What are the other ways to invest besides New Taiwan Dollar? A comprehensive and easy-to-understand guide to foreign currency investment

Many Taiwanese investors face a common dilemma: with the New Taiwan Dollar interest rates remaining low for a long time, how can they increase returns through foreign currency assets? In fact, the barrier to foreign currency investment is not high; the key lies in choosing the right strategies and tools. This article will guide you through the complete ecosystem of foreign currency investing—from basic concepts, investment methods, currency selection, to practical operational tips—to help you find direction in this market.

What is Foreign Currency Investment? Understand the Basic Concepts First

Before discussing foreign currency investment, it’s essential to distinguish between the often-confused concepts of “foreign currency” and “forex.”

“Foreign currency” simply refers to all currencies other than the domestic currency (New Taiwan Dollar). It is a trading target in the forex market. “Forex” is a broader term that encompasses various assets existing in foreign currency form—bank deposits, government bonds, stocks, etc., all fall under the scope of forex.

In simple terms, foreign currency investment mainly involves buying and selling different currencies to enjoy interest income or profit from exchange rate fluctuations. The most common foreign currencies invested in by Taiwanese include USD, AUD, JPY, CAD, GBP, etc., which are among the most liquid currencies globally.

How Does Foreign Currency Investment Make Money? Interest Rate Differentials and Exchange Rate Margins Are the Two Main Profit Engines

The profits from foreign currency investments mainly come from two sources: interest rate differentials and exchange rate margins.

Interest rate differential refers to the difference between benchmark interest rates of different countries. For example, currently, the US deposit rate is about 5%, while Taiwan’s is only 2%. The 3% difference represents a potential profit margin. If you exchange New Taiwan Dollars for USD to deposit, you can earn this interest spread.

Exchange rate margin comes from fluctuations in currency exchange rates. When you buy USD at 33 TWD/USD and later sell when USD appreciates to 35 TWD/USD, you profit from the exchange rate movement.

However, there is a trap to watch out for: “earning interest but losing on exchange rate.” For example, if you buy USD at 33:1 and earn 5% interest, but when selling, the rate drops to 30:1, you may end up with a loss due to exchange rate depreciation. Therefore, before investing in foreign currencies, you must clarify whether you aim for long-term income from interest or short-term gains from exchange rate movements.

Comparing Three Investment Methods: Find the Most Suitable for You

In Taiwan, there are mainly three ways to invest in foreign currencies:

First: Foreign Currency Fixed Deposit — The Safest Choice

This is the easiest method for beginners. Simply open a foreign currency account at a bank with relevant identification if you are over 20. Fixed deposit rates are usually higher than savings accounts, but liquidity is lower—if you want to withdraw early before maturity, the bank will deduct interest. Suitable for those seeking stable interest income and not interested in short-term volatility.

Second: Foreign Currency Funds — Flexibility and Yield Combined

Foreign currency funds do not require lock-in periods; they can be bought and sold at any time. The interest rate is between savings and fixed deposits. Investors can use TWD to invest directly, with the fund company handling currency exchange. Common types include money market funds and currency ETFs, with management fees around 0.5%-0.6%. This method offers a balance of earning interest and flexibility, making it suitable for investors needing agility.

Third: Forex Margin Trading — High Risk, High Return

This is the most flexible but also the riskiest method. Using leverage (typically 50-200 times), investors only need a small margin to conduct large trades. Advantages include 24-hour trading, T+0 mechanisms, and low entry barriers; disadvantages are extremely high risk, with the potential for margin calls. This approach is only suitable for experienced investors with high risk tolerance.

Major Currencies in the Global Market: Understanding the Four Main Types

Mainstream currencies in the foreign exchange market can be divided into four categories, each with its characteristics:

1. Policy-Driven Currencies — USD and EUR

The exchange rates of these currencies are mainly influenced by central bank monetary policies. When central banks implement easing policies or cut interest rates, the currencies tend to depreciate; when tightening or raising rates, they appreciate. Investing in these currencies requires close attention to the policies of the Federal Reserve, European Central Bank, and other institutions.

2. Safe-Haven Currencies — JPY and CHF

These two countries have stable economies and low political risks, with central banks rarely adjusting interest rates. During global economic uncertainty or market turbulence, investors flock to these currencies for safety. The JPY is especially popular for “carry trades”—borrowing low-interest JPY to invest in higher-yielding countries.

3. Commodity-Linked Currencies — AUD and CAD

These countries rely heavily on commodity exports. When international prices of oil, iron ore, and other commodities rise, these currencies tend to appreciate; when prices fall, they depreciate. For example, Australia is the world’s largest iron ore exporter, and its currency is highly correlated with iron ore prices. Due to their relative predictability, commodity currencies are considered good options for beginners.

4. Emerging Market Currencies — RMB, ZAR, etc.

These currencies often have high interest rates and are attractive, but they come with risks such as political instability, large exchange rate fluctuations, low international liquidity, and wide bid-ask spreads. Caution is advised; earning high interest can be offset by exchange rate volatility.

Outlook for Major Currencies in 2025

Entering 2025, global central bank policies are diverging, which will significantly impact currency performance:

EUR/USD(EUR/USD) — Uptrend

The Fed has already cut rates multiple times in 2025, while the ECB tends to hold steady. This divergence has pushed the euro to a four-year high against the dollar. The market generally perceives more policy uncertainty for the Fed, whereas the ECB’s independence and cautious approach make the euro more attractive.

USD/JPY(USD/JPY) — Volatile Range

The Bank of Japan has paused rate hikes in response to US trade policies, but most economists expect a rate increase before year-end. The narrowing of the US-Japan interest rate gap and domestic political factors suggest this currency pair will remain range-bound in the short term.

GBP/USD(GBP/USD) — Weakening

Although the pound has appreciated this year, mainly due to dollar weakness rather than fundamental improvements in the UK economy. As Fed policies become clearer, market optimism for the pound may adjust. Coupled with sluggish UK economic growth, the pound is unlikely to see a strong upward trend and is expected to fluctuate within a range.

USD/CHF(USD/CHF) — Safe-Haven Strengthening

In 2025, the US faces trade and fiscal challenges, diminishing the dollar’s safe-haven appeal. The Swiss franc’s status as a safe haven is rising. Expectations of slowing US economic growth and continued Fed rate cuts will support the Swiss franc’s appreciation.

Five Major Drivers of Exchange Rate Fluctuations

To profit in the foreign currency market, you must understand what drives exchange rate movements:

1. Inflation Rate Differentials — Countries with lower inflation tend to see their currencies appreciate. Low inflation indicates slow price increases, maintaining purchasing power and strengthening the currency; high inflation leads to depreciation.

2. Interest Rate Levels — Higher interest rates attract foreign capital inflows, increasing currency demand and causing appreciation; lower rates have the opposite effect.

3. Government Debt — Countries with high debt levels often see their currencies weaken. High debt can lead to capital flight and bond sell-offs, resulting in exchange rate declines.

4. Trade Conditions — When export prices rise faster than import prices, trade surpluses expand, leading to currency appreciation.

5. Political Stability — Countries with low political risk and transparent policies attract foreign investment, strengthening their currencies; instability has the opposite effect.

Practical Guide for Beginners

Having understood the theory, here are practical steps, taking forex margin trading as an example (the most challenging method):

Step 1: Choose Your Trading Pair

Research the currencies you want to go long or short on, including their interest rate policies, economic data, and major exports. For example, if you believe the Fed will cut rates while the Bank of Japan remains steady, consider shorting USD/JPY.

Step 2: Develop a Trading Plan

Based on your risk tolerance, set entry and exit points, stop-loss, and take-profit levels. The forex market is volatile; a clear plan helps control risks. Using trailing stops is recommended to automatically manage losses.

Step 3: Execute with Discipline

Avoid emotional trading or chasing the market. Wait for a trend to form (often on 5-minute charts or longer) before entering. Once a trend is clear, follow your plan. Limit yourself to a maximum of two trades per day to allow the market to show its trend.

Step 4: Manage Your Mindset

The 24-hour nature of forex means volatility is constant. Maintaining rationality and emotional control is key to long-term profitability. Continuous learning and reflection are more important than impulsive trades.

Five Golden Rules of Foreign Currency Investment

1. Only invest in currencies you understand: The market has many currencies, but the most traded are USD, JPY, etc. Beginners should start with familiar currencies.

2. Constantly monitor exchange rate movements: The forex market is influenced by global news and economic data. Follow sources like CNBC, Bloomberg, Yahoo Finance for real-time information.

3. Diversify to reduce risk: Don’t put all your capital into a single currency. Hold a mix, such as USD fixed deposits and AUD funds, to hedge against risks.

4. Use stop-loss and take-profit effectively: These are vital in forex trading, especially with margin. Properly set stop-loss points prevent margin calls; take-profit points lock in gains.

5. Time your entries carefully: Avoid chasing highs or selling lows. Have a plan in advance and patiently wait for the right moment. Following the trend and acting decisively when clear is a good approach.

Final Reminder

Any trading theory is just theory until tested in practice. Beginners are advised to practice with demo accounts, testing strategies and risk management in a virtual environment. Only after gaining sufficient confidence should real funds be used. The success of foreign currency investment ultimately depends on a perfect combination of knowledge, discipline, and experience.