2025 Forex Trading Beginner's Guide: How Do Beginners Choose Currencies and Investment Methods?

Want to earn stable income through foreign currency investments? In the era of low interest rates, many investors turn to foreign currencies seeking higher returns. Although the foreign exchange market may seem complex, mastering a few core concepts allows beginners to find their own investment rhythm. This article will guide you from zero to understanding the logic, risks, and opportunities of buying and selling foreign currencies.

Basic Understanding of the Forex Market

Foreign currencies and foreign exchange may sound similar, but they are distinctly different. Foreign currency refers to currencies other than your home currency, while foreign exchange (forex) refers to assets denominated in foreign currencies held by a country, including bank deposits, government bonds, etc. Simply put, forex trading involves buying and selling foreign currencies, which is the most direct way for participants to engage in the forex market.

Taiwanese investors most commonly trade USD, JPY, AUD, and other major currencies. These currencies have high trading volumes, strong liquidity, and relatively manageable volatility, making them suitable for beginners to start learning.

The Logic of Making Money with Foreign Currencies: Exchange Rate and Interest Rate Differentials

The principle behind making money from buying and selling foreign currencies is actually simple—exchange rate differences and interest rate differentials.

Exchange rate difference refers to the price difference at the time of buying and selling. For example, if you exchange 33 TWD for 1 USD, and later the exchange rate moves to 32 TWD per USD and you sell, you earn the exchange rate difference.

Interest rate differential is the gap between interest rates of different countries. Currently, Taiwan’s fixed deposit rate is about 2%, while the US is around 5%. This 3% interest rate differential represents a potential profit. But be cautious—earning the interest rate differential can be offset by exchange rate movements. For instance, you buy USD fixed deposits earning 5% interest, but if the USD depreciates beyond that, you could lose money. This highlights the importance of not ignoring exchange rate risk.

Three Ways to Invest in Foreign Currencies

Taiwanese investors mainly participate in the foreign currency market through three paths:

1. Foreign Currency Fixed Deposits—Earning the Interest Rate Differential

• Open a foreign currency account at a bank (available to those 20+ years old)
• Lowest risk, stable but limited returns
• Low liquidity; early withdrawal may incur interest penalties
• Suitable for: conservative investors

2. Foreign Currency Funds—Combining Liquidity and Returns

• No lock-in period; buy and sell anytime
• Interest rates between savings and fixed deposits
• Common types: money market funds and currency ETFs
• Can invest in TWD, with the fund company handling currency exchange
• Suitable for: investors needing flexible funds

3. Forex Margin Trading—High Risk, High Return

• Leverage amplifies returns (typically 50-200x)
• 24-hour trading, T+0 mechanism, low entry barrier
• Requires fundamental and technical analysis skills
• Risk: leverage can lead to margin calls
• Suitable for: experienced investors with high risk tolerance

The Australian ASIC recommends that leverage for major currency pairs should be below 30x. Beginners should start with small amounts and set reasonable stop-loss points.

Four Categories of Foreign Currencies and Their Investment Characteristics

Based on factors influencing exchange rates, foreign currencies can be divided into four categories:

Policy Currencies (USD, EUR)

• Exchange rates mainly influenced by central bank policies
• Focus on Federal Reserve and European Central Bank rate decisions
• The 2025 policy direction of the Fed is a market focus

Safe-Haven Currencies (JPY, CHF)

• Countries with stable political environments and low risk
• Serve as safe havens during economic volatility
• Small fluctuations in interest rates

Commodity Currencies (AUD, CAD)

• Exchange rates highly correlated with commodity prices
• AUD linked to iron ore and copper prices
• Trend is relatively easy to grasp, friendly for beginners

Emerging Market Currencies (CNY, ZAR)

• Usually higher interest rates, attractive yields
• Volatile exchange rates and lower liquidity
• Higher risk, requiring cautious assessment

Outlook for Major Currency Pairs in 2025

EUR/USD (Euro to US Dollar) The Fed announced a 25 bps rate cut to 4.00%-4.25% in September, while the ECB kept rates steady. The Eurozone’s economic data looks relatively optimistic, and concerns about the dollar’s policy increase, pushing EUR/USD to a four-year high. Trump’s economic reforms may add uncertainty to US dollar policies.

USD/JPY (US Dollar to Japanese Yen) The Bank of Japan paused rate hikes due to assessing US tariff impacts, but most economists expect a 25 bps hike before year-end. Divergence in policy may lead to Yen appreciation, but domestic political factors remain variables. Short-term, the exchange rate may remain volatile.

GBP/USD (British Pound to US Dollar) The pound’s strength this year mainly stems from a weak dollar rather than fundamental improvements in the UK economy. As Fed policies clarify, the pound faces re-pricing risks. The UK economy remains sluggish, likely leading to range-bound movement.

USD/CHF (US Dollar to Swiss Franc) US trade and fiscal issues have increased demand for the Swiss franc as a safe haven. Capital inflows have driven CHF appreciation. In the medium to long term, Fed rate cuts and a weakening dollar index will support the Swiss franc.

Core Factors Influencing Exchange Rates

Before investing in foreign currencies, it’s essential to understand the fundamental reasons behind exchange rate fluctuations:

Inflation Rate: Countries with low inflation tend to see their currencies appreciate; high inflation countries’ currencies depreciate and often have higher interest rates.

Interest Rate Levels: Rising interest rates → currency appreciation (attracting foreign capital); falling interest rates → currency depreciation.

Government Debt: High debt countries struggle to attract foreign investment, putting downward pressure on their currencies.

Trade Conditions: Rising export prices relative to imports → improved trade balance → currency appreciation.

Political Stability: Countries with low political risk attract more investment, leading to currency appreciation; political turmoil causes depreciation.

How Beginners Can Profit from Buying and Selling Foreign Currencies

The essence of forex trading is “buy low, sell high,” but there are two directions:

Long (buy low, sell high)

• Buy when expecting appreciation, sell after price rises for profit.

Short (sell high, buy low)

• Sell when expecting depreciation, buy back after price drops for profit. This advantage is not available in traditional investments.

Successful foreign currency investing involves three steps:

1. Select the Asset — Analyze relevant country policies, interest rates, export products, etc., to determine trading direction. For example, if you expect the US to cut rates and Japan to hold steady, you might go long JPY/USD.

2. Develop a Trading Strategy — Based on risk tolerance and experience, determine entry/exit points, stop-loss, and take-profit levels. Consider market risks and transaction costs.

3. Manage Your Mindset — Avoid emotional trading driven by market volatility. Continuous learning and experience accumulation are the keys to long-term profits.

Five Essential Tips for Forex Beginners

Don’t Trade What You Don’t Understand Only invest in major currency pairs you are familiar with (USD, JPY). Market news is everywhere, but the most traded are the mainstream currencies.

Constantly Monitor Exchange Rate Trends Foreign exchange rates are affected frequently by market, economic, and news events. Follow international news websites to stay updated on policy directions.

Diversify Your Portfolio Avoid putting all your eggs in one basket. For example, hold both USD fixed deposits and AUD funds to hedge risks. Once you find a suitable allocation, avoid frequent trading.

Use Stop-Loss and Take-Profit Orders Wisely The key in forex margin trading is setting appropriate stop-loss levels to prevent margin calls. For example, place a buy order near a recent low and set a stop-loss to limit losses. Limit yourself to a maximum of 2 trades per day.

Time Your Entry Well Avoid chasing highs or selling at lows. Prepare your plan in advance and wait for the right moment. Trends usually take more than 5 minutes to form; once confirmed, you can participate. Use different timeframes like 5-minute, 30-minute, or 120-minute charts based on your preference.

Conclusion

Foreign currency investment is not out of reach. By understanding the logic of exchange rate and interest rate differentials, the characteristics of different currencies, and the factors influencing exchange rates, combined with disciplined trading strategies and emotional control, you can find your own rhythm in the forex market.

For beginners, starting with low-risk options like foreign currency fixed deposits or funds is the safest approach. As experience grows, gradually explore forex margin trading. Remember—the core of forex trading is not about chasing maximum returns but steadily accumulating within manageable risks. The best way to learn is through repeated practice in a simulated environment, testing your trading ideas until you establish a reliable profit system.