What is the Forex Market?

The Forex market, also known as the foreign exchange market, is a global and decentralized currency exchange market. Unlike centralized exchanges such as the New York Stock Exchange, the Forex market does not have a single entity or institution that provides unified currency quotes. This decentralized nature allows each Forex broker to offer different quotes, providing market participants with greater flexibility and trading opportunities.

As the world’s largest financial market, the Forex market has a daily trading volume exceeding $7.5 trillion, making it unparalleled by other financial markets. Its high liquidity ensures that there are always buyers and sellers ready to trade at any given moment. This efficiency allows for fast trade execution and low transaction costs, typically with narrow spreads, enabling investors to profit from small price movements.

The Forex market operates as an “Over-the-Counter” (OTC) market, where trading takes place through the banking networks of major financial centers worldwide rather than on a centralized exchange. Advances in internet technology have further enhanced trading efficiency, with real-time exchange rate updates creating more opportunities for traders.

Moreover, the Forex market plays a crucial role in supporting the global economy, facilitating currency exchange for individuals, businesses, and financial institutions while allowing for capital appreciation and risk management through exchange rate fluctuations. Its global reach, high liquidity, and diverse trading mechanisms make the Forex market an indispensable part of today’s financial system.

Key Features of the Forex Market

The Forex market has become one of the most popular financial markets worldwide, primarily due to its unique characteristics. These features not only enhance market flexibility and efficiency but also create more trading opportunities and potential profits for investors.

1. Global Reach and 24-Hour Operation

   The Forex market is a truly global market, covering major financial centers across Asia, Europe, and the Americas. Trading begins on Monday morning with the Sydney session and continues uninterrupted until the New York session closes on Friday night. This around-the-clock operation allows traders from different time zones to participate at their convenience. The market’s global nature and continuous operation make it one of the most flexible investment choices, catering to the needs of investors across different regions.

   Currency	Market	Winter Time (Nov-Mar)	Summer Time (Apr-Oct)
   Asian Session
   NZD	Wellington	04:00-12:00	05:00-13:00
   AUD	Sydney	06:00-14:00	07:00-15:00
   JPY	Tokyo	08:00-14:30	08:00-14:30
   HKD	Hong Kong	09:00-16:00	09:00-16:00
   European Session
   EUR	Frankfurt	14:00-22:00	14:00-22:00
   GBP	London	16:30-00:30	15:30-23:30
   American Session
   USD	New York	21:20-04:00	20:20-03:00

2. High Liquidity

   The forex market has the highest liquidity globally, which means that currency pair transactions can be executed quickly at any time. With a daily trading volume exceeding $7.5 trillion, the market remains highly active, allowing investors to execute trades at lower costs while minimizing the impact of market slippage or price fluctuations. High liquidity not only enhances capital efficiency but also reduces trading risks.

3. Flexibility of Leverage Trading

   The forex market offers investors the opportunity for leveraged trading, enabling them to engage in larger transactions even with a smaller capital base. Leverage trading can effectively amplify investment returns, but it also carries higher risks. Therefore, investors must use it cautiously and implement proper risk management strategies. Choosing a professional and regulated trading platform, such as Saxo Bank, can help investors better balance returns and risks.

4. Transparency of Information and Technical Support

   The forex market is highly regarded for its transparency of information. Market prices and trading data are almost instantly accessible, providing investors with accurate trading references. At the same time, numerous technical analysis tools and indicators are available to help investors predict market trends and develop strategies. Selecting a reliable forex trading platform can further ensure the transparency and reliability of transactions.

5. Diverse Trading Strategies

   The flexibility of the forex market is also reflected in its diverse trading strategies, catering to different types of investors. Whether long-term investors who prefer holding positions for extended periods or intraday traders focusing on short-term fluctuations, the forex market offers suitable strategies for everyone. Additionally, the forex market provides derivative instruments such as options and futures, enabling investors to engage in arbitrage trading or risk management, fulfilling diverse investment needs.

These characteristics of the forex market make it a highly flexible, efficient, and opportunity-rich market, attracting traders from around the world. Whether seeking stable returns or aiming for high-risk, high-reward opportunities, investors can find suitable prospects in the forex market.

Basic Knowledge of Forex Trading

What is a Currency Pair

In the forex market, the core trading format is the “currency pair.” A currency pair represents the value relationship between two currencies, such as EUR/USD (Euro/US Dollar) or GBP/USD (British Pound/US Dollar). These combinations reflect the exchange rate fluctuations between the base currency and the quote currency, forming the foundation of all transactions in the forex market.

基礎貨幣 → Base Currency
報價貨幣 → Quote Currency

In a currency pair, the currency on the left is called the base currency, while the currency on the right is called the quote currency. For example, in the EUR/USD (Euro/US Dollar) pair, a quote of 1.35361 means that one euro can be exchanged for 1.35361 US dollars. If the euro appreciates, the quote for this currency pair will rise; if the US dollar appreciates, the quote will fall.

The uniqueness of the forex market lies in the fact that investors are simultaneously buying one currency while selling another. Therefore, the price fluctuation of a currency pair represents the relative changes in the economies, policies, and market conditions of the two countries involved. This relative trading mechanism is not only the core operational principle of the forex market but also provides investors with diverse trading opportunities.

Currency pairs are generally classified into three types:

• Major currency pairs: Such as EUR/USD (Euro/US Dollar) and USD/JPY (US Dollar/Japanese Yen). These pairs involve the US dollar and have the highest trading volume and liquidity.
• Cross currency pairs: Such as EUR/GBP (Euro/British Pound). These pairs do not include the US dollar but still have significant market participation.
• Exotic currency pairs: Such as USD/ZAR (US Dollar/South African Rand). These involve emerging market currencies, have higher volatility, and are suitable for traders with a higher risk appetite.

Overall, currency pair trading is the core of the forex market. Investors analyze exchange rate fluctuations to achieve capital appreciation and risk management. A deep understanding of currency pair characteristics is a fundamental requirement for successful forex market participation.

The Concepts of Spread and Leverage

In the forex market, spread and leverage are two important concepts that traders must understand in depth, as they relate to transaction costs and capital efficiency. These concepts directly impact traders’ strategies and are closely linked to potential returns and risk management.

1. Spread: Measuring Transaction Costs

Spread refers to the difference between the buying price (Ask) and the selling price (Bid), reflecting the cost traders need to pay when entering the market. In the forex market, spread is one of the primary revenue sources for brokers.

Spread Calculation Method:
For example, if the buying price of GBP/USD (British Pound/US Dollar) is 1.3065 and the selling price is 1.3063, the difference between the two is 0.0002, which equals 2 pips.

Impact of Spread:
The smaller the spread, the lower the transaction cost, which is particularly beneficial for short-term traders. Conversely, a larger spread increases transaction costs and has a greater impact on trading outcomes. For example, when going long on GBP/USD, you can only make a profit if the market price rises above the buying price plus the spread. Similarly, when going short, the price must fall below the selling price minus the spread to generate a profit.

The spread in the forex market is usually influenced by market liquidity and the currency pair being traded. Major currency pairs (such as EUR/USD) typically have lower spreads due to their high liquidity, while exotic currency pairs tend to have wider spreads.

2. Leverage: A Tool for Amplified Trading

Leverage is a key feature of the forex market that allows investors to control larger trade sizes with a smaller amount of capital, achieving the effect of amplifying returns. However, while leverage increases profit potential, it also raises risks, so it must be used with caution.

How Leverage Works:
If a broker offers 20:1 leverage, this means that an investor can control 20 units of capital with just 1 unit of their own funds. For example, if an investor wants to buy 40,000 units of EUR/USD (Euro/US Dollar), they only need to deposit 2,000 euros as margin to open the position.

2000歐元保證金 → €2,000 Margin

20倍槓桿 → 20x Leverage

進行4萬歐元投資 → €40,000 Investment

Impact of Leverage:
Leverage can significantly improve capital efficiency but also increases potential losses. Therefore, investors must implement strict risk management strategies when using leverage to prevent capital losses caused by market fluctuations.

Leverage and spread are among the core mechanisms of the forex market. For investors, understanding and flexibly applying these two concepts can not only effectively reduce trading costs but also enhance capital efficiency, leading to better trading outcomes. However, investors should always be mindful of balancing returns and risks to ensure the safety of their funds.

Basic Trading Methods

In the forex market, choosing the right trading method is the foundation for developing an effective investment strategy. Different trading methods are suitable for different types of investors. Whether you are a beginner or an experienced trader, you need to select an appropriate approach based on your risk tolerance and capital size.

The following section introduces four major forex trading methods to help you gain a deeper understanding of their characteristics, advantages, and application scenarios.

外匯交易方式有哪些？ → What are the forex trading methods?

外匯交易者 → Forex Trader

現貨外匯 → Spot Forex

遠期外匯 → Forward Forex

期貨外匯 → Futures Forex

外匯保證金交易 → Forex Margin Trading

1.Spot Forex

Spot Forex, also known as immediate forex, is one of the most fundamental trading methods, where investors directly buy or sell foreign currency cash or deposits through banks or other financial institutions.

Advantages:

• Simple operation, and after paying transaction fees, physical foreign currency can be obtained.
• Suitable for individuals with daily foreign exchange needs.

Disadvantages:

• Higher transaction costs.
• Trading hours are limited to bank operating hours.
• The variety of currencies available for trading is limited.

Example:
If you expect the US dollar to appreciate, you can use New Taiwan dollars to buy US dollars and exchange them back into New Taiwan dollars after the exchange rate rises to earn a profit from the rate difference. This approach usually requires referring to the spot exchange rate or cash exchange rate provided by banks.

2.Forward Forex

Forward Forex is a trading method where two parties agree on a specific exchange rate and settlement date for a future transaction, commonly used for hedging exchange rate risks. This type of transaction is particularly suitable for import/export companies or investors planning large capital allocations.

Advantages:

• Allows locking in the exchange rate in advance, effectively avoiding future exchange rate fluctuations.

Disadvantages:

• Fixed contract terms result in lower flexibility.

Application Scenario:
If a company expects to pay $500,000 for imported goods in three months, it can use forward forex trading to lock in the current exchange rate, preventing cost increases due to exchange rate appreciation.

Forward forex transactions are further categorized into:

• Deliverable Forward (DF):Requires actual currency settlement.
• Non-Deliverable Forward (NDF):Only the exchange rate difference is settled without actual currency delivery.

3.Forex Futures

Forex Futures is a standardized contract traded on a futures exchange, specifying the settlement date, contract amount, and exchange rate. Compared to forward forex, forex futures offer higher liquidity and transparency, making them suitable for investors with market experience.

Advantages:

• Standardized contracts with high transparency and liquidity.
• Suitable for short-term speculators.

Disadvantages:

• Fixed settlement dates.
• Higher trading risks.

Trading Example:
If you anticipate the Euro will appreciate in the future, you can buy Euro futures and sell them after the price increases to earn a profit from the price difference.

4.Forex Margin Trading

Forex Margin Trading is a trading method that utilizes leverage to amplify capital operations, allowing investors to control large amounts of capital with a small margin deposit. This approach offers high flexibility, but both risk and profit potential are amplified.

Advantages:

• High leverage ratios significantly enhance capital efficiency.
• Suitable for short-term traders.

Disadvantages:

• High leverage comes with high risks, requiring careful capital management.

Example:
If a trading platform offers 200:1 leverage, you only need to deposit $200 as margin to trade up to $40,000. However, market movements against your position can quickly lead to capital losses, making risk management crucial.

Risk Management Recommendations:

• Set reasonable stop-loss points to ensure capital safety.
• Choose a regulated trading platformto reduce trading risks.

Key Participants in the Forex Market

The forex market is the largest financial market in the world, with participants ranging from various organizations to individual traders of different scales and types. Each category of participants plays a unique role in the market and has distinct objectives, collectively forming the structure of forex market operations. Their actions not only impact market liquidity but also directly or indirectly influence exchange rate movements.

The following section introduces the key participants in the forex market and their functions.

Major Participants in the Forex Market

The forex market is the largest financial market in the world, involving participants of different scales and types. Each category of participants plays a unique role and serves different purposes, collectively forming the structure of forex market operations. Their actions influence market liquidity and directly or indirectly affect exchange rate trends. The following section introduces the major participants in the forex market and their functions.

1. Central Banks and Government Institutions

Central banks and government institutions are the most influential participants in the forex market. They are responsible for implementing monetary policies and stabilizing exchange rate fluctuations.

Monetary Policy Regulation:

Central banks control inflation and economic growth by adjusting interest rates and other monetary tools. For example, increasing interest rates can attract foreign capital inflows, leading to domestic currency appreciation. Conversely, lowering interest rates can devalue the currency to stimulate exports and economic growth.

Market Intervention:

When exchange rates fluctuate excessively, central banks may directly buy or sell foreign exchange to stabilize the national currency. For instance, in 2015, the Swiss National Bank (SNB) removed the exchange rate cap on the Swiss franc against the euro, causing a sharp appreciation of the franc, which became a significant event in the forex market.

2. Commercial Banks and Investment Banks

Commercial banks and investment banks are among the core participants in the forex market, providing liquidity and executing large-scale transactions.

Cross-Border Fund Settlement:

Commercial banks handle currency settlement needs for enterprises engaged in international trade, ensuring the smooth flow of capital across different countries.

Market Making:

As market makers, commercial banks provide both buy and sell quotes in the market, helping maintain market stability.

Large-Scale Speculative Trading:

Many investment banks have professional forex trading teams that engage in high-frequency or strategic speculative trading, profiting from exchange rate fluctuations.

3. Hedge Funds and Institutional Investors

Hedge funds and other large institutional investors are often regarded as “major players” in the forex market. These participants execute high-risk, high-reward investment strategies based on global economic trends and technical analysis.

Market Influence:

With substantial capital and highly active trading styles, hedge funds can cause significant short-term fluctuations in exchange rates.

Strategy Implementation:

They often use strategies such as arbitrage, hedging, and speculation to navigate market volatility. For example, when predicting economic growth in a specific country, they may increase long positions in that country’s currency.

4. Retail Traders

Advancements in technology have made it easier for individual investors to participate in the forex market. While retail traders conduct smaller transactions per trade, their large numbers make them an essential part of the forex market.

Growth of the Retail Market:

Forex brokers offer leveraged trading and user-friendly trading platforms (such as MetaTrader), enabling retail traders to enter the market with small amounts of capital.

Beginner Trading Tips:

• Choose a regulated brokerto ensure fund security.
• Start with demo tradingto familiarize yourself with market operations before investing real money.
• Implement risk management strategies, such as setting stop-loss points.

5. Brokers and Trading Platforms

Brokers serve as intermediaries, connecting retail traders with the interbank market. Their primary role is to provide market quotes and trading tools.

Market Connectivity:

Forex brokers route retail traders’ orders into the interbank market, ensuring smooth execution of trades.

Trading Technology Support:

Popular trading platforms such as MetaTrader and cTrader provide traders with:

• Technical analysis tools
• EA trading (automated trading) capabilities
• Efficient trade execution environments

How to Start Forex Trading

The forex market, as the most liquid financial market globally, attracts countless investors. However, for beginners entering the forex market, understanding how to start trading is crucial. From opening an account to developing a trading strategy, every step requires careful preparation. Below are three key steps to help you enter the forex market steadily.

Step 1: Apply for a Forex Trading Account

The first step in starting forex trading is to open a forex account. This serves as the foundation for all trading activities, as only through a forex account can you participate in currency buying and selling.

Account Opening Requirements

To apply for a forex trading account, the basic required documents include:

• Identification document(e.g., National ID)
• Secondary document(e.g., Passport, Driver’s License, or Health Insurance Card)
• Bank account statement or debit card

Once you have gathered these documents, you can choose to open an account through a physical bank or via an online forex broker platform. During the application process, it is recommended to select a regulated and reputable broker, as this not only ensures fund security but also provides professional trading support.

After completing the account setup, you will receive login credentials for a forex trading platform, officially stepping into the world of forex trading.

Step 2: Master Forex Market Analysis Techniques

The forex market is highly volatile, with numerous factors influencing currency prices. Therefore, learning market analysis is essential before trading.

Forex Market Analysis Methods

Forex market analysis mainly falls into two categories:

Fundamental Analysis:

• Focuses on macroeconomic data (such as GDP, unemployment rate, interest rates) and international political events.
• Example: Changes in the Federal Reserve’s interest rate policycan directly affect the movement of the US dollar.

Technical Analysis:

• Based on historical price trends and technical indicators (such as moving averages, RSI).
• Helps traders determine the best timing for buying or selling.

Regardless of the analysis method you choose, continuous learning and practice are necessary. It is recommended to start with free online resources (such as blogs and tutorial videos) to gradually familiarize yourself with the forex market’s mechanics. If you wish to gain a more structured understanding, enrolling in professional forex training courses can significantly enhance your investment skills and market judgment.

Step 3: Develop a Trading Strategy and Execute Trades

After acquiring basic knowledge, the next step is to apply it in practice. A well-defined trading strategy helps you remain rational in the forex market and avoid impulsive decisions.

How to Develop an Effective Trading Strategy

• Set trading goals:Define your risk-reward ratio and allocate capital wisely based on your fund size.
• Choose suitable trading instruments:For beginners, it is advisable to start with highly liquid and less volatile major currency pairs (such as EUR/USD or USD/JPY).
• Risk management:Set stop-loss and take-profit levels to ensure that even if the market moves against your position, your losses remain controlled.

Practical Trading Recommendations

At the early stages of trading, it is advisable to practice with a demo account to familiarize yourself with the trading platform and its functions. Additionally, always adhere to your trading plan and avoid making impulsive decisions influenced by emotions.

Key Considerations for Forex Margin Trading

In the forex market, margin trading is a highly popular method, especially in Contract for Difference (CFD) trading. Due to its low capital requirements and flexible operation, margin trading attracts a large number of traders. Through margin trading, investors can find profit opportunities whether the market rises or falls, thereby maximizing capital efficiency.

Additionally, modern forex trading platforms have streamlined account opening procedures, with most platforms supporting online applications, enabling traders to start trading within minutes and quickly enter the forex market.

However, selecting a reliable and regulated forex margin CFD trading platform is crucial to ensuring fund security and fair trading conditions. Forex trading is strictly regulated worldwide, with oversight provided by authoritative regulatory bodies to offer investors legal and financial protection.

Below are some globally recognized forex regulatory agencies:

• Financial Conduct Authority (FCA) – United Kingdom
• Australian Securities and Investments Commission (ASIC) – Australia
• National Futures Association (NFA) – United States
• Markets in Financial Instruments Directive (MiFID) – European Union
• Cyprus Securities and Exchange Commission (CySEC) – Cyprus

Choosing a trading platform regulated by these authoritative bodies can significantly reduce investment risks while ensuring a transparent and fair trading environment. For beginners in forex investment, this is a crucial step in establishing a safe trading foundation.

Globally renowned forex trading platforms include Ultima Markets, Vantage, IC Markets, and Exness.

The author personally uses Ultima Markets for trading and is therefore most familiar with it. Below is an introduction to Ultima Markets.

Ultima Markets Overview

Ultima Markets is a forex trading platform under Viapac Group, a well-known Australian real estate company. It is regulated by CySEC (Cyprus Securities and Exchange Commission), ASIC (Australian Securities and Investments Commission), and FSC (Mauritius Financial Services Commission).

The platform allows trading in over 60 forex currency pairs, as well as gold, silver, US stocks, stock indices, and cryptocurrencies.

If you are not yet ready to trade with real funds, demo trading is an excellent option. Ultima Markets offers a free demo account that simulates real market conditions, allowing you to practice trading without using actual funds or taking on real financial risks.

With a demo account, you can:

• Familiarize yourself with the forex trading platform’s interface and functionalities.
• Test your trading strategies and make necessary adjustments.
• Gain confidence in a risk-free environment to prepare for live trading.

Through demo trading, you can develop an understanding of market dynamics, improve your sensitivity to market fluctuations, and establish a solid foundation for future real trading.

Risks and Opportunities in the Forex Market

In the forex market, investors face both high-return opportunities and potential risks. As the world’s largest financial market, it attracts various investors, but its high liquidity, 24-hour trading cycle, and dynamic environment make risk management a crucial factor for success. Below, we will explore the sources of forex market risks, strategies for risk management, and how to seize opportunities while tackling challenges.

Risks: Challenges That Cannot Be Ignored

The main risks in the forex market stem from market volatility, high leverage, economic and political uncertainty, and broker credit risks. Here is a detailed analysis of these risks:

1. Market Volatility

The forex market is known for its high volatility, with exchange rates fluctuating due to currency supply and demand, economic data releases, and geopolitical events. These fluctuations can be sudden and substantial. For example, a sudden economic data release or a central bank policy change may cause rapid price swings, increasing trading risks.

Risk Management Strategies:

• Stay updated with market news and major economic indicatorsthat impact exchange rates.
• Use technical analysis toolsin combination with fundamental analysis to anticipate potential price movements.

2. The Double-Edged Sword of High Leverage

Leverage is a major attraction for forex traders, but it is also a potential risk. While leverage amplifies profits, it also magnifies losses, particularly when the market moves against a trader’s expectations.

Risk Management Strategies:

• Select an appropriate leverage ratio based on your risk tolerance(e.g., 1:10 or 1:50).
• Set reasonable stop-loss levelsfor each trade to prevent small fluctuations from causing significant losses.

3. Political and Economic Risks

Geopolitical events, election outcomes, and central bank policy changes can significantly impact forex markets. For example, when a new president takes office in 2025, market expectations for that country’s future monetary policies may directly influence its currency exchange rate.

Risk Management Strategies:

• Gain an in-depth understanding of political and economic factors affecting exchange ratesand closely monitor central bank policies.
• Adjust trading strategies based on news eventsby reducing position sizes or pausing trades during periods of high volatility.

4. Broker Credit Risk

Choosing an unregulated broker can lead to fund security issues, including potential fraud or withdrawal difficulties.

Risk Management Strategies:

• Only trade with brokers regulated by reputable financial authorities(such as FCA, ASIC) to ensure transparency and fund security.
• Conduct due diligencebefore opening an account by researching broker background, user reviews, and regulatory certificates.

Opportunities: The Attraction of the Forex Market

Despite the challenges, the forex market presents numerous opportunities that make it appealing to investors.

1. High Liquidity: Instant Capital Flow

With a daily trading volume exceeding $7 trillion, the forex market is one of the most liquid markets in the world. Investors can execute trades at almost any time, ensuring quick order execution and smooth capital entry and exit.

2. Profit from Both Rising and Falling Markets

Unlike traditional markets, forex trading allows investors to profit in both bullish and bearish conditions by going long (buying) or short (selling). This flexibility makes forex trading highly attractive.

3. Diverse Trading Instruments

The forex market is not limited to currency pairs; it also includes gold, crude oil, stock indices, and other Contracts for Difference (CFDs), catering to investors with different risk preferences and trading styles.

4. Using Technical Analysis to Capture Trends

With abundant historical data, forex traders can apply technical analysis tools (such as trend lines, MACD, RSI indicators) alongside fundamental analysis to identify ideal entry and exit points.

FAQ

Q: How is pip value calculated?

A:

For major currency pairs (e.g., EUR/USD, GBP/USD, which are typically quoted to four decimal places):

• Assume you are trading 1 standard lot (100,000 units)in EUR/USD.
• A 1 pip movementin EUR/USD is 0001.

Formula for pip value:

Pip Value=1Exchange Rate×100,000\text{Pip Value} = \frac{1}{\text{Exchange Rate}} \times 100,000Pip Value=Exchange Rate1×100,000

If EUR/USD is trading at 1.1000, the calculation would be:

11.1000×100,000=90.91 USD\frac{1}{1.1000} \times 100,000 = 90.91 \text{ USD}1.10001×100,000=90.91 USD

This means a 1 pip movement in EUR/USD results in a gain or loss of $90.91 per standard lot.

For JPY currency pairs (e.g., USD/JPY), which are quoted to two decimal places, 1 pip equals 0.01.

For 1 standard lot (100,000 units) of USD/JPY at an exchange rate of 110.00:

1110.00×100,000=9.09 USD\frac{1}{110.00} \times 100,000 = 9.09 \text{ USD}110.001×100,000=9.09 USD

Thus, a 1 pip movement in USD/JPY affects $9.09 per standard lot.

Q: How do I read forex bid and ask prices?

A:

In forex trading:

• Bid Price:The price the market is willing to pay for a currency (the price at which you sell).
• Ask Price:The price the market is willing to sell a currency for (the price at which you buy).
• Spread:The difference between the bid and ask price, representing your transaction cost.

Example:

If EUR/USD is quoted as:

• Bid Price:1000
• Ask Price:1002

Then:

• If you buy EUR/USD, you pay the ask price (1.1002).
• If you sell EUR/USD, you receive the bid price (1.1000).

The spread is 2 pips (1.1002 – 1.1000).

Q: Is a higher forex reserve always better?

A:

A high foreign exchange reserve is not always beneficial—its impact depends on multiple factors:

• Economic Stability & Credibility:
• Sufficient reserves help stabilize the national currencyand handle financial fluctuations.
• However, excessively high reservesmight mean capital is not being efficiently utilized and incurs management costs.
• Risk Management:
• Large reserves help protect against financial crisesand unexpected international payment needs.
• However, excess reservesmay limit domestic economic investment

Conclusion: The ideal scenario is to maintain sufficient forex reserves for stability while ensuring capital is efficiently utilized.

Q: Do I need to pay tax on forex trading profits?

A:

In Taiwan, forex trading profits are taxable, with tax treatment depending on the nature of the income:

• Capital Gains Tax:
• Personal forex trading(e.g., spot forex) is generally not subject to a specific capital gains tax.
• However, if trading activity is frequent or speculative, it may be classified as business income.
• Business Income Tax:
• If you regularlyengage in forex trading or operate it as a business, your profits may be classified as business income and subject to taxation.
• Tax Filing:
• Profits from forex trading must be reported when filing income tax.
• Depending on the nature of income, capital gains or business income taxes may apply.

Recommendation: Consult a tax professional to ensure compliance with tax regulations.