Master the timing of currency exchange to profit from exchange rate differences: A comprehensive guide from beginner to expert in foreign currency investment

Why Are More and More People Choosing Currency Exchange to Make Money?

In the global financial markets, the daily trading volume of foreign exchange exceeds 6 trillion USD, far surpassing stocks, bonds, gold, and other investment assets. This is no coincidence—the core reason why foreign currency investment is popular is because it has unique advantages.

First, foreign currency has a wide range of application scenarios. Whether traveling abroad, shopping overseas, or engaging in international trade, currency exchange is a necessary daily activity. As a result, the general public has a natural sensitivity to exchange rate fluctuations, and the participation threshold is relatively low.

Second, the trend of foreign currencies is relatively trackable. Compared to stocks, which are affected by company fundamentals, currency prices are mainly determined by interest rate policies and monetary policies between two countries, with clear logic and strong regularity. As long as you pay attention to the interest rate hike/lower rate trends of central banks, you can roughly predict the direction of the exchange rate.

Furthermore, the foreign exchange market has the strongest liquidity. With 24-hour global trading, numerous participants, and large trading volumes, this means the market is difficult to manipulate and has the highest transparency.

The Essence of Making Money from Currency Exchange: Understanding the Concept of the Spread

To profit from foreign currency investment, you first need to understand a core concept—the spread.

The spread refers to the difference in exchange prices of the same currency at different times or through different channels. Simply put, investors predict the appreciation or depreciation trend of one currency relative to another, adopting a “buy low, sell high” or reverse operation, to earn the price difference in between.

How to Calculate the Spread

Suppose you expect the euro to appreciate. You buy 1 standard lot (100,000 units) of EUR/USD at an exchange rate of 1.0800. Later, the rate rises as expected to 1.0900, and you decide to close the position.

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

This means that just a 100-point change in the exchange rate can bring considerable profit. This is the reason many are attracted to enter the foreign currency market.

Three Core Ways to Make Money from Currency Exchange

Depending on risk level and investment cycle, foreign currency investments can be divided into three categories:

First Category: Bank Foreign Currency Fixed Deposits (Lowest Risk)

This is the most conservative way to exchange currency. The investment process is simple: open a foreign currency account at the bank, convert TWD to foreign currency at the current bank rate, and then make a fixed deposit.

The returns from fixed deposits come from two parts: interest income and exchange rate appreciation. For example, USD fixed deposits are popular due to higher interest rates and wide application, while ZAR fixed deposits are also favored for their high interest rate advantage.

Risk Management Tip: Currently, the US is in a rate-cut cycle, and the USD faces depreciation pressure against TWD. If the USD depreciates more than the interest earned during the fixed deposit period, losses may occur. Therefore, fixed deposits are more suitable when the interest rate policies of both countries are stable.

The disadvantage of fixed deposits is the inability to short or trade frequently, and early termination may incur interest deductions. If you want to actively profit from exchange rate fluctuations, fixed deposits are not the best choice.

Second Category: Foreign Currency Funds (Medium Risk)

Foreign currency funds invest in the stock or bond markets of specific countries. Returns come from two parts: exchange rate movements and the appreciation of the investment assets themselves.

For example, if you believe the Japanese yen will appreciate and think the Japanese stock market is undervalued with room for growth, you can buy yen-denominated Japanese stock funds. This way, you can gain from both yen appreciation and stock price increases, achieving “dual profit.”

Third Category: Forex Margin Trading (High Risk, High Return)

Forex margin trading is conducted through trading platforms using leverage. Investors only need to pay a certain margin to conduct trades far exceeding their own capital, with leverage ratios from dozens to hundreds times.

Why does high risk come with high returns?

Some platforms support up to 200x leverage on USD/JPY. Suppose the yen surges from 161 to 141 yen per USD (referencing last year’s situation). If an investor catches this trend with leverage, the profit can be several times higher, making gains very substantial.

But the flip side is, if the direction is wrong, the principal can quickly be wiped out.

Three Core Advantages of Forex Margin Trading

1. Leverage amplifies returns

The volatility in the foreign currency market often appears small, but through leverage, these tiny fluctuations can be magnified dozens or even hundreds of times. Even a 0.5% movement in the exchange rate can yield a 100% return under 200x leverage.

2. Much lower trading costs than banks

Banks’ bid-ask spreads are usually around 0.3%-0.47%. For USD/TWD, the spread is about 0.47%, while legitimate forex trading platforms typically have spreads of less than 0.01%, such as only 0.0082% for EUR/USD, often with no commission fees.

This means that even without leverage, simply arbitraging through trading platforms can yield returns far exceeding bank currency exchange.

3. T+0 two-way trading, unlimited trades within the day

Forex margin trading supports multiple buy and sell transactions within the same day and allows two-way operations. When expecting USD to appreciate, buy; when expecting TWD to appreciate, sell. Flexibly switching directions maximizes profit opportunities.

Master Five Currency Exchange Strategies, from Beginner to Advanced

Strategy 1: Range Trading—Seeking Stable Returns in Volatile Markets

When the exchange rate has no clear direction and fluctuates repeatedly within a certain range, range trading comes into play. Traders buy near support levels and sell near resistance levels.

A classic example is EUR/CHF from 2011-2015. After the Swiss National Bank announced to unconditionally maintain a 1.2000 lower limit, many investors continuously traded within the 1.2000-1.2500 range, fully utilizing the volatility.

Trading Tip: The key to range trading is strict stop-loss. Once the price breaks out of the range, losses can be severe. Most range traders use technical indicators like RSI or CCI to confirm buy/sell points.

Strategy 2: Trend Trading—A Medium to Long-Term Strategy Riding the Trend

When the exchange rate shows a strong one-sided trend, trend trading is the best choice. These trades usually occur over medium to long term, with position durations depending on trend strength.

Typical case: EUR/USD from May 2021 to October 2022. The Fed aggressively raised interest rates, while the European Central Bank was cautious, leading to a one-sided rise of the USD and a continuous decline of the euro. Investors who caught this trend profited handsomely.

Trading Tip: Once a trend forms, it tends to have inertia. The key is to enter early and set reasonable stop-loss and take-profit levels based on risk-reward ratios. Trend trading requires strong technical analysis skills, but correct judgment can yield the most substantial profits.

Strategy 3: Day Trading—Using Short-Term News Events

For investors who like quick in-and-out trades, day trading is an option. This strategy relies on grasping major economic data releases and central bank decisions.

Whenever the Fed announces interest rate decisions, CPI data, or signals quantitative easing/tightening, the forex market will experience intense volatility. Sharp traders can earn huge profits within 1-2 days.

Trading Tip: “Fast and decisive” is the core principle. Enter, profit, and exit immediately, avoiding holding positions too long and changing expectations. Many short-term traders eventually suffer losses when turning long-term.

Strategy 4: Swing Trading—Combining Technical and Fundamental Analysis

Swing trading is between day trading and trend trading, a medium-short-term strategy. It combines technical and fundamental analysis, focusing on identifying four signals: upward breakout, downward breakdown, trend reversal, and trend retracement.

On January 15, 2015, the Swiss National Bank announced to remove the EUR/CHF 1.2000 lower limit, triggering the famous “Swiss franc black swan event.” This was a breakthrough opportunity for swing traders—decisively acting when the existing range was broken.

Trading Tip: Volatility trading profits from price swings, but larger swings mean higher risk. Take profits when the move looks good; avoid greed.

Strategy 5: Position Trading—Long-Term Patient Investment

If you are tired of frequent trading, position trading (holding positions) might be more suitable. This is a long-term strategy of holding positions, waiting for the exchange rate to develop in the expected direction.

Position traders need to use technical analysis, fundamental analysis, and macroeconomic factors to identify the long-term trend (bullish or bearish). For example, if you believe a US recession will weaken the dollar, you might enter near the high of the USD index (DXY), aiming to close at a lower price later.

Trading Tip: Grasp the big trend and find low-cost entry points during volatility cycles. Major currencies like USD will not rise or fall infinitely; they tend to fluctuate within certain historical ranges. Exploiting this can greatly reduce position-building costs.

Planning Your Foreign Currency Buying and Selling Times

Bank Foreign Currency Trading Hours

Banks usually offer foreign currency trading from 9:00 AM to 3:30 PM (specific times vary). Banks are closed on weekends and holidays, so trading is unavailable then.

Forex Margin Trading Hours

Forex margin trading does not have a centralized exchange, so there are no fixed opening or closing times. The market is divided into four main trading sessions:

London Session

• Summer (GMT+0): Opens at 7:00 AM, closes at 4:00 PM → 3:00 PM to 12:00 AM Taiwan time
• Winter (GMT+0): Opens at 8:00 AM, closes at 5:00 PM → 4:00 PM to 1:00 AM Taiwan time

Sydney Session

• Summer: Opens at 10:00 PM, closes at 7:00 AM → 6:00 AM to 3:00 PM Taiwan time
• Winter: Opens at 9:00 PM, closes at 6:00 AM → 5:00 AM to 2:00 PM Taiwan time

Tokyo Session

• Summer/Winter: Opens at 11:00 PM, closes at 8:00 AM → 7:00 AM to 4:00 PM Taiwan time

New York Session

• Summer: Opens at 12:00 PM, closes at 9:00 PM → 8:00 PM to 5:00 AM Taiwan time
• Winter: Opens at 1:00 PM, closes at 10:00 PM → 9:00 PM to 6:00 AM Taiwan time

Due to overlaps, traders can achieve 24-hour trading from Monday to Friday.

Choosing the Right Currency Exchange Method for You

There is no absolute “best way” to profit from currency exchange; the key is to choose based on your own situation:

• Seeking stable returns and risk-averse? Choose bank fixed deposits or foreign currency funds.
• Want to participate in volatility while reducing risk? Consider funds or non-leveraged margin trading.
• Experienced trader willing to take risks? Try leveraged margin trading combined with scientific strategies.

Remember, understanding the logic of the foreign exchange market, learning different trading strategies, and cultivating risk awareness are far more important than blindly following trends. Many legitimate trading platforms offer free demo accounts, allowing investors to practice thoroughly before actual deposits. This is an excellent way to test your skills and refine your trading techniques.

Finally, success in foreign currency investment comes from continuous learning and practical testing. With diligent research, you can find your own profit opportunities in the world’s largest financial market.