• Home
  • /
  • What is a foreign currency deposit (forex trading for beginners)

What is a foreign currency deposit (forex trading for beginners)

Foreign currency deposits for forex trading for beginners are deposits in foreign currencies instead of yen. Foreign currency deposits are the same as yen deposits. When you deposit money, you will be charged interest at a predetermined interest rate, and you will be able to receive them at maturity (the deadline of the deposit period). When you start a foreign currency deposit, you usually need to convert yen to foreign currency at your bank. At that time, an exchange fee will be charged.

How is it different from yen deposits?

The big difference is that you can expect a profit from interest rates compared to yen deposits. This is because forex trading for beginners deposits have a better interest rate than yen deposits depending on the issuing country of the currency, as opposed to yen deposits to which ultra-low interest rates are applied.

The asset value of the foreign currency deposited fluctuates due to fluctuations in foreign exchange.

An increase in the value of the yen against a foreign currency is called a strong yen, and a decrease in the value of the yen against a foreign currency is called depreciation of the yen.

Foreign currency deposits will exchange yen and hold foreign currency, so if the yen depreciates, you will make a profit. On the contrary, if the yen strengthens, losses will occur. However, if you do not return the foreign currency to the yen when there is a loss, the loss will not be fixed.

You can make a profit if you hold the withdrawal rate until the yen depreciates from the deposit rate and return it to the yen.

Fees will be charged for “Exchange from Yen to Foreign Currency” and “Exchange from Foreign Currency to Yen.”

As a general rule, there is no fee for yen deposits. Still, for forex trading for beginners, fees are charged at the timing of exchanging yen to foreign currency (at the time of deposit) and at the timing of exchanging foreign currency to the yen (at the time of withdrawal). 

This fee is called the exchange fee. Exchange fees vary depending on the financial institution, and even the same financial institution may differ depending on the currency and transaction channel (over-the-counter, telephone bank, Internet banking).

Key points for successful asset management of foreign currency deposits

Lower the break-even point at high-interest rates

Although investment profits can be secured up to a certain level of appreciation of the yen, there is a rate at which the principal will be broken if the yen strengthens further.

The break-even point is the exchange rate that does not cause any loss, including exchange fees. If the foreign currency principle can be increased at a higher interest rate, the break-even point will be lowered, and the possibility of making a profit will increase.

Example: When converting 1 million yen to 10,000 US dollars at a deposit rate of 100 yen

If there is no interest, the break-even point will be 100 yen.

So what happens if you operate for ten years at an interest rate of 2% (after tax)?

For compound interest management, where interest is added to the principal, US $ 10,000 will be the US $ 12,189.94 10 years later.

Since we originally deposited 1 million yen, we can profit if the yen is weaker than the withdrawal rate of 82.04.

In this way, compound interest management can be carried out efficiently by adding interest rates and increasing the principal of foreign currencies.

Trading Tips on Forex Market

Point 2

Increase with long-term compound interest operation

When increasing money with a time deposit, two operations depend on how you receive interest: simple interest operation and compound interest operation.

It is difficult to differentiate between simple interest investment and compound interest investment with low-interest rate yen deposits. Still, foreign currency deposits with higher interest rates than yen deposits may make a big difference.

Simple interest operation

This is an investment method in which the principal of the time deposit is fixed at the amount initially deposited, and interest is received in the ordinary deposit. There is always a certain amount of interest on the principal. It is an image that you will receive interest every year for ten years if you have a 1-year simple interest with a 10-year time deposit.

Compound interest operation

This is a method of managing the interest generated by the principal in addition to the principal of the time deposit. Interest will be added to the principal, and the following interest will accrue. Since interest is also applied to interest, it is an image that the increased interest will generate interest.

Example: If you invest 10,000 US dollars at an annual interest rate of 2% (after tax)

The difference is the US $ 12,000 after ten years for simple interest management and the US $ 12,189 after ten years for compound interest management.

It may not look big if you look at the difference of 189 dollars, but it is about 1.09 times more interest to invest with compound interest than to invest with simple interest [the US $ 2,189 (interest amount with compound interest) ÷ the US $ 2,000 (single interest) If you think that you have earned interest on investment) ≒ 1.09], you cannot underestimate it.

Point 3

The strong yen is merit! ?? Utilize the dollar-cost averaging method.

What is problematic about foreign currency management is the movement of foreign exchange prices. “What if the market price plummets Many people think so.

The operation using the ” dollar-cost averaging method ” may be suitable for such people. The dollar-cost averaging method is an operation method in which foreign currency is continuously exchanged for a fixed amount of yen each time.

Example: When dividing 1 million yen into ten times and converting 100,000 yen each month to US dollars

What happens to 1 million yen if the exchange rate plummets from 125 yen to 80 yen and returns to 100 yen in 10 months? If 1 million yen is converted to US dollars at 125 yen, the principal of 1 million yen will be about 800,000 yen * at the final exchange rate of 100 yen.

However, if you change to US dollars every month, even if the exchange rate is 100 yen, the principal of 1 million yen will increase to about 1.05 million yen.

About foreign exchange risk

A thorough understanding of foreign exchange risk is an important point in protecting your assets. Foreign currency deposits carry the risk of exchange fluctuations. Suppose you convert the foreign currency principal and interest you receive into yen due to fluctuations in the exchange rate. 

In that case, there is a risk that the amount will be less than the amount of yen paid at the time of the initial creation of the foreign currency deposit (the principal will be lost on a yen basis).

Main points to note about foreign currency deposits

  • There is no guarantee of principle.
  • Fees (foreign exchange fees when exchanging yen to foreign currency and foreign currency to yen) will be charged.
  • Not covered by deposit insurance.

The major characteristic of forex trading for beginners, which is that the yen conversion amount fluctuates depending on the foreign exchange rate, should be noted as a risk (exchange fluctuation risk). If the foreign exchange rate moves to a stronger yen than at the time of deposit, a loss in yen conversion will occur (loss of principal). 

In addition, foreign exchange fees will be charged when exchanging yen to foreign currency and foreign currency to yen. * If the foreign exchange rate when exchanging from yen to foreign currency and when returning from foreign currency to yen is the same, the round-trip fee will be incurred (loss of principal).

About foreign currency deposits

  • Foreign currency deposits carry the risk of exchange fluctuations. Suppose you convert the foreign currency principal and interest you receive into yen due to fluctuations in the exchange rate. In that case, there is a risk that the amount will be less than the amount of yen paid at the time of the initial creation of the foreign currency deposit (the principal will be lost on a yen basis).
  • Foreign currency deposits are not covered by deposit insurance.
  • Transactions of more than 5 million yen from yen to foreign currency and more than 50,000 currency units from foreign currency to the yen (more than 500,000 currency units for South African rand) are accepted only at stores or telephone banks, and the conversion rate is The Bank will decide for each transaction concerning the market price.
  • We do not handle foreign currency cash, traveler’s checks, or foreign exchange contracts.
  • The interest rate is the previous year’s interest rate after-tax, and the interest rate is uniformly 20.315% (national tax 15.315%, local tax 5%) and is taxed separately from the source. Of the national tax, 0.315% is due to the special reconstruction income tax introduction.
  • Applicable rates and exchange fees for foreign currency deposit transactions