Some South Africans want exposure to international stocks and ETFs. Reasons could range from just diversifying their investment portfolio, a devaluing rand, weak domestic and emerging market growth, local political shenanigans… or just playing around with some spare change to learn how these things work.
Although there are some powerful trading platforms available to South Africans, the majority of them fall short in two ways: they’re too expensive and they’re too complex.
So, here is a suggestion for an easy way to get started, with no monthly fees, but without all the extra features like margin trading, limit orders and so forth.
Registered in: Cyprus, Israel, UK
eToro was founded in 2006 and was one of the pioneers in what is now known as “copy trading”. The idea is that most investors don’t know or care enough to really study every stock (or investing strategy) and that it is easier to just, say, deposit $100 and automatically copy other traders’ activities. So, if you copy Trader A –whose trading successes/failures you can see– and they place 5% of their portfolio in Apple stocks, your account will automatically apply 5% of your $100 to the same stock.
If you prefer, you can also steer your own investments. In addition to stocks, they also support things like forex trading, ETFs and commodities.
They also give you the option to trade on the “virtual platform”, which will credit your account with $10,000 to invest with. Of course, these aren’t actual gains and losses that you’re incurring, but it the performance of your virtual account is exactly the same as if you would have used actual money.
Step one: Sign up and get verified
Sign up here: etoro.com (affiliate link)
You will be asked to verify your email address and your mobile phone number. You can opt out of all marketing communication from them (this is something where other trading platforms will hound you for months on end, kudos to eToro for not taking that approach).
Depending on the deposit size you want to make, you may be required to send in proof of physical address.
Step two: Make a deposit
Since all stocks are listed in US dollars, it will ask you how much USD you want to deposit. eToro supports multiple deposit methods, including credit card, Paypal, Skrill and online banking transfer.
Credit card deposit
The easiest way to make a deposit is with your credit card. The procedure is straightforward; it’s just like making any online payment. The only catch is that you’re paying a US dollar (USD) amount using your South African rand (ZAR) card.
Let’s assume the exchange rate is 10 ZAR for 1 USD. If you are making a deposit of 100 USD, you would expect 1000 ZAR to be withdrawn from your card, but your bank will levy a variable fee on the transaction. This varies by bank, credit card processor (Visa vs MasterCard), market behaviour and a lot of other factors, but it generally ranges between 1% and 3.5%.
So to complete a $100 deposit (with a 1 USD/ZAR exchange rate), you’ll spend between 1010 – 1035 ZAR. The deposit should show on eToro instantly and the full amount settled should show in your South African bank account in about 2-3 days.
Your other option would be to make a bank transfer to eToro’s bank account in Europe. The drawbacks of this is that:
- it takes a lot of time and effort navigating your bank to pay foreign recipients
- you might get a bad exchange rate (the same as credit cards)
- you will likely be charged a fixed currency conversion fee (around R350) and a variable fee
- the receiving bank in Europe will charge you an “incoming wire fee”
There are times when making a foreign bank-to-bank payment is better and cheaper, but this isn’t one of them.
Step three: buy some stocks!
No, before you buy stocks, do some research. Don’t just put everything you’ve deposited in one single stock (or worse still, leveraged/margin trading, shorting a currency), unless you’re sure of what you’re doing. I suggest taking some of your money and buying a few boring stocks (think IBM, Google, Apple) and taking some of your money and copying other traders.
After time, you’ll get more comfortable with the interface and can adjust your trading strategy according to your risk tolerance. Note that by just keeping your deposited amount equal (not even gaining in value), over the long run you’ll protect yourself against domestic currency depreciation.
Step four: returning the funds
Once you’ve made some gains and you would like to bring back some of your money, you can simply click on the withdraw funds button.
You can withdraw to your local bank account (or the funds can directly be paid back via the credit card you used to deposit, which again is by far the easiest and cheapest way on small amounts).
- This is not investment advice and purely for educational purposes.
- Learn about the amount of money South Africans may send abroad (or use for non-ZAR payments) each year.
- Discuss large financial matters with a registered financial planner.