2025 Foreign Currency Investment Beginner's Guide: Which Foreign Currencies Should You Buy? A Complete Analysis of the Three Major Investment Methods

Why is foreign currency investment important? Is now a good time to enter?

Taiwan’s local currency fixed deposit interest rate remains around 1.7%, which is comparatively less attractive than many foreign currencies with higher interest rates. Coupled with frequent global exchange rate fluctuations, many investors are starting to consider—What foreign currency should I buy now? The answer depends on your understanding of the market.

The core attractions of foreign currency investment are threefold: firstly, interest rate differential—the difference in benchmark interest rates between countries; secondly, exchange rate gains—profiting from currency fluctuations; and thirdly, asset hedging—protecting wealth when the domestic currency depreciates. However, it’s important to note that foreign currency investment is not simply “buy high interest rates,” but also involves paying attention to exchange rate risks, political stability, and liquidity.

What is the difference between foreign currency and foreign exchange?

Many beginners often confuse these two concepts. Foreign currency simply refers to currencies of other countries besides the domestic currency, such as USD, JPY, etc. Foreign exchange is a broader term that includes foreign currency cash, bank deposits, government bonds, corporate bonds, and even stocks denominated in foreign currencies.

In simple terms, foreign exchange encompasses buying and selling foreign currencies, but currency trading is just a part of foreign exchange transactions. Investors need to choose suitable products based on their risk tolerance when planning.

Three ways to invest in foreign currencies: which one should you choose?

In Taiwan, there are mainly three methods of foreign currency investment, each with its pros and cons:

Foreign currency fixed deposits—Stable but low liquidity

This is the simplest method: opening a foreign currency account at a bank and depositing funds as fixed-term deposits to earn interest. Anyone over 20 with an ID card and passbook can apply.

Advantages: Lowest risk, no leverage risk, suitable for conservative investors.

Disadvantages: Poor liquidity, early withdrawal incurs penalties; fixed and usually low interest; inflexible in responding to market changes.

Foreign currency funds—Balanced flexibility and returns

Foreign currency funds do not require lock-in periods; they can be bought and sold at will, with returns between savings and fixed deposits. Investors can purchase with TWD, and the fund company handles currency exchange. Common types include money market funds and currency ETFs.

Advantages: Flexible trading, can buy and sell anytime; transparent fees, management fees usually around 0.5-0.6%; suitable for investors needing dynamic allocation.

Disadvantages: Returns are less stable than fixed deposits; management risk from fund companies.

Forex margin trading—High leverage and high returns

This is an advanced method seeking higher returns. Investors use a small amount of margin to leverage larger trades, profiting from currency fluctuations. Trading runs 24 hours, T+0 settlement, with low entry barriers.

Advantages: High leverage (usually 50-200x), potential for huge profits; flexible trading hours; can profit from both rising and falling markets.

Disadvantages: Extremely high risk, leverage amplifies losses; requires professional knowledge and discipline; easy to get margin called.

Risk warning: ASIC regulation in Australia recommends that leverage for major currency pairs should be below 30x. Beginners should start small and strictly set stop-loss points.

Sources of returns in foreign currency investment: exchange rate and interest rate differentials

There are two main profit methods in foreign currency investment:

Interest rate differential: the difference in benchmark interest rates between countries. For example, if Taiwan’s fixed deposit rate is 2% and the US is 5%, theoretically, investors can earn a 3% interest differential. But this is not risk-free—if the USD depreciates against TWD during the holding period, the 3% interest may be offset or even result in a loss due to exchange rate loss.

Exchange rate difference: the price difference at buying and selling times. Investors profit from buying low and selling high (or vice versa).

Common misconception: Many investors make the mistake of “earning interest rate differential but losing on exchange rate.” They focus on high interest rates but ignore exchange rate risks. For example, buying USD at 33 TWD/USD and earning 5% USD interest, but if the USD can only be exchanged back at 30 TWD/USD, overall they still lose money.

Therefore, before investing, clarify your goal: if you seek interest income, choose fixed deposits or funds; if you aim for short-term price differences, choose margin trading.

How are foreign currencies classified? Which should Taiwanese investors choose?

There are many types of currencies worldwide, but Taiwanese banks typically offer about 12, including USD, EUR, JPY, AUD, CAD, GBP, CHF, etc. These currencies can be divided into four main categories:

Policy currencies—USD and EUR

Their movements are mainly influenced by central bank policies. During easing policies, exchange rates tend to fall; during tightening, they rise. Investing in these currencies requires close attention to central bank meetings.

Safe-haven currencies—JPY and CHF

These two countries have developed economies, stable political situations, and long-term low interest rates. When global economic uncertainty rises, investors flock to these currencies for hedging. Many borrow in JPY for arbitrage, and when the economy improves, convert back to their home currency to realize “dual gains from exchange rate and interest rate differentials.”

Commodity currencies—AUD and CAD

These countries mainly export commodities. When commodity prices rise, their currencies appreciate; when prices fall, their currencies depreciate. For example, Australia is the world’s largest iron ore exporter, and iron ore prices are highly correlated with the AUD exchange rate. Relative to other categories, commodity currencies are easier to analyze and are suitable for beginners practicing trend trading.

Emerging market currencies—RMB, ZAR, etc.

These countries usually have the highest interest rates but also experience large exchange rate volatility, low liquidity, and wide bid-ask spreads. Although ZAR offers attractive interest rates, the risks are relatively high, requiring cautious assessment.

Which foreign currencies are good to buy in 2025? Key currency trend analysis

US Federal Reserve rate cuts initiate, global monetary policy divergence

Since September 2024, the Fed has started cutting interest rates. Although the first five rate decisions in 2025 kept rates unchanged, in September, the Fed lowered the federal funds rate to 4.00%-4.25%. This policy shift is reshaping the global currency landscape.

EUR/USD—Strong upward momentum

EUR/USD recently hit a four-year high. The European Central Bank maintains steady rates and expresses optimism about the economy, while market uncertainty about US policy has increased, strengthening the euro. Compared to the ECB’s higher independence and more cautious policy, the euro offers a relatively neutral choice.

( USD/JPY—Narrowing interest rate differential

The Bank of Japan paused rate hikes in 2025, but most economists expect another hike by year-end. The US-Japan interest rate gap is gradually narrowing, and political uncertainty in Japan remains, so the JPY may continue to fluctuate in the short term.

) GBP/USD—Weak rebound

The pound’s strength this year mainly stems from a weak dollar rather than improved fundamentals of the pound. The UK economy remains sluggish, and the market expects the pound to stay within a range, making a sustained rally unlikely.

CHF—Hedge value highlighted

In 2025, as the US faces trade and fiscal challenges, the dollar’s safe-haven status is challenged, and the Swiss franc’s safe-haven appeal becomes more prominent, attracting significant international capital inflows. In the medium to long term, slowing US economy, Fed rate cuts, and a weakening dollar index will support the appreciation of the Swiss franc.

Core factors influencing exchange rate fluctuations

Investors must understand the fundamental drivers of exchange rate movements:

Inflation rate: Countries with low inflation tend to see their currencies appreciate because prices of goods and services rise slowly, maintaining stronger purchasing power.

Interest rate levels: Rising interest rates attract foreign capital, pushing the domestic currency higher; falling interest rates have the opposite effect.

Government debt: Countries with high government debt struggle to attract foreign investment, increasing selling pressure on their currencies, leading to depreciation.

Trade conditions: When export prices rise faster than import prices, national income increases, boosting demand for the domestic currency and causing appreciation.

Political stability: Countries with stable politics and clear policies attract more foreign investment, leading to currency appreciation; political chaos tends to cause depreciation.

How can beginners profit from foreign currency investments? Practical guide

( Unidirectional and bidirectional trading

Traditional investments only support unidirectional trading (buy low, sell high), but the foreign exchange market supports bidirectional trading. When you expect a currency pair to weaken, you can sell first and buy back at a lower price, realizing “sell high, buy low” profits.

For example, if you expect EUR to depreciate, you can sell EUR/USD, and after the euro weakens, buy back to profit from the difference.

) Three decision-making steps

Select targets: Analyze the central bank policies, interest rates, and main exports of the target currency pair. For example, if you judge that the US will cut rates this year while Japan’s rates stay unchanged, you might go long JPY/USD.

Develop strategies: Based on your risk tolerance, set entry points, stop-loss, and take-profit levels. Discipline is key in forex trading—once you set a stop-loss, stick to it and avoid greed.

Maintain mindset: Market volatility is frequent, and emotional swings can lead to poor decisions. Continuous learning and experience accumulation are necessary for consistent profits.

Five major tips for foreign currency investment

1. Only invest in familiar currencies
Beginners should focus on major currencies (USD, JPY, EUR, etc.) and avoid unfamiliar or illiquid currencies.

2. Continuously monitor exchange rate movements
Exchange rates fluctuate daily, influenced by policies, news, and economic data. Follow international financial information platforms to stay updated.

3. Diversify to reduce risk
Avoid putting all funds into one currency. For example, hold USD fixed deposits while also investing in AUD funds to hedge risks through inverse currency movements.

4. Strictly execute stop-loss and take-profit
Especially in margin trading, stop-loss points are the last line of defense against margin calls. Set and adhere to them strictly, avoiding adjustments due to market swings.

5. Pay attention to entry timing
Avoid chasing highs or selling lows. Plan your trades in advance, wait for clear trends before entering. A simple approach is to observe 5-minute or longer K-line charts, and only open positions when the trend is clear.

Conclusion: Rational investing is the long-term winner

Foreign currency investment is not a tool for quick profits but an important means of asset allocation and risk management. Regardless of the method chosen, understanding risks, respecting the market, and continuous learning are essential.

In 2025, exchange rate environments are changing rapidly, with clear policy divergence. The best currency to buy now varies per individual—conservative investors may prefer fixed deposits and funds, while experienced investors might try margin trading. The key is to make choices based on your goals, risk tolerance, and knowledge level, rather than blindly following trends.

Before starting, practice with simulated trading to test your strategies in real market conditions and accumulate practical experience. Only then can you navigate the foreign exchange market steadily and far.