Today, global economies are digitized, with electronic money flows and remote transactions. This gives us a wide range of tools that generate profit, including investment opportunities. In the days of yore, you would go to a physical exchange to trade physical securities — shares or bonds. Now, all you need is a computer.
Stock trading is an old-school method that has also undergone a digital makeover. Today, anyone can access the international market through a broker, and purchase stocks of famous corporations. South Africa is no exception.
And the potential is immense. According to Wiki, there are sixteen stock exchanges on the planet, and their total market capitalization exceeds $1 trillion. Importantly, reputable intermediaries ensure your trading is done legally.
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Basics of Stock Trading
Shares are issued by companies for the goal of attracting investor capital. Parties that purchase stock are known as traders or investors depending on their subsequent strategy. While the former gain from short-term buying and selling, investors take a longer view. They keep their assets for extended periods, and may even leave them to posterity as an inheritance.
Any buyer of shares becomes a shareholder. This means they essentially own a percentage of the business (even if it is only a fraction). They are entitled to regular dividends. The second way to gain is by selling off the stock after its value goes up. In this regard, the logic is no different from Forex trading — you buy low and sell high.
On the other hand, downtrends may also bring profit. In this case, you short-sell before the price collapses. For instance, this is what shrewd Volkswagen shareholders did in the midst of the coronavirus pandemic in early 2020. Before the news of factory shutdown across Europe broke, causing share prices to tumble, they sold off their assets.
It is vital to choose the right stocks to trade. Investors generally favour blue-chip companies, as these are viewed as the most stable. Nowadays, growth stocks are also in great demand, as these are tied to the performance of tech giants. If you purchase shares from Facebook or Apple, you know these companies are very unlikely to fail. In our modern gadget-obsessed reality, technology is only expanding.
Importance of Stock Markets
The potential effects of stock market changes worldwide should not be underestimated. And they can hardly be. Just think of the crises caused by unfavourable downward trends leading to a recession in the US over a decade ago.
As national economies are increasingly connected due to globalization, it is impossible for a market crash to be completely isolated within one country. Not only is it marketplace powerful enough to change the lives of people on different continents. It is also a vital element of a free-market economy.
Stock trading is accessible to all. Hence, it allows democratized access to trading and capital exchange. At the same time, institutional players and individuals need to follow the same rules to gain profits.
Types of Legal Trading
Stocks are bought legally through a local broker. Make sure the company is registered and officially licensed to operate in the South Africa region. It is also crucial to check its operations are overseen by a control body. For instance, this could be CySEC (Securities and Exchange Commission of Cyprus).
Next, register a demo account by filling in a simple form on the broker’s website. This gives you login details that unlock the trading software. Most often, digital trading is done via MetaTrader 5. The risk-free mode allows one to explore analysis tools and practice trade execution safely. Once you feel confident, switch to a live account. Now, real money may be deposited and used for stock trading.
As we have mentioned before, traders sell the stocks they have much sooner than investors. Whether a trade is profitable depends on price dynamics. To spot the ideal moment, it is necessary to monitor the situation closely, and use automated analysis tools. Luckily, modern brokers arm their clients with an array of such aids. It is also possible to receive comprehensive learning material. Expert guidance on finance tools is available 24/7.
Here are two popular courses of action. You may engage in:
- Active Trading (10+ trades per month), or
- Day Trading (positions are opened and closed within the same day).
There are also two ways in which stocks can bring profit. You may either trade shares themselves or opt for derivatives known as CFDs (Contracts for Difference). In the latter case, no actual stock is bought, and monetary gain depends on price speculation only.
Generally, traders seek to benefit from market shifts in the next day, hour, or even minute. With reputable brokers, stock trading in South Africa is perfectly legal. Moreover, its profit potential is impressive.