April 2, 2024

A Comprehensive Guide on Stock Trading in South Africa

April 2, 2024

Stock Trading

If you’re willing to start stock trading in South Africa but aren’t sure how to take your first step, then this article is going to be significantly helpful to you.

South Africa is considered to be the economic hub for stock trading in Africa. This region is popular among traders due to its efficient regulatory framework, which makes it a great choice for domestic and foreign traders seeking exposure to stock trading in South Africa. The country has a solid banking system and sophisticated financial markets. South Africa’s national stock exchange, the Johannesburg Stock Exchange (JSE), manages the country’s stock market, which ranks 19th among the world’s bourses by market capitalization and tops $1 trillion.

In this comprehensive guide, we cover everything you need to know about how to trade shares in South Africa, its advantages and associated risks, what to consider when choosing a stock, how to select a stockbroker and many more. So, let’s get started with it!

How do you trade stocks in South Africa?

Here are the steps you need to follow and start trading in South Africa.

Step 1: Look for suitable stocks to buy

You can not just choose a stock randomly and start trading straight away. You’ve to go through research to determine which JSE shares are the best options to start trading in. Another thing you need to keep in mind is that you can’t buy stocks directly from JSE. You’ll need to buy your shares through a well-regulated stockbroker who buys the stocks on your behalf.

●      Gain Adequate knowledge of the stock market.

Before jumping into stock trading, it is important to gain sufficient knowledge of the market. The good news is that you can learn about stock trading in many ways, which include reading books, watching YouTube tutorials, consulting with professionals, attending webinars, and learning other forms of lessons.

●      Stock Selection

To select a stock that suits your profile, you’ll have to figure out what you are willing to risk considering your budget. A good rule of thumb is to look for penny stocks on the JSE that are worth R1 or less. Starting with such penny stocks can be a good option while you’re learning how the stock market works.

However, if you want to get the most out of your investment and start earning real profit from stocks, then you’ll have to invest a minimum of R5000. In addition, it is important to pay attention to the P/E ratio, earnings per share (EPS) and dividend yields, which enable you to earn profit when the company you choose performs well.

Step 2: Find a reliable Stockbroker

A reliable and reputable stockbroker in South Africa will have corresponding regulations with the Financial Sector Conduct Authority (FSCA), which is a financial market regulator in South Africa.

So, the regulation of a stockbroker is one of the considerations you need to take care of when choosing a broker. There are some other factors involved in choosing your stockbroker, such as the type of trading account you need, trading platforms offered, trading speed, deposit and withdrawal methods, and, most importantly, the customer support of a particular broker you’re selecting.

Once you’ve chosen a stockbroker that fits your needs, you’ll need to gain some experience by using a demo account. You’ll create a diversified portfolio of stocks that you want to buy. In this way, you’ll feel comfortable with your trading strategy. Eventually, you’ll be able to register a live trading account with your stockbroker, where you’ll be playing with real money.

Step 3: Start Stock Trading

When you create a demo account, it will equip you with enough knowledge of what to expect in real market conditions. It will help you determine the risk involved and how to safeguard your investment.

And finally, when you register for a real stock trading account, you’ll be required to deposit a minimum amount, which is the amount required to open your account with a stockbroker. These funds will be deposited into your trading account, and you’ll be able to use them to buy stocks.

It is important to remember that there will always be trading fees when you buy a stock. So, you’ll have to ensure that you’ve sufficient capital in your stock trading account to cover these costs.

What share can you trade in South Africa?

If you’re living in South Africa and you want to trade stocks of South African companies or maybe international companies that have a presence in your country, then you’ll have to opt for stock dealing platforms that give you access to JSE. The most valuable companies on this exchange include Naspers, Glencore, Prosus and Anglo-American.

In order to expand the horizon of your investment, you are also advised to go to international marketplaces. For example, you can buy stocks of international companies like Google, Apple, Amazon, Nike and Disney, which are listed across the New York Stock Exchange and NASDAQ.

Similarly, South African Stock dealing platforms also give you access to the Hong Kong Stock Exchange, Tokyo Stock Exchange, Toronto Stock Exchange, Frankfurt Stock Exchange, and Euronext.

Factors to consider before you buy stocks

1.   Make sure to consider fees and commissions associated with your stock trading.

When you’re trading a stock through a South African Stock dealing platform, it will always charge you a fee of some sort.

Let’s have a look at some of the main stock trading fees that you need to consider before buying stocks.

●      Trading Fee

A trading fee is charged whenever you place a trade. In simple words, you will be charged when you buy or sell a stock.

●      Spread

Spread is a difference between the ‘bid’ and ‘ask’ price of a stock. So, the more difference between bid and ask, the more you’re going to pay. Therefore, it is recommended to stick with South African Stock dealing platforms that offer tight spreads.

●      Non-Trading Fee

A non-trading fee is charged when you deposit or make a withdrawal. It also includes a fee that is charged when your account remains inactive for a certain number of months.

2.   Create a diversified portfolio of stocks.

Diversifying your stock portfolio simply refers to the fact that you’re diversifying your risk by putting your money in different companies.

Let’s suppose you’ve R50,000 to invest in the stock market. Now, we have two scenarios: either you’re an experienced trader, or you’re a beginner in stock trading.

As a beginner and an inexperienced trader, you might decide to invest all of your money in one company and buy R50,000 worth of shares in it. Now, if the company faces a financial crisis, then you’ll see your shares go down in value, and you’re more likely to lose a lot of money.

On the other hand, if you’re an experienced trader, you might invest 1% of your money in that company, and then you’ll buy shares of other 99 companies with the remaining amount. In this way, you’ll have shares in 100 different firms from different sectors, and your portfolio will be diversified, and there will be very few chances of losing your money.

Stock Trading

Stock Trading Strategies for South African Traders

Here are some of the stock trading strategies you can follow as a South African Trader to get the most out of your investment in the stock market.

1.   Keep an eye on the fundamental factors of a company.

When you consider the fundamentals of a company, it gives you a good idea of its financial health and prospects to determine its intrinsic value. Using this approach, you can focus on factors like revenue growth, profitability ratio, and debt levels. As an investor, it’s important to analyze the industry trends, the quality of management, and competitive advantages, which can provide you with valuable insights into the company. In this way, you’ll be able to identify some of the undervalued or overvalued opportunities and make your decision accordingly.

2.   Have a good understanding of chart patterns and indicators.

This strategy involves technical analysis, which relies on the historical price and volume of stock to predict the future value. As a trader, if you have a good idea of how to use chart patterns, you’ll be able to identify the support and resistance levels, moving averages, and trendlines and eventually, you’ll find potential buying or selling opportunities. Similarly, indicators like the Relative Strength Index (RSI), Bolinger Bands, and Moving Average Convergence Divergence (MACD) can help you confirm price trends. In this way, you’ll be able to choose your entry and exit price based on market patterns.

3.   Identify Reliable and Promising Industries

This strategy involves analyzing economic indicators, market cycles, and industry trends to determine which industries are expected to grow over time. You can easily maximize returns by investing in sectors that are expected to outperform. However, it is important to closely monitor the development in that particular sector and adjust your investments accordingly, as the market conditions can change rapidly.

4.   Building a diversified portfolio for long-term investing

If you’re a long-term investor who focuses on holding stocks for longer periods, you can capitalize on the power of compounding and take advantage of the growth of a company over time.

As a long-term investor, you’ll need to diversify your portfolio by selecting stocks from reputable industries. This strategy of spreading investment across various industries and geographical regions enables you to reduce risks and gets you a consistent return in the long run.

5.   Capturing short-term price trends of stocks

You can take advantage of short-term price trends by identifying stocks with positive price momentum. The price momentum can be analyzed through factors like recent price performance, news catalysts and the trading volume of a particular stock. Investors can profit from such upward price movement by riding the trend and exiting before a potential reversal. But, again, it’s important to monitor market conditions well and implement risk management strategies to safeguard your funds.

6.   Establishing a risk management strategy

You need to have a risk management strategy, which includes setting stop-loss orders to limit potential losses on your trades. Stop-loss orders are a feature that automatically triggers a sale if the price of a stock reaches a selected price level.

Another option is to diversify your portfolio and allocate your funds across different sectors. This may include investing in other financial instruments like ETFs or bonds.

How to choose the right stockbroker to invest in stocks

Here are a few guidelines that would help you find the right stockbroker in South Africa.

1.   Choose a broker with diverse services.

A broker that offers diverse services is always an advantage. All the services you’re looking for might come under the umbrella of their services, and eventually, you’ll get a broker that best suits your needs.

2.   Costs and commissions

Compare the costs and commissions of various brokers. Highlight the services they’re providing and then select the one that best suits your needs and budget.

3.   Select a broker with a solid reputation in the industry

Brokers that are experienced and well-respected in their field can be a good choice. Therefore, you need to find a broker that has years of experience and has been successful in the past.

4.   Consider the availability factor as well!

This is an important point to note. The availability of a broker to respond to your queries and concerns is an important factor to consider while choosing the right one for you.

5.   FSCA Registered Brokers

Make sure you’re hiring a broker that is registered by the Financial Security Conduct Authority (FSCA) and complies with all applicable requirements.

By considering these guidelines, you’re more likely to hire a reputable stockbroker in South Africa that best suits your needs and can assist you in achieving your financial goals.

Stock Trading Advantages and Risks

Advantages of stock trading

●      The pride of ownership

Stock trading is a great way to own a tiny slice of a company whose shares you’ve bought.

●      Higher Returns

Most people often invest in stocks due to their potential returns, compared to gold, treasury bonds and certificates of deposit.

●      Diversification

Investments in stocks enable you to build a diversified portfolio across many different sectors. Your investment portfolio can include stocks from real estate, cryptocurrencies, and bonds, which not only reduce overall risk but also improve your returns.

●      Liquidity

Stocks are easy to buy and sell because most of them are publicly traded on the stock exchange. It is a more liquid investment compared to other options like real estate, which takes time to sell.

●      Protection against inflation

Most investors put their money in stocks to protect their wealth because stocks have been a good way to hedge against inflation.

Risks associated with Stock Trading

●      Volatility Risk

The price of a stock may fluctuate up or down. A stock’s price is affected by the factors within a company. For example, if there’s a fault in a product, then the price of that particular stock might fluctuate downward.

●      Investment Risk

If there is a higher return, then there is also a higher risk involved in stock trading. However, the type of investment risk you take completely depends on your risk profile.

●      Exchange rate Risk

Exchange rate risk refers to the change in currency exchange rates that impact the operation and profits of the company.

In conclusion, starting stock trading in South Africa can be lucrative with its strong regulatory framework and access to diverse markets. However, success requires thorough research, careful risk management, and strategic planning. While it offers ownership, higher returns, and portfolio diversification, there are risks like volatility and investment uncertainties. Aspiring traders should proceed cautiously, educate themselves, and adapt to market changes to achieve financial goals in South Africa.

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Trading involves a significant risk of loss and is not suitable for all investors. It’s important to understand the risks and seek advice from an independent financial advisor if necessary.

The information provided here does not constitute investment advice.



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