by Matthew Davis on June 5, 2019

What should beginners invest in South Africa?

When you’re a beginner in pretty much anything, making your first move is always something you need to consider. Regardless of whether you know what to do, or don’t know what to do, the decision needs to be researched, studied and made only with the utmost confidence.

The issue of starting out is what bothers most South African beginner traders, as they can’t seem to decide what to trade or how to start trading it. There are numerous options for investors, assets that can accommodate pretty much any taste and provide only the most favourable outcome, for both beginners and veterans alike.

Let’s take a look at the options available for South African beginners, and how they can take part in global financial markets.

Forex for South African beginners

Forex is one of the best assets to trade regardless if you’re a beginner or a veteran. It has been proven to be one of the most lucrative markets simply due to the liquidity of currencies. As long as you can sell something within seconds, it will prove to be very beneficial to your portfolio.

Forex in South Africa has always been very popular and there is nothing that is going to prevent it from expanding in the future. If you’re a beginner, there’s absolutely nothing that is preventing you from entering a local brokerage’s customer list and starting trades today.

So why is Forex good for a beginner in the financial world? Because it’s easier to learn and it’s easier to track. Currencies are definitely a hot topic for daily discussions, not only in small closed off communities but on national television and talk shows. This means that you will always have exposure to market news, regardless of where you are. Furthermore, you will have the ability to trade something you are already following.

Most Forex brokers offer currency pairs for Rand, which means that you will have much more insight in the long-term trades you place in the market. This will boost up your confidence in your trade as you have a lot of historical and current data available to you.

Trading with ZAR is exceptionally beneficial for the South African community. This is because the ZAR is considered to be one of the most volatile currencies in the world. Although we’d very rarely see an increase of 10% over the course of a few months, it is still considered to be unimaginably high for Forex traders. And here’s why.

Much like other assets, Forex can be traded with leverage. This gives you the opportunity to trade with $100,000 when in reality you’ve invested only $100 with some brokerages. The higher the leverage the better the return.

Trading stocks for South African beginners

Trading stocks are very similar to currencies, but there are still quite a lot of differences. For one, it’s a completely different asset, but that much is obvious. Stocks should already be a familiar term for anyone, but just to clarify things in advance, they are the percentages of companies that they belong to.

So for example, when you are buying stock in Apple, you are actually buying a part of the company. Once the stock is in your portfolio, you can simply wait until it grows in price and sell it for a profit.

But most traders go for options or CFDs on stocks, which are quite different. You see, stocks rarely have margin trading themselves, as they aren’t really traded, they are bought. This means that there is no leverage similar to the example done for the ZAR trading. Meaning that if you invest $100 in stocks, that is your only capital, it will not grow.

However, with options and CFDs, people are able to apply leverage to their trades, simply because they aren’t really buying the stock from the company, they are speculating on the price. They create contracts saying that they had opened their position at a certain price of the stock, and will close it before the indicated deadline. This ramps up the speculation and makes it a bit riskier than anything else, but helps with profitability, as stocks rarely grow as well.

As a beginner South African investor, you are quite limited when it comes to local company stocks, as there aren’t too many of them that are being traded publicly. Well, at least compared to the ones available in the UK or the USA. However, it’s still best to invest with a local company, simply due to the fact that you will be among the first batch of people to find out something new that may affect the stock price.

The benefits of trading stocks in South Africa is that you will be much more connected to the local economy and understand what types of laws work for the economy and what don’t. Whenever there is a new law passed, the stocks are always affected somehow, especially if it is regarding the economy. By simply watching prices go up and down during these moments you will have a much better understanding of how everything works and what laws in the future could be a detriment to the country while being promoted as positive.

Crypto trading for South African beginners

Cryptocurrencies are extremely popular in South Africa, in fact, the country has been named as the #1 largest holder of cryptos compared to everybody else.

That is already an indication that the local community either has some understanding of the asset or is extremely lucky to be a part of it. The local government has also supported the development of the blockchain industry, but they are still regulating and taxing it to a completely new degree.

When it comes to trading cryptos as a beginner, there is not much you can learn from them. The crypto market is very independent of the overall global or local economy and there is no such thing as a successful South African crypto (yet).

But lets’ simply avoid talking about all the benefits of learning something and etc, and focus on how profitable the industry really is. Cryptocurrencies have the tendency to grow more than 100% over the course of a single month nowadays. In the past, where cryptos were all the craze in 2017, it was expected of them to grow 100% in a single day. Those that managed to cash in before the crypto winter managed to walk away with millions, while they had invested only a few thousand dollars.

However, with great volatility comes great risk, as some experts like to say, but in the end, the risk tends to be much more rewarding than any other market. Cryptos are definitely in the list of high risk and high return assets, but that does not classify them as beginner friendly investments.

In fact, cryptos are the ones that are the hardest to get into, as there is very little their price react to. You can do hours of technical and fundamental analysis for Forex, and there’s a 95% chance that you will get your next trade right, but with cryptocurrencies, no matter how much research you do, the chance is always 50/50. Therefore traders have much less flexibility in their trades. If the market is going up, better follow it, and if it is going down better sell. It’s simple but not very versatile and predictable.

And if you can’t make predictions, then there’s no point of calling it trading right? It mostly turns into gambling.

What is the ultimate beginner asset?

It would be quite cheesy to say that there is no such thing as a beginner asset, therefore we need to come up with a verdict.

Considering all of the benefits in terms of monetary profit, the understanding of the economy due to daily trades and the accessibility of the market, Forex is arguably the most beginner friendly financial asset to go for in South Africa.

The reason why we choose Forex is that entering the market is extremely cheap. In most cases, traders are offered around $250 minimum deposit, and sometimes it can be as low as $50. For stocks, it’s much different unless you go for CFDs. With a stockbroker, traders usually have to deposit a minimum of $5,000, which not every beginner has or is ready to commit to.

Overall, trying out the financial markets with Forex and then maybe diversifying into something else is the best course of action for a beginner South African investor.

By Matthew Davis

Matthew is the chief financial analyst on TopForexBrokers.co.za. He is also the co-founder of the website. After moving and living in South Africa for more than 10 years, he has expert knowledge and experience with ZAR movements and exchange rates. All out technical analysis and guides are provided by Matthew.

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