Foreign currency investment from scratch: How do Taiwanese people buy foreign currencies to make money? Recommended banks for buying foreign currencies and comprehensive investment strategies

Do you want to achieve asset appreciation by buying foreign currencies? Foreign currency investment is becoming increasingly popular in Taiwan, but to truly profit from it, you must understand exchange rate fluctuations, interest rate differentials, and the characteristics of different investment methods. This article will guide you from zero to understand the foreign currency market, teaching you how to choose suitable investment methods and currency types.

Why are Taiwanese people passionate about investing in foreign currencies?

Taiwan’s legal currency is the New Taiwan Dollar (NTD). For a long time, the interest rates on bank fixed deposits in NTD have been low, averaging about 1.7% annually. In contrast, major foreign currencies like USD, AUD, GBP, etc., have significantly higher interest rates, creating an interest rate differential between the home currency and foreign currencies. This is the main reason Taiwanese investors continue to exchange foreign currencies.

Besides seeking higher interest income, from a broad asset allocation perspective, if all assets are denominated in NTD, a significant depreciation of the NTD would lead to a reduction in wealth. Therefore, allocating a certain proportion of foreign currency assets can effectively diversify exchange rate risk.

Additionally, participants in the foreign currency market come from all over the world, with trading liquidity far exceeding that of individual stocks. The market is relatively fair and transparent. Moreover, the forex market trades 24 hours a day, allowing investors to enter or exit positions at any time based on market conditions. These advantages make foreign currency investment an essential financial skill for modern investors.

Core concepts of foreign currency investment: exchange rate difference and interest rate differential

Before buying foreign currencies, two key concepts must be understood.

Interest rate differential refers to the difference between benchmark interest rates of different countries. For example, Taiwan’s fixed deposit rate is 2%, while the US fixed deposit rate is 5%. The 3% gap represents potential profit. However, this 3% return is not risk-free.

Exchange rate difference is the profit or loss generated through foreign currency trading due to exchange rate movements and timing of buying and selling. This is the true source of risk in most foreign currency investments.

Many investors make the mistake of “earning interest rate differential but losing on exchange rate difference”: for example, exchanging 33 NTD for 1 USD to deposit, earning 5% USD interest, but if the exchange rate moves so that when converting USD back to NTD, you only get 30 NTD, resulting in overall loss. This highlights why understanding exchange rate volatility factors is crucial.

Comparison of three foreign currency investment methods

Banks, brokerages, and fund companies all offer foreign currency investment options. The main investment methods are divided into three categories:

Foreign Currency Fixed Deposit — The most conservative choice

Foreign currency fixed deposits are the simplest and most common low-risk method. As long as you are over 20 years old and bring your ID to a bank, you can open a foreign currency account and deposit foreign currency to earn fixed interest at the agreed rate.

The advantage of this method is the lowest risk, but the downside is poor liquidity. If the exchange rate has already reached a satisfactory level but the deposit term has not expired, early termination will result in interest deductions, which is inconvenient for investors who want flexible fund management.

Foreign Currency Funds — Balancing flexibility and returns

Foreign currency funds do not require lock-in periods and can be bought or sold at any time. The interest usually falls between savings account interest and fixed deposit interest. Investors can invest directly in NTD, with the fund company handling currency exchange procedures.

Common foreign currency funds include money market funds and currency ETFs. The main returns come from interest income and exchange rate differences, with management fees typically around 0.5%-0.6%. For investors seeking decent interest and operational flexibility, this is a good choice.

Forex Margin Trading — High risk, high reward

Forex margin trading is similar to stock trading, requiring analysis of price trends to choose the right timing. However, forex margin trading has unique advantages: 24-hour trading, T+0 mechanism, low entry barriers, and the ability to trade various currency pairs globally.

This type of trading often uses leverage of 50-200 times, meaning a small amount of margin can control a large position. But leverage is a double-edged sword: profits are quick, but losses can be rapid. Investors must choose leverage ratios wisely to avoid margin calls; it is recommended to keep leverage on major currency pairs below 30 times.

Four major currency types in the foreign currency market

Taiwan banks generally offer 12 currencies for investment, including USD, AUD, CAD, HKD, GBP, CHF, JPY, EUR, etc. These currencies can be categorized into four main types based on their nature:

Policy currencies: USD and EUR

These currencies’ exchange rates are mainly influenced by central bank monetary policies. When central banks adopt easing policies, exchange rates tend to fall; when they adopt tightening policies, exchange rates tend to rise. Investors need to closely monitor policy moves and interest rate decisions of institutions like the Federal Reserve and the European Central Bank.

Safe-haven currencies: JPY and CHF

These two countries have developed economies and political stability, with central banks rarely adjusting interest rates. During global turmoil or economic downturns, international funds tend to flow into these currencies for safety. Experienced investors may even borrow in these low-interest-rate currencies for arbitrage.

Commodity currencies: AUD and CAD

These countries rely heavily on exporting bulk commodities. When commodity prices rise, other countries need to exchange more local currency to buy the same amount of goods, causing the currency to appreciate; when prices fall, the currency depreciates.

For example, Australia is the world’s largest iron ore exporter. Iron ore prices are highly correlated with the AUD exchange rate. From 2021 to 2024, as iron ore prices declined, the AUD also weakened. The trend of commodity currencies is relatively easier to grasp, making them suitable for beginners.

Emerging market currencies: RMB, ZAR, etc.

These countries are in rapid development stages, with higher interest rates attracting investors seeking high interest rate differentials. However, due to political instability, exchange rate volatility is large, and liquidity is limited with wider bid-ask spreads. Caution is advised. Although the South African Rand offers attractive interest rates, it carries higher risks and requires careful risk assessment.

Major currency trends in 2025

EUR/USD

EUR/USD is the most traded currency pair globally, involving the two largest economies. After the Federal Reserve started cutting interest rates at the end of 2024, the European Central Bank maintained rates and expressed optimism about economic prospects. Driven by Fed rate cuts and improving European economic data, EUR/USD rose to a four-year high.

Some analysts believe political changes have raised concerns about central bank independence, increasing policy uncertainty for the USD. In contrast, the European Central Bank has greater monetary policy independence and a more stable stance, providing the market with a relatively neutral option.

USD/JPY

JPY is often used for carry trades, where investors borrow in low-interest-rate countries to invest in high-interest-rate countries for profit. The Bank of Japan has paused rate hikes to assess US tariff impacts, but most economists expect a rate hike before year-end.

The divergence in monetary policies between the US and Japan has strengthened expectations of a gradual narrowing of the US-Japan interest rate gap. However, in the short term, Japanese political uncertainties may cause the yen to continue oscillating.

GBP/USD

This year, GBP/USD has strengthened, mainly due to USD weakness rather than improvements in the UK economy. As the Fed’s policy outlook becomes clearer, bullish expectations for GBP may be re-priced. Considering the UK’s sluggish economic growth and expectations of rate cuts, the GBP is expected to remain in a range, making a strong upward breakout unlikely.

USD/CHF

CHF has long been regarded as a safe-haven currency due to its stability, safety, and neutrality. Since 2025, with the US facing trade and fiscal challenges, the USD’s safe-haven appeal has been challenged, and the Swiss franc’s status as a safe haven has become more prominent, attracting large inflows of international capital. In the medium to long term, slowing US economic momentum, Fed rate cuts, and a weakening dollar index will support the Swiss franc.

Five major factors influencing exchange rate fluctuations

Investors aiming to profit from buying foreign currencies must understand what causes exchange rate movements.

Inflation rate: Currencies with lower inflation rates tend to appreciate because slow price increases in goods and services preserve purchasing power.

Interest rate levels: Rising interest rates attract foreign capital inflows, causing the currency to appreciate. Higher rates offer lenders better returns, naturally attracting more investment.

Government debt: Countries with high government debt may struggle to attract foreign capital and could face inflation. If markets perceive high debt risk, foreign investors may sell bonds, leading to currency depreciation.

Trade conditions: When export prices rise faster than import prices, trade terms improve, increasing national income and demand for the currency, leading to appreciation.

Political stability: Countries with low political risk are more attractive to foreign investment. Political stability and sound economic and trade policies prevent currency risk premiums; conversely, political turmoil can lead to depreciation.

How to profit by buying foreign currencies?

Master the two-way trading mechanism

Traditional investments can only “buy low, sell high,” but the forex market supports both “buy low, sell high” and “sell high, buy low.”

When you expect a currency to appreciate, buy that currency; when you expect it to depreciate, you can sell it first and buy it back after the price drops, earning profit. This flexibility is a key advantage of the forex market over stocks.

Choose suitable targets

Analyze policy differences, interest rate gaps, changes in major export products between the currency pairs you plan to go long or short on, to decide trading direction. This is the most critical part of investment decision-making. For example, if you expect the US to cut rates this year while Japan will not, you might consider going long on JPY/USD.

Develop a comprehensive trading strategy

Successful investing depends on disciplined execution. Based on your risk tolerance, trading experience, and market conditions, develop a suitable trading plan. The plan should include entry and exit points, stop-loss and take-profit levels, and consider market risks and transaction costs.

Maintain a stable mindset

Avoid emotional trading caused by short-term market fluctuations. Continuous learning and experience accumulation are necessary to succeed long-term in the forex market.

Recommended banks and key points for foreign currency investment

Invest only in familiar currencies: Beginners should focus on major currency pairs with the highest trading volume, such as USD, JPY, etc., rather than blindly chasing obscure currencies.

Closely monitor exchange rate fluctuations: Foreign exchange rates are affected by market, economic, and news factors. It is recommended to follow international news outlets like CNBC, Bloomberg, Yahoo Finance, etc., to stay updated.

Diversify to reduce risk: Hold a mix of foreign currency tools, such as USD fixed deposits and AUD funds, to form a complementary hedge. Once the appropriate allocation is determined, avoid frequent trading.

Learn to set stop-loss and take-profit: Especially in margin trading, setting proper stop-loss levels is crucial to prevent excessive losses. It is recommended to operate no more than twice a day to avoid overtrading.

Pick the right entry timing: Never chase highs or sell in panic. Prepare a trading plan in advance, and only place orders when the timing is right. The simplest approach is to wait for a trend to form, usually taking 5 minutes or longer. Once the trend is established, choose an appropriate time frame based on your risk preference.

Many banks and brokerages in Taiwan offer foreign currency investment services. Investors should select platforms that are safe, transparent in fees, have complete trading tools, and offer diverse trading products. Before starting, practice with demo accounts to evaluate strategies and risk management in real market conditions without risking real funds.

There are no shortcuts in foreign currency investment, but with systematic learning, disciplined execution, and risk management, ordinary investors can achieve steady returns in the forex market.