Recently, I’ve noticed an interesting phenomenon: more and more people in Taiwan are starting to take foreign currency allocation seriously, no longer just keeping New Taiwan Dollars in the bank to earn 1.7% interest. There’s actually good reason behind this—under Taiwan’s long-term low interest-rate environment, investing in foreign currencies really does offer a different perspective.

First, let’s make it clear: foreign currency investment and foreign exchange trading are two different things. Foreign currency refers to the currencies of countries other than the New Taiwan Dollar. Foreign exchange is a broader concept, including various cross-border assets such as currencies, bonds, and payment instruments. Simply put, buying and selling foreign currencies is one way to participate in foreign exchange investing. Taiwanese banks usually offer 12 foreign currency options, including major currencies such as the US dollar, Japanese yen, Australian dollar, and euro.

How do foreign currency investments make money? The core comes down to two things: exchange rate differences and interest rate spreads. Exchange rate difference is the price gap between buying and selling. Interest rate spread is the difference in interest rates between different countries. For example, if Taiwan offers 2% on fixed deposits and the US offers 5%, there’s a 3% interest rate spread in between. But this is not guaranteed profit, because currency fluctuations may wipe out your interest earnings—this is the commonly said “earn the interest spread but lose on the exchange rate.” So before you enter the market, you must think through whether you’re aiming for interest income or for profit from short-term price differentials.

There are mainly three investment approaches. Foreign currency fixed deposits are the most conservative: you open an account with the bank, deposit foreign currency, and earn interest. Risk is low, but returns are also low, making it suitable for beginners. Foreign currency funds offer more flexibility—you don’t need to lock your funds, so you can buy and sell at any time. Returns typically fall between savings accounts and fixed deposits. If you already have some experience, foreign exchange margin trading is another world: you can use leverage to amplify gains, but the risks also increase by multiples. It trades 24 hours a day, with a T+0 mechanism, so entry and exit are very flexible.

When it comes to choosing which currencies to trade, different currencies have different “personalities.” The US dollar and the euro are policy-driven currencies—their price movements mainly depend on central bank policy. The Japanese yen and the Swiss franc are safe-haven currencies: with stable economies and relatively small fluctuations, they are especially popular during crises. The Australian dollar and the Canadian dollar are commodity currencies, moving with commodity prices. For example, with Australia exporting iron ore, when iron ore prices fall, the Australian dollar tends to fall as well. Emerging market currencies often have high interest rates, but they also come with large volatility, meaning the risk is relatively higher.

Recent market developments are worth paying attention to. Starting in September 2024, the Federal Reserve began cutting interest rates, and by 2025 it has already accumulated a total of 100 basis points in rate cuts. This has a major impact on global exchange rates. The European Central Bank is relatively conservative, while the Bank of Japan has paused rate hikes amid pressure from US tariffs. These policy differences show up directly in the volatility of various currency pairs. The euro vs. the US dollar has hit a four-year high. The Japanese yen has been swinging amid battles between bullish and bearish forces. The British pound is mainly driven by a weakening US dollar. Due to its strong safe-haven characteristics, the Swiss franc has recently attracted a significant inflow of capital.

There are many factors that affect exchange rates. In countries with low inflation, their currency tends to appreciate. An increase in interest rates attracts foreign capital, which pushes up the exchange rate. High government debt can scare off investors, leading to depreciation. Even improvements in trade conditions can raise a currency’s value. Political stability and economic performance are also equally important—naturally, the currency of a stable country is more welcomed.

In actual practice, foreign exchange investing is similar to other investments, but with the added possibility of two-way trading. Not only can you buy low and sell high, you can also anticipate depreciation—sell first, then buy back later. The key is to choose the right targets and understand the policies, interest rates, and economic conditions behind the two currencies you plan to trade. Then, create a reasonable trading plan, including entry and exit points, stop-loss points, and take-profit points. Mindset also matters—don’t let market volatility scare you into making chaotic trades.

Advice for beginners: invest only in currencies you understand. Don’t chase highs or sell lows—wait until a trend forms before entering. Keep an eye on international news and economic data, since these directly affect exchange rates. You can diversify across different currency types to hedge risk. If you do foreign exchange margin trading, make sure you learn how to set stop-loss orders to prevent liquidation. It’s recommended to operate no more than 2 times per day to avoid overtrading.

To be honest, there’s no shortcut in foreign exchange investing. The best approach is to first practice with a demo account—test your strategies in a real market environment and see how strong your risk control is. Then, once you have real experience, use real money. When choosing a platform, look at regulatory qualifications, trading fees, the completeness of the available tools, and the diversity of tradable products. Only after laying a solid foundation can foreign exchange investing turn from a vague concept into a genuine source of profit.