Online Share Trading in South Africa – A Beginner’s Guide

Share trading is the process of buying and selling stocks with the view of making small, but frequent profits. In order to do this from the comfort of your home, you will need to use a South Africa online share trading site. There are heaps of platforms to choose from, so you need to spend some time researching the broker to ensure it meets your needs.

In this beginner’s guide, we discuss the ins and outs of online share trading in South Africa. Not only do we look at the most popular online brokers that allow you to do this, but we also cover the market basics and provide a step-by-step guide on how you can get started today.

How to Trade Shares in South Africa in 3 Quick Steps

Don’t have time to read our guide all of the way through? Below you will find three quick-fire steps to start buying and selling shares right now!

Step 1: How to Pick an Online Share Trading Platform in South Africa

The only way that you will be able to buy and sell shares in South Africa is by using an online stock trading platform. The good news is that there are dozens of trading platforms that accept South Africans, some of which are regulated by reputable licensing bodies like the FCA and ASIC. With that said, finding a broker that meets your needs can be time-consuming.

To help you out, below we review some of the most popular share trading platforms currently servicing South African residents. Each broker is licensed by a tier-one regulator, supports several local payment methods, and offers thousands of financial instruments that can be traded at the click of a button.

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

So now that we have discussed some of the most popular share trading platforms that accept South Africans, it is important for us to now explain how the industry actually works. You are going to be depositing and risking your own money, so you need to have a firm grasp of what share trading entails and the associated risks.

What is Share Trading?

In its most basic form, share trading refers to the process of buying and selling shares. Before we go any further, it is important to make the distinction between share ‘trading’ and ‘investing in shares’.

Regarding the latter, this means that you are investing in shares with the view of selling them in a number of months or years. As you own the underlying asset, you will also be entitled to dividends as and when they are paid.

At the other end of the spectrum, share ‘trading’ means that you will be buying and selling stock CFDs. That is to say, you will be looking to make small but frequent gains, and you will have the option to go both long and short on shares without you owning the stocks. Instead, you are simply speculating on the future direction of the company.

Here’s an example of how share trading via CFDs works in practice:

• You think at $300 per share, the value of Apple stocks are heavily overpriced.
• As such, you place a ‘sell order’, which means that you think the price of Apple will go down
• You stake a total of $1,000 on the order
• A few hours later, Apple stocks are now priced at $289 per share
• This represents a loss (or your case, gains) of 3.66%
• You are happy with your profit, so you close the position by placing a ‘buy order’

As per the above example, you made gains of 3.66% on a stake of $1,000, so your total profit is $36.60.

There are a few other points to note about the above example. Firstly, you were able to speculate on the value of Apple shares going down, which is why you placed a sell order. Ordinarily, this isn’t something that you can do when investing in traditional stock, which is why seasoned share traders utilize CFDs.

Secondly, although you speculated on the future direction of Apple stocks, you never actually purchased the shares. Instead, the CFD trading instrument ‘mirrored’ the real-world stock price of Apple.  Thirdly, and as we uncover in the next section, seasoned investors based in South Africa will often apple leverage when share trading.

Share Trading With Leverage

In a nutshell, leverage allows you to trade with more than you have in your brokerage account. You are effectively borrowing money from the share trading platform in question, which in turn will come at a cost. Although the exact fee will vary from broker-to-broker and asset-to-asset, it is calculated as a percentage of the amount you borrow.

In most cases, your chosen platform will display your leverage costs in dollars and cents as a ‘per-day’ charge, which is then applied for each day that you keep the position open. Nevertheless, leverage will amplify your profits and losses by a pre-defined multiple.

For example:

• Let’s stick with the same example as we discussed earlier, where you placed a sell order on Apple
• You staked $1,000, and you made 3.66% in gains
• Ordinarily, you would have made a profit of $36.60
• However, if you applied leverage of 5x, then this would be amplified to $183 ($36.60 x 5)

With that being said, had you lost 3.66%, then applying leverage of 5x would have amplified your losses from $36.60 to $183. As such, it is crucial that you understand the risks of using leverage when share trading.

What are the Brokerage Fees on South African Share Trading Accounts?

If you want to trade shares with an online broker, you will need to pay fees. Online brokerage fees can vary wildly, as not only can they come in a range of shapes and sizes, but the specific rates will depend on your choice of platform and the asset you want to access.

Below we have listed some of the main fees that South Africa share trading sites typically charge:

• Trading Commission

As the name suggests, this is a commission that is charged by the broker every time you trade. In the vast majority of cases, share trading sites will charge you a variable fee, which is then multiplied by the size of your trade. For example, if your chosen platform charges 0.10% per trade and you stake $1,000, you will pay $1 in commission.

Then, you will pay 0.10% again when you close the position. Be sure to check whether a minimum trading commission applies, as this is something that a lot of share trading brokers implement.

• Spread

Regardless of which share trading site you sign up with, you will always need to take the spread into account. In its most basic form, the spread is the difference between the buy and sell price of an asset. For example, if the buy price of your chosen stock is $51 and the sell price is $50.50, then this gap in pricing amounts to just under 1%.

As a result, you will need to make gains of at least 1% just to break even. Ultimately, the smaller/tighter the spread is, the less that you are indirectly paying in fees.

• Overnight Financing Fees

Overnight financing refers to the fees that you pay when you apply leverage to your share trades. As we briefly covered earlier, this is calculated as an annual interest rate, which is then paid on each day that you keep the position open.

• Non-Trading Fees

Outside of the above, you also need to check what non-trading fees the share trading platform charges. This includes deposit and withdrawals fees, currency conversion fees, and inactivity fees.

What are the Share Trading Terminologies for Beginners?

If you’re yet to trade shares at an online broker, then you are likely to see a range of terms that you might not have previously come across. While covering each and every term is beyond the remit of this guide, below you will find some of the most prominent.

• CFDs: Contracts-for-Differences, or simply CFDs, are what you will be utilizing when trading stocks and shares. In a nutshell, CFDs track the real-world price of an asset, meaning that you can trade it without taking ownership. For example, if the price of Nike stocks goes up by 4% on the New York Stock Exchange, as will the CFD.
• Buy and Sell Orders: When you trade shares online, you will always need to place either a buy or sell order. A buy order is placed when you think the price of the shares will increase, and a sell order when you think the opposite. All trades will require both orders. For example, if you open with a buy order, then you will close the position with a sell order and vice-versa.
• Stop-Loss Orders: Stop-loss orders ensure that you do not lose more than you intended. They will close an open position when the shares hit a certain price. For example, if you want to short-sell IBM stocks but you don’t want to lose more than 2.5%, then you ensure that your stop-loss order closes the position if it goes in the red by 2.5%
• Take-Profit Orders: This works much like a stop-loss order, but in reverse. For example, let’s suppose that you are trading Amazon shares and you want to close the position automatically when you are 3% in profit. As soon as your pre-defined price is hit, the order will be closed on your behalf.
• Liquidated: This particular term is one that we hope you never experience, but it’s crucially to understand nonetheless. So, when you apply leverage to your trade, you are required to put up a margin, which is like a security deposit. For example, if you apply leverage of 5x, then you will need to put up 20% of the total trade size (1/5 = 20%). If the value of your leverage order then goes against you by 20% or more, your trade will be ‘liquidated’. In simple terms, this means that your trade will be closed and the broker will keep your margin.
• Margin Call: Following on from the above point, the broker will send you a ‘margin call’ when you are approaching the liquidation price. This is essentially a notification that lets you know you are close to being liquidated. At this point, you can either add more funds to your margin balance or do nothing and hope for the best.

What are the Best Tips When Trading Shares?

Make no mistake about it, trading shares is not something that you can simply learn overnight. On the contrary, you will need to dedicate many months, if not years to your online trading endeavors if you want to be successful. In doing so, you’ll arm yourself with the necessary tools to make a success of it.

To help you along the way, here are five handy tips that will ensure you get your share trading career off on the right foot.

1. Consider Using a Demo Account 

First and foremost, if you are going into online share trading in the dark, it might be worth starting off with a demo account. Several online brokerage platforms offer such a facility, so you’ll get to buy and sell shares without risking any money. This is known as ‘paper trading’.

The best thing about it is that you will still be trading in live market conditions. In other words, as the real-world share price of the company goes up and down, as will your demo account facility.

2. Move on to Small Stakes

Once you get comfortable with a demo trading facility, it is advisable to then move on to smaller real-world stakes. After all, you don’t want to blow your entire account balance on the first day (you would be surprised how common this is with newbie traders).

Instead, by taking a slow and steady approach, you will begin to learn the ins and outs of bankroll management. Crucially, you will also prepare yourself for the emotional side of trading, insofar that you learn how to take losing trades on the chin.

3. Avoid Leverage

On top of starting with smaller stakes, we would strongly suggest that you refrain from applying leverage until you begin building a consistent record of making gains. While it can be tempting to amplify your stakes to chase those large wins, leverage can do the same for your losing trades.

As such, leverage is best left to those that have a good amount of trading experience under their belt.

4. Stick With Large-Cap Stocks

Some of the brokers that we have discussed in this guide – such as IG and Plus500 – gives you access to thousands of shares. While this will include major companies such as IBM, Disney, British American Tobacco, Ford, Amazon and many others, you will also be able to trade smaller-cap firms.

The main problem with this is that smaller companies suffer from lower levels of liquidity, which in turn, means that they are much more volatile. This can be highly consequential as a newbie trader, which is why we would suggest sticking with large-cap stocks. In particular, this includes major stock exchanges in New York and London.

5. Learn Technical Analysis

Finally, and perhaps most importantly, you must learn the ins and outs of technical analysis. Without it, you simply won’t be able to trade shares and make a profit in the long run. For those unaware, technical analysis is the process of reading charts on a stock.

In particular, you will be looking for pricing trends that are forming, and how these trends might influence the future direction of the stock. Technical analysis requires the utilization of ‘technical indicators’, of which there are over 100. Each indicator looks at a specific metric, such as volatility, volume, and market sentiment.

What Risks are Involved with Share Trading in South Africa?

It can be easy to go into the online share trading space without making considerations for the risks. However, this is something that you need to factor in, as there is every chance that you could lose money.

In fact, the vast majority of newbie traders lose money at the first time of trying, which is why you need to understand how stop-loss orders and other risk management tools function.

Additionally, you also need to look at the broader risks of using an online broker. After all, you will be depositing funds and entrusting your account balance with the provider, so you need to make sure that you are protected.

Step 3: Choose an Online Share Trading Strategy

The next step that you need to consider is that of your share trading strategy. Crucially, there are heaps of different ways to trade shares online. What works for one trader might not necessarily work for the next, so spend some time looking into the following strategies before taking the plunge:

• Day Trading: As the name suggests, day trading means that you will be actively buying and selling shares on a day-to-day basis. More specifically, you will be opening and closing several positions throughout the trading day, and rarely will you hold a trade open overnight. Instead, you will be looking to scrape smaller gains. As such, most day traders typically keep a share trading position open for a number of minutes or hours at most.
• Swing Trading: Swing trading is all about catching the trend that the share in question is moving in. As such. you might keep your position open for a number of days or weeks, but rarely more than a couple of months. For example, let’s suppose that’s IBM releases its latest earnings report, which is much better than the markets expected. Knowing that the value of IBM shares is likely to increase in the short-to-medium term, swing traders would look to stay with the trend until there is a market correction.
• Position Trading: More commonly referred to as a ‘buy and hold’ strategy, position trading means that you are investing in a stock for a longer period of time. In fact, you will likely sit on the stocks for at least a few months and maybe even years. This isn’t ‘share trading’ per-say, but more aligned with ‘stock investing’. That is to say, position trading is more congruent with buying shares in the traditional sense, as you won’t be charged overnight financing fees, and you will benefit from dividends.
• Scalping: Scalping is an advanced trading strategy that seeks to make ultra-small gains when a share is trading within a tight range. For example, let’s suppose that Ford Motors has been trading between $5.50 and $6 for a period of two weeks. During this period, the scalping trader will look to profit every time the shares move up and down. They will place sensible buy and sell orders between the range, subsequently making gains for as long as the consolidation period remains in place.

Step 4: Open a Shares Trade

Now you are ready to open a shares trade.

Simply set up an account with a broker of your choosing and the steps should be self explanatory.

Pros and Cons of Shares Trading

Conclusion

In summary, online share trading is getting more and more popular with South Africans. Much of this increased demand is due to the ease in which you can get started. As we have discussed, you simply need to choose an online broker that accepts South Africans, deposit some funds with your debit/credit card or bank account, and then start buying and selling shares.

References

To ensure we bring you the most reliable and accurate information possible, our writers use primary sources to support their content. These include studies, government resources and commentary from industry experts.

• Financial Conduct Authority (FCA) “Client Money and Assets, https://www.fca.org.uk/firms/client-money-assets“, Accessed June 15, 2020.
• Johannesburg Stock Exchange (JSE). “Market Regulation, https://www.jse.co.za/services/market-regulation“, Accessed June 15, 2020.

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