The core secret to making money from exchange rate differences | Master foreign currency trading times and techniques to earn profits

The foreign exchange market may seem complicated, but in essence, it’s a simple concept: making money from exchange rate differences. Every day, over 6 trillion USD flows and trades between various currencies worldwide, far surpassing the scale of stock, bond, and commodity markets. Many novice investors avoid entering the forex field simply because they don’t understand how it works. This article will guide you from zero, gradually helping you grasp the logic of the forex market and learn how to increase your investment returns through scientific trading strategies.

Why Are Global Investors Playing Forex?｜The Secret Behind Over 6 Trillion USD Daily Trading Volume

Compared to stocks, funds, bonds, and other investment products, the forex market has three unique advantages, which is why it has become the world’s largest financial market.

First is diverse uses. In daily life—whether traveling abroad, shopping online for overseas goods, or engaging in import-export trade—people almost always need to exchange currencies. Because of this, forex investing isn’t a distant financial game; it’s closely related to everyday life. You can even exchange currency in advance when preparing for a vacation, while thinking about how to profit from exchange rate fluctuations—killing two birds with one stone.

Second is easy to grasp the big picture. Although forex prices fluctuate due to multiple international factors, the trends tend to be relatively persistent and clear. As long as you understand the interest rate policies and currency policies of the countries involved, you can roughly predict the future movement of exchange rates. This predictability is much higher than the trend of a single company’s stock.

Finally, is extremely high liquidity. The forex market operates 24 hours a day, nonstop, with financial centers around the world working in shifts. Thanks to the enormous trading volume (over 6 trillion USD daily), major funds find it difficult to manipulate the market, which means the market is highly transparent, and investment decisions are more based on real data rather than guesses.

How to Profit from the Spread｜From Basic Concepts to Practical Skills

What is the Spread

The spread is the difference in exchange rates for the same currency at different times or through different channels. Retail investors most commonly predict the future trend of one currency relative to another and then profit by “buy low and sell high” or “sell high and buy low.” This is the true essence of making money from the spread.

For example: You expect the euro to appreciate against the US dollar, so you buy 1 standard lot (100,000 units) of EUR/USD at 1.0800. Later, the exchange rate rises as expected to 1.0900, and you close the position. Using the formula “Profit spread = (closing price - opening price) × trading volume,” your profit is (1.0900 - 1.0800) × 100,000 = $1,000. It may seem like only a 0.01 movement in the exchange rate, but it can bring thousands of dollars in profit.

The Logic of Making Money from the Spread

Many beginners are confused about how to calculate the spread profit when first encountering it. The logic is simple: Profit spread = (close price - open price) × trading volume.

The core idea is: buy a currency at a lower price and sell it at a higher price; the difference is your profit. In the forex market, even a tiny fluctuation of a fraction of a percent can lead to significant absolute profits because of the large trading volume (per standard lot).

Comparing Three Ways to Profit from the Spread｜Risks, Returns, and Entry Barriers

Based on risk level and operational complexity, forex investment can be roughly divided into three levels. Different investors should choose according to their capital, risk tolerance, and time commitment.

Method 1: Foreign Currency Bank Fixed Deposit｜The Safest Entry

This is the lowest risk and entry barrier method. You only need to open a foreign currency account at a bank to start trading. Banks publish buy and sell prices daily, and you can convert TWD to foreign currency (like USD or ZAR) at the posted rates, then choose a fixed deposit term. Upon maturity, you can either continue the deposit or convert back to TWD.

The logic is straightforward: as long as the exchange rate between the foreign currency and TWD stays flat or appreciates, you profit. Even if the foreign currency depreciates, as long as the depreciation doesn’t exceed the interest earned, you still make a profit. Many Taiwanese banks offer short-term high-interest fixed deposit plans, such as 3-month foreign currency deposits, which attract many investors.

However, note that the current US interest rate cycle is in a cut phase, and the USD may face depreciation pressure. Large USD deposits should be carefully evaluated. Fixed deposits mainly earn interest; the best time to operate is when both currencies’ interest rates are stable.

Limitation: Fixed deposits are time-bound investments; you cannot buy and sell frequently. If you want to profit from exchange rate differences, fixed deposits are less suitable because they lack flexibility. To profit from price differences, you need to adjust positions dynamically—sometimes going long, sometimes short. Early withdrawal may incur penalties, eroding your gains.

Method 2: Foreign Currency Funds｜Moderate-Risk Diversified Investment

Foreign currency funds are medium-risk investments that combine the advantages of foreign currencies and investment instruments. These funds typically invest in bonds or stocks of specific countries, so besides gains from exchange rate fluctuations, you can also profit from the appreciation of the underlying assets.

For example, if you believe the Japanese yen will appreciate and think the Japanese stock market is undervalued with growth potential, you can buy yen-denominated Japanese equity funds. This way, you achieve “double profit”: from yen appreciation and stock price increases, realizing true dual gains.

The advantage of foreign currency funds is risk diversification and professional management, but the disadvantages include less liquidity compared to margin trading and higher fees.

Method 3: Forex Margin Trading｜High Returns but High Risks

Forex margin trading is a high-risk, high-reward method. It involves trading through brokers using contracts, where investors only need to pay a margin (deposit) to control a much larger position via leverage.

Leverage ratios range from dozens to hundreds of times. If the market moves favorably, profits are multiplied; if it moves against you, your capital can quickly evaporate. Many experienced traders are attracted to margin trading despite its risks because the profit potential is enormous.

The Advantages of Forex Margin Trading｜Why Experts Use Leverage

Although forex margin trading is the riskiest, its advantages are significant. When mastered, it can be a powerful tool for rapid wealth accumulation.

Leverage Amplifies Profits

Forex margin trading inherently involves leverage. Even a small exchange rate movement can be magnified dozens or hundreds of times. For example, USD/JPY can offer up to 200x leverage on many platforms. If JPY suddenly appreciates from 161 to 141 per USD (as of early August 2024), traders who catch this move with leverage can achieve multiple times the profit.

Lower Trading Costs

Bank bid-ask spreads are usually large. For the common USD/TWD pair, spreads can be as high as 0.47%, with a minimum of 0.3%. In contrast, professional forex platforms often have spreads less than 0.01%. For example, EUR/USD might have a buy price of 1.09896 and a sell price of 1.09887, with a spread of about 0.0009. Most platforms also do not charge commissions.

This means that even without leverage, short-term trading for price differences can be cheaper via forex margin trading than currency exchange at banks, which often charges around 0.3%. The short-term rate movements are usually insufficient to offset this cost.

T+0 Two-Way Profit Opportunities

Forex margin traders can buy and sell multiple times within the same day. If you expect the USD to appreciate, you can buy USD against TWD; if you expect TWD to appreciate, you can sell USD. This allows seeking profits from multiple directions, offering flexibility that fixed deposits cannot match.

Five Key Trading Strategies｜How to Flexibly Adjust Based on Market Conditions

Once you confirm the method of making money from the spread, the next key is choosing the right trading strategy. Professional traders often switch strategies based on market environment.

Strategy 1: Range Trading｜Buy Low and Sell High Within a Range

When prices are moving sideways or the trend is unclear, range trading is effective. The goal is to identify support and resistance levels and repeatedly buy at the support and sell at the resistance.

A classic example is EUR/CHF from 2011 to 2015. Due to the Swiss National Bank’s commitment to maintaining a floor at 1.2000, traders kept trading between 1.2000 and 1.2500, keeping the market within a clear range.

Indicators like RSI or CCI are often used to generate buy/sell signals. But beware: once the price breaks out of the range, risks increase sharply. Setting proper stop-losses is essential.

Tip: Range trading offers many opportunities, but a breakout can lead to heavy losses. Strict discipline on stop-loss is necessary.

Strategy 2: Trend Trading｜Ride the Wave for Big Profits

When a strong trend develops, trend trading is the best choice. This is often medium to long-term, with position holding times aligned with the trend’s duration.

For example, EUR/USD from May 2021, as the Fed signaled aggressive rate hikes, while the ECB hesitated, leading to a sustained dollar appreciation. Traders who followed the trend profited handsomely.

In trend trading, entry points are often confirmed by technical indicators, and exit points are based on risk-reward calculations. Ensuring your profit target exceeds your stop-loss is key to maintaining positive expectancy.

Tip: Once a trend is established, it tends to persist. Riding the trend is generally safer—“stability” is the word.

Strategy 3: Day Trading｜Quickly Capture News Opportunities

If you prefer short-term trading, day trading suits you. News events are the main drivers—interest rate changes, geopolitical developments, or economic data releases.

EUR/USD is again a good example. Between May 2021 and October 2022, the Fed’s rate hikes, sometimes 100 basis points at a time, created the fastest tightening in decades. Traders who accurately predicted these moves could earn significant profits within 1-2 days.

The key to day trading is quick decision-making and decisive execution. Missing the move often results in long-term holding and potential losses.

Tip: Be decisive—avoid overthinking. Use stop-loss and take-profit orders diligently to prevent small losses from turning into long-term ones.

Strategy 4: Swing Trading｜Combine Technical and Fundamental Analysis

Swing trading is a medium-term strategy between day trading and trend trading. It relies on both technical and fundamental analysis. Traders look for high-volatility assets, identify triggers for price movements, and focus on signals like breakouts, breakdowns, reversals, and pullbacks.

The EUR/CHF event in January 2015 is a perfect example. After years of range-bound trading, SNB announced the removal of the 1.2000 floor, causing a “Swiss franc black swan” event. Traders who anticipated this profited greatly, while others suffered heavy losses.

Tip: Swing trading profits from volatility. But larger swings mean higher risk. Take profits promptly and avoid greed.

Strategy 5: Position Trading｜Long-Term Holding, Waiting for Appreciation

Position trading is a long-term approach suitable for investors who dislike frequent trading. They don’t focus on short-term news or daily fluctuations but trust in the long-term trend.

For example, if you expect the USD to depreciate long-term due to economic slowdown, you might enter near a 10-year high of 114 on the USD index. This approach reduces entry costs and allows you to withstand short-term volatility.

Since forex doesn’t typically go to zero like stocks, but fluctuates within a range, position traders can enter at favorable levels, lowering costs and managing short-term shocks.

Tip: Identify the major trend and find low-cost entry points within the fluctuation cycle.

Timing Your Currency Trades｜24-Hour Market Opportunities

After choosing your trading method and strategy, the next question is: when can you trade? Different channels have different operating hours.

Bank Foreign Currency Trading Hours

Bank transactions are limited to banking hours, usually from 9:00 am to 3:30 pm. On weekends and holidays, banks are closed, so no foreign currency trading is possible. This limits flexibility for active traders.

Forex Margin Trading Hours

Forex trading has no central exchange, so no official opening or closing times. The market is divided into four main sessions: London, Sydney, Tokyo, and New York. Overlapping hours mean traders can operate 24 hours from Monday to Friday.

Typical time zones (Taiwan time, summer/winter adjustments):

• London: opens around 3-4 am, closes around midnight
• Sydney: opens around 5-6 am, closes around 2-3 pm
• Tokyo: opens at 7 am, closes at 4 pm
• New York: opens at 8-9 pm, closes at 5-6 am

Traders can choose the most active periods based on their schedule and trading style.

Summary｜No Absolute Best Way to Profit from the Spread

Making money from exchange rate differences involves many methods and techniques, but there is no fixed “best” strategy. Each person should select the approach that best fits their risk appetite, trading habits, and capital.

Some prefer conservative bank deposits, others opt for moderate fund investments, and some are naturally suited for high-risk, high-reward margin trading. Similarly, strategies like range trading, trend trading, or day trading each have their merits. The key is to continuously learn from practice, gradually developing your own trading style.

The forex market is like a gold mine—if you study diligently, you can find your own path to wealth. If you’re not yet ready to invest real money, practicing with demo accounts to build experience and mental resilience is a good way to prepare for the journey of profiting from exchange rate differences.