Mastering Exchange Rate Fluctuation Patterns | A Practical Guide to Profiting from Currency Exchange in Foreign Currency Investments

In recent years, various investment trends have remained strong, with active stock markets and record-high precious metal prices. Many investors have also begun to focus on bond opportunities. However, when it comes to the largest financial products by global trading volume, they far surpass all of the above, and that is the Foreign Exchange Market. With a daily trading volume exceeding $6 trillion USD, currency exchange transactions have become the world’s largest investment scene.

Recently, even mature market currencies have experienced significant fluctuations. Moreover, foreign currencies are not just investment tools; they are closely related to daily life, making participation relatively accessible. If you’re interested in forex investment but lack experience, this article will provide a comprehensive understanding of the Currency Trading Mechanism and share practical exchange rate operation tips to help you easily start your forex investment journey.

The Core Profit-Making Methods of Currency Trading

Many people want to enter the forex market, but first need to understand one question: what do you make money from? The answer is simple—profit from exchange rate differences.

Definition of Exchange Rate Difference

Exchange rate difference refers to the “price difference” of the same currency exchanged at “different times” or through “different channels.” This is the most common trading method among retail investors. Investors predict the future trend of a currency’s relative value and seek profits through “buy low, sell high” or “sell high, buy low.”

How to Calculate Exchange Rate Difference

Want to know how much profit you make on a single trade? The formula is straightforward: Profit = (Close Price - Open Price) × Trading Units

Suppose you are bullish on the euro appreciating and buy 1 standard lot (100,000 units) of EUR/USD at 1.0800. If the exchange rate rises to 1.0900 and you close the position immediately, the profit is: (1.0900 - 1.0800) × 100,000 = $1,000 USD. This 100-pip fluctuation in the exchange rate results in a substantial profit.

The Three Main Paths of Currency Investment

Based on risk level and operational difficulty, forex investment can be divided into three categories.

Bank Foreign Currency Fixed Deposit — Entry-Level Option

This is the lowest risk and most accessible choice. Simply open a foreign currency account, exchange at the bank’s posted rate, and deposit. USD and South African Rand are popular choices among Taiwanese investors, with USD favored for its interest rate advantage and widespread use, and ZAR for its high interest rates far exceeding the Taiwan dollar.

The fixed deposit yield mainly comes from interest, but also involves exchange rate risk. Currently, the US is in a rate-cutting cycle, and the USD/TWD exchange rate faces depreciation concerns. It is not recommended to go long on USD at this time. Fixed deposits are not suitable for frequent trading; if you want to profit from exchange rate differences, consider more flexible trading options.

Currency Funds — Moderate-Risk Option

These funds combine foreign currencies with investment instruments, allocating capital to stocks or bonds of specific countries. Besides gains from exchange rate fluctuations, investors can also profit from the appreciation of the underlying assets.

For example, if you are optimistic about the yen appreciating and believe Japanese stocks are undervalued, purchasing Japanese stock funds denominated in yen allows you to benefit from both the exchange rate rise and stock price increase, achieving “dual profits.”

Forex Margin Trading — Advanced Option

Forex margin trading(Foreign exchange margin trading) is a high-risk, high-reward choice, conducted through contracts provided by brokers. Investors only need to pay a certain margin(Margin) to engage in trades that can be many times larger than their capital.

The high risk stems from leverage multiples (ranging from dozens to hundreds of times). Correct judgment can lead to short-term doubling of profits, but misjudgment can quickly wipe out the principal. This short-term speculative nature defines its high risk and high reward profile.

Advantages of Forex Margin Trading

Although it carries the highest risk, high risk often comes with high returns. Margin trading offers the following advantages:

Leverage Amplification Effect

Margin trading inherently involves leverage, with platforms typically offering 10x to 200x leverage. For example, with USD/JPY, a maximum of 200x leverage allows even small price movements to magnify gains. Last August, the yen appreciated sharply (from 161 to 141), and leveraged investors doubled their profits.

Lower Trading Costs

Compared to banks’ high spreads (around 0.3%-0.47% for TWD/USD), forex platforms have spreads as low as a few tenths of a basis point. For EUR/USD, the bid-ask spread is about 0.0082%, and most platforms waive commissions. Even without leverage, earning from the spread is far better than currency exchange at banks.

Two-Way Trading and High Flexibility

Investors can simultaneously buy(Buy) and sell(Sell), with no limit on the number of trades per day. If you expect the USD to appreciate, buy USD/TWD; if you expect the TWD to strengthen, sell USD/TWD. This allows capturing profit opportunities from both directions.

The Five Practical Strategies for Currency Trading

Range Trading

When exchange rates lack a clear direction and fluctuate within a certain range, the range strategy is most effective. Traders identify support and resistance levels and perform high sell, low buy at key points. During 2011-2015, when the Swiss National Bank maintained a EURCHF 1.2000 lower limit, many investors profited continuously within the 1.2000-1.2500 range.

Use oscillators like (RSI) and (CCI) to determine entry and exit points. Be cautious of breakout risks; set stop-loss orders at critical levels to prevent heavy losses if the range is broken.

Trend Following

When exchange rates show strong directional movement, trend strategies are most powerful. These are often medium- to long-term positions, with profits depending on the length of the trend. From May 2021 to October 2022, due to aggressive Fed rate hikes and European Central Bank hesitation, EUR/USD experienced a one-sided decline, and short positions yielded substantial gains.

Once a trend is established, it tends to remain stable. After confirming buy signals with oscillators, set sell points based on favorable risk-reward ratios to ensure profits exceed potential losses.

Intraday Trading

Suitable for investors who prefer short-term operations. News events are key triggers, such as interest rate adjustments or meeting decisions, which can cause sharp volatility. During 2021-2022, the Fed raised interest rates at each FOMC meeting, with single-move increases up to 4 basis points—the fastest pace in nearly 30 years. Investors who seized these moments could earn significant gains within 1-2 days.

The core strategy is quick decision-making, avoiding prolonged positions that could turn into long-term losses.

Swing Trading

A medium-short-term strategy between intraday and trend trading, combining technical and fundamental analysis. The key is to capture four signals: upward breakout, downward breakdown, trend reversal, and trend retracement. In January 2015, after the Swiss National Bank announced the removal of EURCHF 1.2000 floor, the market experienced the famous Swiss franc “Black Swan” event. Swing traders who judged correctly could profit amid the intense volatility. Greater volatility means higher gains but also increased risk; timely profit-taking is essential.

Position Holding

A long-term holding strategy suitable for investors who prefer not to trade frequently. Traders rely on technical analysis, fundamental analysis, and macroeconomic factors to determine the long-term direction. Forex is characterized by oscillations within a certain range, not unlimited growth or collapse to zero. The key is to find low-cost entry points within this range. For example, the USD’s 10-year high at 114, investors expecting a decline due to economic recession can look for reversal signals near this high to short.

The main insight is to identify the long-term trend and find low-cost entry points during volatility cycles.

Why Choose Currency Investment

Compared to other investment products, forex has three major advantages:

Wide Application Scenarios

Travel abroad, online shopping, international trade—all involve currency exchange. Therefore, investing in foreign currencies is practical. Understanding economic differences among countries can facilitate travel preparations and carry trade strategies.

Relatively Clear Trends

Compared to stocks, bonds, and funds, forex price movements tend to be more persistent and clear. As long as you understand the monetary and interest rate policies of the currency’s home country, you can infer the exchange rate direction. For short-term trading, pay attention to key events like CPI releases, FOMC meeting minutes, quantitative easing (QE), or quantitative tightening (QT) policies.

Market Liquidity is the Strongest

With a daily trading volume exceeding $6 trillion USD, global financial centers operate across time zones, functioning nearly 24 hours a day. The enormous trading volume makes market manipulation difficult, ensuring high transparency. Investment decisions are more based on objective data rather than guesses.

Trading Hours for Foreign Currencies

Bank Forex Trading Hours

Must be conducted during bank operating hours, usually from 9:00 AM to 3:30 PM (varies by bank). Banks are closed on weekends and holidays, so trading is unavailable.

Margin Trading Hours

No central exchange restrictions. The market is divided into four major trading sessions, overlapping due to time zones, enabling 24-hour trading from Monday to Friday.

Summary

Currency trading for profit from exchange rate differences offers multiple strategies, each suitable for different investors. Besides the trading varieties mentioned above, investors should tailor their approach based on risk appetite, trading habits, and capital scale, gradually developing their personal trading system.

The forex market requires diligent research to uncover profit opportunities amid currency fluctuations. Beginners are advised to practice with demo accounts, testing strategies with virtual funds. Once skills are mature, they can invest real capital. As long as you understand the logic of exchange rate movements and master entry and exit timing, currency investment can become a stable channel for asset appreciation.