ETF trading platform in South Africa
There are many options for investing online. An interesting option is to invest not in individual assets but in funds. A large number of funds have entered the market in recent years, giving you many investment opportunities. However, before you buy your first ETFs, you should familiarize yourself with how they work.
Below we take a closer look at what ETF trading is all about, as well as picking the best trading platform for ETF trading in South Africa.
What is an ETF?
The abbreviation ETF stands for Exchange Traded Funds, a type of security that trades on stock exchanges similar to trading stocks. ETFs were introduced in 1993.
Exchange traded funds or ETFs are registered investment products that track the performance of a group or 'basket' of stocks, bonds or commodities. These 'curves' are known as indices. In other words, an ETF tracks the performance of its underlying basket of assets such as stocks, commodities, bonds or a specific market index. One ETF is one of various exchange-traded products (ETPs), the other is exchange-traded commodities (ETCs) and exchange-traded notes (ETNs).
In simple terms, an ETF is a 'basket of stocks', that is, an investment fund that tracks the value of an index and trades as one security. A rise in the share price of an investment fund indicates its success and prospects. The funds themselves may buy shares and other listed assets.
A stock market investment fund is a ready-made portfolio, which may mirror a specific stock market index or it may have an actual portfolio of shares or, for example, metals or other commodities.
Today, virtually every stock index has an ETF that replicates its structure.
How do I invest in ETFs?
Shares in exchange-traded funds are listed on the stock exchange like ordinary securities. The most affordable stocks currently on the market are worth a few cents, while the most expensive are worth hundreds of dollars.
If you're interested in investing in ETFs in South Africa, you should first find a reliable broker who works with ETFs.
Finding a broker shouldn't be difficult. Today's South African brokerage market is oversaturated with offers. For starters, a reliable brokerage company must necessarily be licensed to conduct brokerage activities. Sort the companies by the availability of relevant permits, selecting only licensed companies. Next, study the activities of the selected brokers and choose the one with good reviews, as well as acceptable commissions and a user-friendly trading platform.
With ETFs, you can invest in stocks and bonds of companies, real estate, commodities, currencies, and more. To date, there are about 6,000 ETFs.
By purchasing a share in the fund, you become a co-owner of a large portfolio of securities and your share will reflect the dynamics of the fund's asset value. One share is a projection of the entire portfolio, but each individual investor receives a return from the fund equal to the amount of money contributed (shares of the fund purchased).
Types of ETFs
ETFs can track the performance of different asset classes:
- Basket of company shares;
- Basket of bonds;
- Raw materials;
ETFs are classified behind different groups, such as :
- ETFs by economic sector. These can include construction funds, biotechnology, oil and gas companies, banks and financial services, metals and mining, electricity, energy, pharmaceuticals, retail and other;
- Bond ETFs;
- Commodity ETFs. These are precious metals, oil, real estate;
- ETFs by management style. For example, growth stock ETFs, high dividend company ETFs, undervalued stock ETFs and so on;
- ETFs by capitalization size;
- ETF by region ( - US ETF, Australia ETF, Canada ETF, Europe ETF, Japan ETF, Emerging markets ETF.
Once you have chosen a reliable broker, ask which ETFs they offer access to. Register on the broker's online trading platform, open an account and start trading.
ETF trading platform
We have chosen, in our opinion, the best ETF trading platform in South Africa. The platform is easy to sign up for, as well as easy to fund and withdraw, low transaction limits and no fees on most services. Yes, you will have the opportunity to learn how to trade on a free demo account, and you will also have access to a series of free trading video tutorials. You will also be able to view up-to-date stock market news and updates on current price feeds directly on the platform.
The trading platform we have chosen gives you access to 24 ETFs.
Thanks to the user-friendly interface of the platform you will be able to see brief information about each fund. In the "overview" section you will see the current buy and sell price of the asset, a brief description of the fund, and statistics on the price movements over 5 years, 1 year, 1 month and 1 day.
In the analysis section you will find a more detailed description of the fund. There is also information on trading hours, leverage, trading conditions and fund news. This type of information is very useful and practical.
The trading room of the platform is also very convenient. Here you will see a chart of the asset's price movements and all the necessary options for trading: the "buy" and "sell" buttons, the "multiplier", the tab with the indicators, and so on. Thanks to the platform's flexible settings, you will be able to display the options you want, right on the trading room screen. For instance, you can customize the display of the news feed on the left sidebar so you don't miss any news that interests you. Or conversely, remove the news feed from the trading screen if it distracts you. You can set up the windows as you wish, viewing up to nine charts at the same time, if you need to. You can rearrange and resize the working windows on your computer screen by simply dragging and dropping them with your mouse. You can choose a dark or light theme for the interface, and you can change the colour palette of the charts and indicators to suit your own convenience and without tiring your eyes.
How do I sign up for an ETF trading platform?
Having a demo account is probably the most important thing you should consider when choosing a trading platform. With a demo account you can get hands-on with the platform as well as learn and hone your trading skills. On your demo account you will have access to $10000 of dummy funds, which you can use for testing purposes. Of course, you will not be able to withdraw this sum, but there is no need to get the money back in case of unsuccessful test operations. In this way, you practice without losing any real money. When you are experienced enough, open a real account and start real trading.
A real account means real money and real trading. Here you need to be cautious and thoughtful, as you will lose real money if the trade is unsuccessful. So, unless you have sufficient trading experience, start with small amounts, such that you will not be ruined if you lose them. Market experts recommend spending no more than 10% of your available funds on start-up investments. Let your investment grow along with your experience. Online trading is a risky activity and you should bear this in mind. Activate a live account by funding it with at least $10. You can make a deposit directly from the platform, by clicking on the "deposit" button and selecting one of the payment methods. The most popular method among traders is depositing via bank card, which is fast and convenient. However, you may also use one of the online payment systems offered by the platform. You will be credited instantly, irrespective of your chosen funding method. Withdrawals can be made using the same tools, with a minimum withdrawal amount of just $2.
ETF trading platform tools
Modern platforms offer trading tools that can simplify the process of trading and also help to secure your trades to a certain extent. The most popular trading tools among traders include stop loss and take profit.
Stop Loss and Take Profit are types of automatic stop-orders or stop-loss orders, which are designed to limit trading in case of some or other conditions, previously defined by the trader.
Stop-loss orders do not allow you to monitor changes in quotes in real time, which is convenient for conservative investors who do not want to spend a lot of time on constant monitoring of changes in their portfolio. Stop-loss orders are not time-limited, i.e. they will remain in effect until they are triggered.
Advantages and disadvantages of trading ETFs
There is no doubt that an ETF is a great financial instrument. Nevertheless, there are pros and cons to ETF trading.
Advantages include the following points:
- Diversification: investors can own tens, hundreds or even thousands of securities in one ETF. By owning multiple stocks, you can reduce the volatility of your portfolio compared to buying one or more securities.
- Low fees: Most ETFs are passively managed, so they do not require large fees for maintenance, research or maintaining a large staff of analysts.
- Exchange traded: An ETF can be bought and sold during a trading session on an exchange. Since it is an exchange-traded instrument, different orders can be placed - limit orders, market orders, stop loss orders, etc.
Disadvantages of ETF trading:
- Trading costs: apart from the management fee of the fund itself, you will have to pay an exchange transaction fee to your broker.
- Narrow-niche ETFs: This is a notional disadvantage in that some exchange-traded funds are narrowly focused and therefore may be riskier than funds that follow broad indices.
- Spreads: you typically buy an ETF with a small spread over the NAV (net assets value).
To see the advantages and disadvantages of this type of trading firsthand, open a free demo account and try out ETF trading in practice. It may be the financial instrument that will become your main asset in online trading.