. The key is to find currencies with high volatility and identify four signals: upward breakout, downward breakdown, trend reversal, and trend retracement.

On January 15, 2015, when the Swiss National Bank removed EUR/CHF’s 1.2000 floor, it triggered the famous “Swiss Franc Black Swan Event,” and swing traders capitalized on this huge volatility.

Tip: Swing trading profits from volatility, but higher volatility also means higher risk. Knowing when to take profits is crucial.

5. Position Trading

This long-term strategy involves holding positions for an extended period, suitable for investors who do not want frequent trading. Besides technical and fundamental analysis, macroeconomic factors and historical data are used to determine direction.

The key is to choose entry points with low costs. For example, if the USD is near a 10-year high of 114, and you expect it to fall, shorting near the high can reduce entry costs and hedge against short-term fluctuations.

Tip: Accurately predict future exchange rate directions and find low-cost entry points within volatility cycles.

Why choose currency trading for investment?

Versatile uses

Besides investment, currency exchange is needed for travel, overseas shopping, and international trade. Understanding different countries’ economic conditions allows for arbitrage or hedging—for example, accumulating yen at low levels, preparing for travel, or engaging in carry trades.

Clearer trend movements

Compared to stocks and bonds, currency trends tend to be more persistent and clear. As long as you understand the monetary and interest rate policies of the target country, you can roughly predict exchange rate directions. The USD is especially predictable, with Fed meetings and CPI releases being key references.

Top liquidity

The forex market trades over 6 trillion USD daily, operates 24 hours globally, and is less susceptible to manipulation by major players. Its transparency is the highest, and investment decisions are more data-driven.

Trading hours for buying and selling foreign currencies

Bank foreign exchange trading

Usually during business hours from 9:00 am to 3:30 pm, closed on weekends and holidays.

Forex margin trading

No central exchange, operates 24 hours from Monday to Friday. Divided into four main sessions:

Sydney session (opens at 5-6 am Taiwan time) → Tokyo session (opens at 7-8 am) → London session (opens at 3-4 pm) → New York session (opens at 8-9 pm)

There are overlaps between sessions, ensuring trading opportunities throughout the day. The most liquid overlap is between London and New York (8 pm to midnight Taiwan time), with the narrowest spreads.

Summary

Profiting from USD and other currencies through spreads depends on individual preferences; there is no absolute best method. Conservative investors prefer bank fixed deposits for stability; advanced investors can choose currency funds for dual profits; professional traders utilize margin trading and leverage to amplify gains.

Regardless of the approach, the key is to tailor strategies based on your risk appetite, capital size, and trading habits, combining the techniques discussed to find your own profitable method. The currency market can be profitable with diligent research. It’s recommended to practice with demo accounts first, then enter with real funds after gaining experience to significantly reduce risks.