The Profit Secrets Behind Exchange Rate Fluctuations | A Trading Guide for Beginners in Foreign Currency Investment

Why are so many people passionate about forex trading? The reason is simple: the world’s largest financial market is the foreign exchange market, with a daily trading volume exceeding 6 trillion USD, far surpassing stock, bond, and commodity markets. Moreover, foreign currencies are not just investment tools; they are useful for traveling abroad, online shopping for overseas goods, and more, making it easy for ordinary people to participate.

The Logic of Making Money from Exchange Rates: What is the Forex Spread?

In simple terms, currency investment profits come from the exchange rate difference—the price difference in converting the same currency at different times or through different channels. Making profits through “buy low, sell high” or “sell high, buy low” is the most common forex trading method.

For example, suppose you believe the euro will appreciate. You buy 1 standard lot (100,000 units) of EUR/USD at an exchange rate of 1.0800, and when the rate rises to 1.0900, you close the position. Your profit from the exchange rate difference is:

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

A fluctuation of just 100 points can bring in a profit of 1,000 USD. This is why some people call forex a “small capital can quickly appreciate” investment method.

Three Paths of Currency Investment: From Conservative to Aggressive

Bank Foreign Currency Fixed Deposit — The Safest Choice

If you’re new to forex trading and want to avoid high risks, bank fixed deposits are a good starting point. Simply open a foreign currency account, exchange at the posted rate, and deposit. USD fixed deposits and South African rand fixed deposits are common choices in Taiwan, with the former due to higher interest rates and broader use, and the latter because the South African rand offers significantly higher interest than the Taiwan dollar.

Balance of Risk and Return: Fixed deposits mainly earn interest. If the foreign currency exchange rate against TWD remains stable or appreciates, you profit. But beware: currently, the US is in a rate-cut cycle, and the USD may face depreciation risk. Fixed deposits cannot be shorted, missing out on short-term volatility profits.

Foreign Currency Funds — Moderate-Risk Portfolio

Foreign currency funds invest in bonds or stocks of specific countries, allowing you to earn two types of returns: the exchange rate fluctuation (the forex spread) and the appreciation of the investment assets themselves.

For example, if you are optimistic about the yen’s appreciation and believe Japanese stocks are undervalued, purchasing yen-denominated Japanese stock funds can realize a “double profit”—the forex spread from yen appreciation and the capital gains from stock price increases.

Forex Margin Trading — High-Risk, High-Reward Fast Lane

This is the real way to profit from exchange rate fluctuations. Through contracts offered by brokers, investors only need to pay a margin to conduct large trades. Leverage can range from dozens to hundreds of times. If correct, profits multiply; if wrong, the principal can be lost quickly.

Cost Advantage is Significant: Banks’ bid-ask spreads can be as high as 0.3%-0.47%, while forex trading platforms usually have spreads around 0.01%. For EUR/USD, with a buy price of 1.09896 and a sell price of 1.09887, the spread is about 0.0082%, which is vastly different.

T+0 Two-Way Trading: You can buy and sell unlimited times within the same day, going long or short, flexibly responding to market changes.

Five Practical Trading Strategies Explained

Range Trading — Buying Low and Selling High in Volatile Markets

When forex prices fluctuate within a certain range, range trading is very effective. Traders need to identify support and resistance levels and trade at key points.

Classic example: from 2011 to 2015, the Swiss National Bank announced maintaining the EUR/CHF(EURCHF) 1.2000 lower limit. Many investors continuously bought low and sold high within the 1.2000-1.2500 range. Using tools like RSI and CCI to generate buy/sell signals, but must strictly set stop-losses; otherwise, a breakout can lead to heavy losses.

( Trend Trading — Following the Major Direction to Profit

Use this strategy when a strong trend appears in forex, usually in medium to long term. For example, starting May 2021, the Fed)FED( became increasingly committed to rate hikes, while the ECB)ECB### delayed rate increases. Investors began betting on USD appreciation, causing EUR to decline until bottoming in October 2022.

Key Point: Once a trend is established, it rarely changes easily. The key is to follow steadily, set reasonable stop-loss levels, and aim for profit targets larger than stop-loss points.

( Day Trading — News-Driven Short-Term Sniping

The deadly weapon of short-term traders is news. Interest rate adjustments, major economic data releases)such as US CPI(, central bank meetings)FOMC###, etc., cause intense forex market volatility.

For example, a rate hike decision at a Federal Reserve meeting immediately impacts USD movement. Capturing these moments can yield huge profits within 1-2 days. The secret is to act swiftly, avoid prolonged positions, or else short-term trades can turn into long-term losses.

( Swing Trading — Medium to Short-Term Momentum Trading

Between day trading and trend trading, this strategy combines technical and fundamental analysis. Technically, look for assets with high volatility; fundamentally, catch opportunities that trigger volatility changes. Focus on four signals: upward breakout, downward breakdown, trend reversal, and trend retracement.

In January 2015, when the Swiss National Bank)SNB( announced removing the EUR/CHF 1.2000 floor, the shocking “Swiss franc black swan event” occurred, and swing traders profited handsomely. Always remember: the greater the volatility, the higher the risk. Taking profits when the market turns favorable is the best approach.

) Position Trading — Long-Term Holding for Appreciation

For investors who dislike frequent trading, this strategy is suitable. Position traders rely on technical and fundamental analysis, combined with macroeconomic factors and historical trends, to identify the correct direction###bullish or bearish(.

Since forex won’t skyrocket or plummet to zero but only fluctuate within a broad range, entering at historical lows can reduce costs. For example, the USD index)DXY### reached a high of 114 in the past 10 years. If you expect a long-term decline in USD, you can gradually build positions at suitable levels. Core insight: accurately predict the future direction and find low-cost entry points within volatility cycles.

Why Choose Foreign Currencies? Three Unmissable Advantages

Wide Application: Traveling abroad, online shopping, cross-border trade—forex transactions are everywhere in daily life. Knowing the trend in exchange rates in advance can prepare you for travel and carry out carry trade.

Relatively Clear Trends: Compared to stocks and bond funds, forex price movements tend to be more persistent and clear. As long as you understand the interest rate policies and monetary policies of two countries, you can roughly predict the exchange rate direction. Focus on key moments like US CPI releases, FED meetings, QE or QT policies.

Highest Liquidity: The forex market is the largest financial market globally, with a daily volume exceeding 6 trillion USD. Operating 24 hours worldwide, it is less susceptible to manipulation by major funds, highly transparent, and investment decisions are based on real data rather than guesses.

Forex Trading Schedule

( Bank Foreign Currency Trading Hours

Generally from 9:00 AM to 3:30 PM) with slight variations among banks(. Closed on weekends and holidays.

) Forex Margin Trading Hours

No unified opening/closing times, divided into four major trading sessions:

• London Session### Taiwan time summer 3:00 PM - 12:00 AM, winter 4:00 PM - 1:00 AM(
• Sydney Session) Taiwan time summer 6:00 AM - 3:00 PM, winter 5:00 AM - 2:00 PM###
• Tokyo Session( Taiwan time 7:00 AM - 4:00 PM)
• New York Session( Taiwan time summer 8:00 PM - next day 5:00 AM, winter 9:00 PM - next day 6:00 AM)

Due to overlapping hours, traders can conduct 24-hour trading from Monday to Friday.

Final Words

There is no absolute “best way” to profit from exchange rate movements—only the most suitable way for you. Different trading strategies fit different risk preferences and capital sizes.

The forex market is full of opportunities for those willing to learn and practice. Start with a demo account to test your trading logic, and once your skills mature, enter with real money. Sharpening your tools takes time, but the journey of forex investing is long. With dedication and research, finding your own profit model is not difficult.