- 1 Does this broker fit your trading strategy?
- 2 Trading platforms
- 3 Regulation
- 4 Bonuses
- 5 Leveraged CFD trading in South Africa
- 6 Opening a trading account and going through the KYC check
- 7 Deposits and withdrawals
- 8 Account currency
- 9 Customer support
In recent years, a lot of retail traders in South Africa have begun to use Contracts for Difference (CFDs) to gain exposure to various instruments, indices and other financial products. Using CFDs can be an efficient and low-cost way of speculating on market movements without actually having to buy and sell the underlying instruments. With Contracts for Difference, you don´t have to become the owner of company shares or actually buy, hold on to and then sell foreign currency in your account – you just use the CFDs to gain exposure instead.
If you are retail trader in South Africa interested in using CFD:s for your speculation, you have many excellent brokers to chose among. Some of them are domestic, while others are large international brokers with a presence on the South African market. In this article, we will take a look at some things that can be good to keep in mind when selecting a broker for your CFD needs.
Does this broker fit your trading strategy?
A CFD broker that ideal for one trader can be all kinds of wrong for another trader because they are using two different trading strategies. When you evaluate a broker, it is important to check if it is right for you and your trading strategy.
You may even find that the best option for you is to sign up with more than one broker, if you have several different trading strategies that you wish to implement. Sometimes, compromising is not the right way to go, even if it might feel more convenient to use just one broker for all your trading.
Here are just a few questions to keep in mind when comparing different brokers:
- Is this CFD broker offering the types of CFDs and underlying assets that I want for my trading strategy? A particular broker can for instance be an excellent choice for forex CFDs based on major currency pairs, but a poor choice for strategies that involve CFDs based on anything else, including minor currency pairs, exotic currency pairs, cryptocurrency, commodities, stocks, etc.
- What would it cost me to use this broker for my trading strategy? Take all costs into account. Some brokers will heavily advertise how affordable they are in one respect, while simultaneously hide all the other costs in the fine print.
- If you want to do very small deposits and carry out very small trades, make sure you pick a broker that doesn´t only allow this but also have a fee structure that promotes it. Some brokers allow micro-trading, but make it very expensive.
- Make one list of wants and another list of needs. You might want a lot of free educational material, but absolutely need a broker that you can afford to use. Go with the broker that suits your bankroll and trading strategy, and look for high-quality educational material elsewhere.
- Are forex CFDs involving the South African Rand (ZAR) an important part of your trading strategy? Make sure you don´t waste a lot of time evaluating the various aspects of CFD brokers only to find out late in your evaluation that they do not offer this at all, have a poor assortment or offer it but with bad terms and conditions. The South African Rand is a well-known currency, but on the forex market, it is still considered an exotic currency from an emerging economy, and not every broker has a good selection of forex CFDs available for ZAR speculators. On the global forex market, the ZAR is not as frequently traded as the majors or the minors. The market liquidity for the ZAR is comparatively low and this translates into wider spreads. Of course, the ZAR is also know to be quite volatile and there are definitely traders out there who have learned to benefit from this and are making big profits despite the wider spreads and other associated costs.
Just as in other parts of the world, some brokers active on the South African market will give you access to their own proprietary software, while others utilize independent third-party platforms such as cTrader, Meta Trader 4 and Meta Trader 5. There are also those who offer both proprietary and third-party software.
Many brokers will let you sign-up for a free Demo Account filled with play-money and this is a great way to evaluate a platform before you decide if you want to make a first deposit or not. Using the play money, you can navigate the platform, make play-money trades, try out the trading tools, and more. It really gives you a sense of how it would be like to use the platform for real-money trading – but you are not risking any actual cash while you evaluate.
Below we have listed a few things that are good to keep in mind during the evaluation step:
Download, browser-trading or mobile app?
Do you prefer to download and install trading software on your computer, or do you want to do your trading directly in the browser window? Maybe you want to trade on a smartphone or tablet through a mobile app?
All variants have their own pros and cons. To download the software for desktop is very popular, but you might run into issues if your desktop computer isn´t using Windows as its operative system. Most downloadble trading platform has been developed for Windows. This is something to check in advance. Trading directly in the browser will typically work regardless of operative system and also makes it easier swap between computers, e.g. sometimes your desktop and sometimes your laptop, without having to install a program on each of them.
It is sometimes possible to access the trading platform through the browser on smartphone or tablet, but downloading the mobile app is recommended. If you plan on doing most of your trading through a mobile touch-screen device, make sure the broker you chose have a compatible mobile app and that it works well for you. Many brokers on the South African market have apps available for iOS and Android, and some also for Windows Mobile.
Is the interface easy to use? Can you navigate and put in orders with ease? A slow and clunky interface can be costly in the fast-paced world of CFD trading, and an interface where it is easy to accidentality put in the wrong order or parameters can end up hurting your bottom line.
Do this platform support automated and semi-automated trading? Which forms? What you need from a platform will of course depend on which types of trading you are interested in, e.g. copy trading, built-in trading robots, custom-built trading robots, signal-services, etcetera.
It is not only about what you can use with the platform, but also what comes for free. Some platforms include a lot of free stuff, e.g. a library of free signal-services that you can subscribe to.
Most platforms come with educational videos, seminars, e-books, etcetera for novice, intermediate and experienced traders, covering a wide range of topics. For some traders, having built-in educational material within the platform is important. For others, it is a non-issue as they look for their educational material elsewhere.
As a South African trader or trader specializing in South African investments and instruments, it can be interesting to see if all of the educational material is just general info or if you can actually use to platform to deepen your knowledge about locally relevant topics, e.g. how to interpret announcements from the Reserve Bank of South Africa, information about stocks listed on the JSE, or how the ZAR tends to react to various events nationally and abroad.
The South African financial sector is regulated by the Financial Sector Conduct Authority (FSCA), which was established in 2018 to replace South Africa´s Financial Services Board (FSB).
OTC derivative brokers must be licensed with the FSCA.
One of the requirements that FSCA licensed CFD brokers must adhere to is to keep client money and other assets completely segregated from company funds. This means that what you keep in your trading account with the broker has a stronger legal protection if the company becomes in insolvent.
When it comes to issues to such welcome bonuses, leverage and negative balance protection for retail clients, the FSCA is not as strict as some of its counterparts in other parts of the world. The European Union is for instance much stricter concerning CFDs, leverage and negative balance protection for retail clients.
If a trader finds this more permissive stance of the FSCA positive or negative will of course vary. Some enjoy getting to decide more for them selves and being offered bigger welcome bonuses, larger leverage etcetera, while others would prefer more rigid protection of retail clients.
Forex brokers headquartered outside South Africa
In order to be a FSCA licensed broker, the broker must maintain an office within South Africa. It does not have to be headquartered in South Africa, but it must have an office there. Many large international brokers who accept South African clients do so through a South African-based subsidiary. That way, they can adhere to the specific South African laws and regulations.
Important: Some of the more reputable authorities have either banned the sale of CFD:s to retail traders or imposed strict limitations, e.g. concerning leverage, negative account balance protection, and bonus offers. The legal situation when a broker is based and regulated in “Country A” under a strict license but is also offering CFDs to retailers in “Country B” through a Country B-based subsidiary can be a bit complex, so make sure you know the rules before you put your money on the line. Some of the general information that you see, e.g. advertised on the broker´s main international site, might not pertain to traders using the South African subsidiary for their trading.
Neither South African law nor the FSCA licensing regulation prohibit or limit bonuses and similar incentives and promotions offered to retail CFD traders. You may encounter very large bonus offers, especially welcome bonus offers, but picking a broker simply because they promise you a big welcome bonus is not something we recommend.
Over time, factors such as spreads and commissions will have a much larger impact on your profitability as a trader, so do not let brokers lure you in with a big welcome bonus package. I welcome bonus should be the icing on the cake, and not the reason for picking a specific broker over another.
Also, pretty much all CFD bonuses come with strings attached – in South African and elsewhere. Naturally, brokers do not want you to sign up, get the bonus, withdraw the money and leave. To prevent this, bonuses normally come with a turn-over requirement. Some brokers have pretty okay terms and conditions for this and you might be able to clear the bonus pretty quickly sticking to your normal trading strategy. Others give out bonuses with horrible conditions attached to them. Be especially vigilant when it comes to enormous turn-over requirements that will freeze your entire account (including deposited money and profits) from withdrawals until you have fulfilled the requirement.
Leveraged CFD trading in South Africa
Using leverage for CFD trading is commonplace both in South Africa and abroad. In some parts of the world, law makers have limited how much leverage that can be extended to retail traders (traders that have not been classified as professional traders) and/or require negative balance protection to be active for retail trading accounts. In South Africa, there are no such stipulations in place; neither directly by law nor through the FSCA licensing requirements. This means that it is up to each broker to set the upper limits for leverage, and some brokers will offer 1:1000 in leverage – or even more.
Using leverage comes with its own risks. You are borrowing money from your broker to make the trade and you are responsible for paying it back. Without any safeguards imposed by laws or regulations, you need to be even more responsible and capable of turning down leverage offers that aren´t suitable for you.
If negative protection balance is something that you want, make sure the broker you select is giving it to South African-based traders. Also make sure that you really understand how it works, as it has its pros and cons.
Opening a trading account and going through the KYC check
To comply with anti-money laundering (AML) requirements, it is common for CFD brokers regulated by serious authorities to carry out a Know Your Customer (KYC) check. This is not something unique to South Africa or brokers licensed by the FSCA. The exact details of the KYC check can vary somewhat depending on jurisdiction and license giver.
As a part of the KYC check in South Africa, you can be expected to be asked for a photo copy of your South African Smart ID Card or any other identification that is valid and acknowledged within South Africa. You may also be required to provide photo copies of utility bills to confirm your address.
Some CFD brokers will allow you to make deposits and start trading before the KYC check has been carried out, but will block you from making any withdrawals until you have passed the KYC check.
Deposits and withdrawals
It is important to pick a broker that accepts one or more transaction methods – for both deposits and withdrawals – that you are comfortable with and that wont be unnecessarily costly for you to use.
In general, a CFD broker with a strong presence on the South African market will also be more likely to accept transaction methods that are common in South Africa, including at least a few domestic alternatives. In some cases, going with a domestic option can help cut costs, transfer time and obstacles.
If you are a small-scale trader doing micro transactions, make sure you pick a broker that permits small enough deposits. Exactly what is small enough for you will of course depend on your particular bank roll, trading strategy and faith in the broker.
The days when you needed a bing bank roll to get into CFD trading are fortunately over and there are many brokers that will accept a first deposit of 200 ZAR or even less.
Also pay attention to account type. Some brokers offer several account types with varying minimal deposits. Certain account types might for instance require a first deposit of 20,000 Rand or more.
Deposit and withdrawal fees
Always check both deposit fees and withdrawal fees before you sign-up with a CFD brokers. Some charge exuberant transaction fees that can erode your profits. Make sure you know the fees for your particular transaction method and understand how the fees are calculated.
In some situations, it is best to have the local currency as your account currency to avoid exchange costs. This is not true for all situations, so you need to figure out what´s best in your particular situation.
There are CFD brokers with which you can elect to have South African Rand (ZAR) as you account currency if you want to. ZAR account holdes in South African tend to be less exposed to exchange-rate risk.
In some cases, have ZAR as the base currency for your account will also translate into deposits and withdrawals being smoother and quicker with South Africa, because the money will be kept (in segregated accounts) in South African banks.
It is also worth mentioning that some CFD brokers permit smaller deposits and smaller trades for ZAR accounts compared to $/€/£ accounts.
Customer support is one of those things that we tend to overlook – until we need help and it quickly goes from “not important” to “the most important” thing about a CFD broker.
Here are a few things to keep in mind when selecting a CFD broker:
- Some CFD brokers offer support 24/7 while others have more limited opening hours. Does this broker offer support during the hours when you are most likely to do your trading and run into issues? Also, if a broker offers support “during office hours”, double-check if it means South African office hours or something else. The support staff for English support might be located in another time zone.
- Is support available through your preferred method? The most common choices are phone support, email support and live chat support.
- If you prefer phone support over live chat support when an issue needs to be resolved in real-time, will that be expensive? Some CFD brokers offer phone support through local phone numbers, Whatsapp/Skype, toll-free calls or similar. Others force you to make a potentially costly phone call abroad to reach their support centre.