How to Buy Shares in South Africa

Looking to buy shares in South Africa? There are plenty of platforms to choose from, but before you get started you need to find the right broker for you and make sure you have a sound understanding of the shares market.

To help you out, this guide takes you through everything you need to know about buying shares in South Africa. This includes reviews of the best stockbrokers, a run-through of the basics of the shares market, and a step-by-step guide on how you can get started today.

How to Buy Shares in South Africa in 3 Steps

If you don’t have time to read our full guide and you want to buy shares instantly, below you’ll see three quick steps that you need to follow to buy shares in South Africa right now.

Step 1: How to Pick a Shares Trading Account in South Africa?

Finding the right broker that offers share trading in South Africa is a crucial factor to your success. Whether you are an experienced trader or a novice, you’ll have to take into consideration the range of shares, the regulatory framework of the broker, and the trading tools and platform it offers.

To help you out, we did our research on the best places to buy shares in South Africa in 2024.

Step 2: Learn How the Share Market Works in South Africa

You may have settled on a stockbroker, but do you have an understanding of how the share market actually works? This is crucial, as you’ll be risking your own money, and it takes time and dedication to be successful when it comes to buy shares.

What are Shares?

In short, shares are units of ownership of a company or a financial asset such as a mutual fund or investment trust. If you own shares in a company, then you own a small portion of the company.

Shares are of interest to traders and investors for a number of reasons. They can be sold at a profit if the company performs well and the shares grow in value, and many shares also entitle holders to dividends, which is a portion of the company’s profits that is regulated paid out to shareholders.

Ways to Buy and Sell Shares

There are different ways in which you can get exposure to shares in South Africa. The diversity of products on the share market serves investors’ needs and can be a great diversification strategy for those who understand the fundamentals of the share market. Below are some of the most popular ways to invest in shares:

• Buy Regular shares

The most common way to buy shares is to simply buy them directly from a stockbroker. The top brokers offer hundreds, if not thousands of shares, and to buy them you simply need to select a share, set the trade parameters and confirm your order. You will then own however many shares you bought.

• Invest in shares through EFTs and Index Funds

Simply put, an Exchange-Traded Fund and Index Fund are a basket of securities designed to track a particular area of the market. One of the best ways to invest in shares is through Exchanged Traded Funds (ETFs) and Index Funds. Why? Simply because these funds enable you to diversify your portfolio to a larger market index that focuses on a specified sector, region, or commodity.

For example, instead of investing in one particular South African company, you can buy the Johannesburg Stock Exchange (JSE index) that is a collection of all the largest shares in terms of market capitalisation traded on the South African stock exchange.

• Trade shares using CFDs

Contracts for Difference (CFDs) are another great way to trade derivative shares. Trading shares through the CFDs is very similar to trading shares through traditional brokers except that you don’t actually own the underlying asset, meaning you can speculate on the price movement of a share but you do not hold shares of the company nor having shareholders rights.

The benefits of CFDs trading is that you don’t have to go through a complicated registration process, you go easily buy and short-sell a share, and you can use leverage, meaning you borrow capital from a broker to make larger trades.

• Trade shares with options

Share options trading can be complex, however, once you understand the rules of trading options you will be able to diversify your trading style and reduce the risk involved with buying shares.

When you buy an option, you’re paying a premium for the right (but not the obligation) to buy the share at a certain price, and a certain date. In that sense, your risk is limited to the premium price multiple the number of options you buy. Another advantage of trading shares with options is that you may hedge your position with options hedging techniques.

What is the JSE in South Africa?

The Johannesburg Stock Exchange (JSE) is the largest and most well-known sthare exchange in South Africa. The JSE Index, which consists of the top 40 listed companies on the JSE exchange based on Market Capitalisation, is the most important index from South Africa as well as the African continent.

How to Make Money from Buying Shares in South Africa

There are several ways to make money from buying shares. One of the most common is generating capital gains by buying shares and them selling them on at a profit when they increase in value.

But before you start investing, you’ll have to define your investment strategy and the types of shares you are looking for. First, there are three categories of shares you must know:

• Growth shares – Growth shares are usually companies that have innovative products or services and are experiencing rapid growth. Or, in other words, startups.
• Value (Blue-Chip) shares – Value shares are usually well-established companies with a strong financial status.
• Income (Dividend) shares – These shares typically provide a steady income in the form of dividends.

The next step involves finding a trading strategy that matches your personality. While some take the ‘buy and hold’ strategy, others are better in identifying small price fluctuations, and therefore are becoming day/swing traders.

Regardless, you will have to learn and evolve along the way. Investing and trading are a dynamic activity, hence, there are endless buying shares opportunities at any given moment.

How to Buy Shares in a Company in South Africa

Generally, you can buy shares of a company in South Africa without an online broker by investing in shares through the company’s ‘direct share purchase’ plan. But frankly, if you are not a big investor, then forgot about it.

The easiest and most common way to buy shares is to use an investment platform that allows you to buy shares of a public company in South Africa through. There are many online stockbrokers that offer this service, so it’s just a matter of finding the right one for you.

What Regulations are in Place for Buying Shares in South Africa?

The Financial Services Regulation Act (FSCA), together with the South African Reserve Bank (SARB), is responsible for the regulation of the share market in South Africa and every financial service provider that offers securities and derivatives to South Africa residents.

These financial agencies also regulate CFD brokers that are authorized to offer services in South Africa, but brokers that hold other regulatory licenses, like the FCA (UK), are also authorized to offer financial trading services in South Africa.

What Risks are Involved with Buying Shares in South Africa?

Regardless of your location, your trading strategy, and the broker you choose, there’s always a certain level of risk when you invest. Just as shares can increase in value, they could also rapidly drop in value depending on things like company performance and news events.

Some brokers allow you to use risk management tools that can significantly reduce the risk of losing your capital and more importantly, allow you to control your trading activity. Some of the most well-known risk management tools and techniques for trading include the risk-reward ratio, a stop-loss order, and integrating options as hedging strategy techniques.

Step 3: What Factors Should you Consider When Buying Shares?

There are thousands of shares to choose from at the top brokers, so you need to carefully select the ones that are right for you. Here’s what to consider.

Historic Financial performance

Before you decide to buy a particular share, you should find out the share’s historical performance including its all-time high, the all-time low, and the current trend the share is exhibiting. Most technical analysis analysts believe that it is possible to predict the future price, or at least get a better indication of the company, by analyzing a share’s price history.

It’s important to know how to analyze the historical performance of a share. Remember, you can use different timeframes to analyze the historic performance of a share – 1H, Daily, Weekly, and Monthly chart. Here are some basic technical analysis indicators to help you get started:

Fibonacci Retracements – Draw Fibonacci retracement levels from the share all-time low to all-time high.

Relative Strength Index (RSI) – RSI is a momentum technical indicator that measures the historical strength or weakness of a company. The RSI has a reading from 0 to 100, with 70 signals overdemand, and 30 signals oversupply.

Support and Resistance/Trend Lines – Support and Resistance/Trend Lines are among the base concepts of technical analysis, but also the most useful and effective. You should simply look for areas in which the share paused for a while, or find an ongoing trend.

Furthermore, it’s advisable that you find out the financial performance of the company in the past few years, including its revenues, cash flow, net earnings, etc.

Dividend Payout

Dividends are simply payments that a company distributes to shareholders. Investing in Dividend-Payout companies allows you to create a steady income regardless of the price movement of the share. Keep in mind that not all companies pay dividends, so you’ll have to dig in to find the best-paying dividends shares.

Professional Share Forecasts

Another tool that can help you find investment opportunities in the share market is by analyzing professional share forecast. Generally, there are five classifications of share ratings: buy, hold, sell, underperform, and outperform. Analysts usually set a target price of the share based on the company’s financial results and the expected future growth of the company.

Economic Factors

The economy has a repetitive cycle that involves both periods of growth and recession. This, obviously, affect the share market. Simply put, in times of recession, interest rates are decreased to encourage spending in order to keep the wheels of economy turning while in times of growth (inflation), interest rates tend to rise to encourage people to save money and central banks, therefore, can control inflation rates.

When interest rates are low, shares will offer better returns and the opposite. This is why you’ll have to follow economic indicators such as GDP, CPI, Non-Farm Payrolls in the United States, Unemployment rates, and many more.

Step 4: Open a Share Trade

If you have managed to make it through our comprehensive guide up to this point, you are now ready to place your first-ever share trade.

In order to do this, you will need to open an account with your chosen broker, deposit some funds, and then place a buy/sell order.

Pros and Cons of Buying Shares 

Conclusion

When it comes to buying shares in South Africa, there are loads of brokers and thousands of shares to choose from. However, while the process of buying shares is simple, it’s vital that you have an understanding of how the market works before you invest any money.

FAQs