Contents
eToro, recommended broker for those who are in South Africa and want to purchase Bitcoin
Advantages:
- There are lots of investment opportunities
- You can leverage
- User-friendly and simple
- You can learn from other investment strategies
- Allows you to go short
Official main site: www.etoro.com/bitcoin
In case you are thinking about obtaining Bitcoin from South Africa, eToro may be the best way to do it.
This broker is popular for making “social trading” fashionable. Social trading is an innovative way of investing in which traders can emulate the moves of other investors who have been generating profits over time.
If you are still a newbie or haven't gained much investment experience, eToro is great for you. You can rest assured that you are doing a smart investment move when replicating those from subjects with a long profit record. Oppositely, if you are an expert in the field willing to share your techniques with other traders, eToro pays you for it.
Besides, the platform is so uncomplicated, great for those who want to start learning about Bitcoin and trading, without ending up overwhelmed with tons of diagrams and numbers.
By the way, do you know what leverage is? We'll put it simply:
another good thing about trading is that it lets you invest even more than what you really have. Let's say that you have $ 100 and you choose to leverage x2, you will be really investing $ 200.
About leverage, Take Profit and Stop Loss
Assuming that, for example, you are certain that Bitcoin is going up, and that you have $ 1,000 for “going long”, you should know that you can increase your investment and earn higher profits.
You could consider requesting a credit, but you must know that all the process takes time, and by the moment you receive the money, Bitcoin might be already at a much higher price, so you wouldn't be able to invest the way you planned.
Using leverage, you can obtain that amount really easily. It's exactly like a loan, but much better: from eToro itself. You can get financing to invest much more money than you actually have on the platform. Before trading, you will be able to choose between the different options as in the image below:
Trading with other assets allows you to use higher leverage. Why? Because leverage is most common in short-term operations or day trading, and cryptocurrencies tend to be a medium or long-term investment. But let's deepen a bit more on how all this works:
- If you want to invest $ 1,000 and you use leverage x2, you will be starting with $ 2,000 ($ 1,000 was borrowed from eToro).
- A few days later, Bitcoin does rises, as you assumed, and now the price of your investment is $ 2,400 (20% higher), so you decide to sell back because you want to play it safe.
- Once the $1,000 from leverage is deducted, you will have $ 1,400 left; which means the net profit is $ 400, since the other $1,000 was yours from the beginning.
In conclusion, by investing $ 1000 you can make a profit of 40% (in the case you earn $ 400). That is quite good.
But there's always a downside. If everything goes ok and the price rises, you will make profits. On the opposite scenario, if the asset decreases, you will also lose more money really fast.
Let's say that the asset didn't increase by 20%, but it went down also by 20%, you won't lose $ 20 but double, $ 40. For that reason, when operating with leverage it is fundamental to take into account Take Profit and Stop Loss.
Take Profit is used as a form of reducing risks when trading. When you enter, you can set a profit limit and ask that your position is automatically closed when the asset reaches a price.
If you bought Bitcoin at $ 100, you request eToro to close once it reaches $ 120. That way, you make sure you won't change your mind and decide to wait a bit longer in case it keeps going up, which could make you lose it all.
Stop Loss is even more important, particularly if you use leverage, since a reduced loss with leverage can have a significant impact. You always need to establish a Stop Loss lower than that suggested by eToro.
Exchange-Traded Funds
Have you heard about Exchange-traded funds or ETFs? They are similar to index funds and are known for merging the advantages of stocks and mutual funds, because they can be exchanged regularly at market price, but have much more investment possibilities and considerably lower rates.
About ETFs
What do you know about Exchange-traded funds or ETFs? They are similar to index funds and are known for merging the advantages of stocks and mutual funds: they can be traded regularly at market price, but include a much wider diversity of assets and considerably lower rates.
Index Funds
Index funds are suitable for those planning to invest for the long term, particularly for beginners. If you don't need an amount of money for the next five or ten years, index funds are a secure option.
Contrary to what it may seem, very few fund managers can beat the benchmark (yes, you have probably heard of managers who achieve huge returns).
But except for Warren Buffett and a couple more, not everything is as good as it sounds: if you hear of someone who has beaten the index, it was probably for a limited time, or their charges are really high. Besides, past performances do not ensure a future one.
With index funds, you don't have to worry about that: although in the long term, they usually beat active managers, and the charges are minimal.
Forex trading
What is known as Forex trading consists in the exchange of currencies. Put differently, is the conversion between a pair of currencies, and the aim is, evidently, to obtain a benefit out of this.
If you decide to exchange EUR and USD, for example, you buy euros and pay with dollars, expecting that the first currency (the euro) will increase compared to the second (the dollar), to make a profit by selling it. Let's say you entered when a euro is worth 1.10 USD and you close when it reaches 1.15: that margin is yours once you make the operation.
You may be thinking by now that this form of trading requires high investments, and you are not wrong, since fluctuation in prices is never that dramatic, and if you use a lot of leverage to counter that, you will take a considerable risk. Our recommendation for those who are new in the world of trading is not to start with Forex, but with a safer and simpler market.
eToro allows exchanging the most usual currency pairs. However, consider that in this market sales are made through contract for differences, which means you will not be the owner of the real asset.
Raw materials
Most investors trade with raw materials because of their stability. While other assets tend to fluctuate more, raw materials prices vary less and offer safety against inflation or market volatility. However, prices do depend on supply and demand in the market, so if an economic situation produces greater demand for a certain good, the price will also rise.
Note that the only intended profit from the investment in raw materials will be the hypothetical capital gain after the sale since, unlike stocks, these don't pay dividends.
Raw materials are commonly classified into two types: first, we have hard raw materials, which are precious metals (gold, silver, copper, and platinum), industrial metals, and oil; in second place are soft raw materials, which are agricultural goods like coffee, rice, soy, or sugar.
About Contracts for Difference
It is possible that you have found the acronym CFD all the time if you entered eToro before. We will explain exactly what this means, but first, you should know that cryptocurrency operations on eToro are only CFDs when you short sell.
For your information, and if you want to know about day trading cryptocurrency or other operations, we will also explain terms such as going short and leverage.
With CFDs you can bet on eToro even if you are “in red” or don't have a positive balance. For instance, you are sure that the Bitcoin will go down, so perhaps it is obvious to think “if it is going to depreciate (go down in price), I'll just wait and go when it has gone down”. However, if it actually goes down, you can earn some money out of that.
You can accomplish that by “going short”. More or less, it works like this:
- You ask for a loan of, let's say, 100 units of Bitcoin, which total price at that moment is $ 5,000 (these numbers aren't real)
- You sell the 100 units and earn $ 5,000
- The price is reduced, as you calculated, and the unit of Bitcoin now costs $ 30 instead of $ 50
- You purchase the 100 units again, but at $ 3,000
- Then you give back the 100 units to whoever loaned them to you
- The difference is yours, so, you will have made $ 2000
It all seems more complex than it really is. Just take into account that by trading in Bitcoin on eToro, with CFDs you can make money when you anticipate downs.
eToro Interface
We already mentioned that one of the best features of eToro is that the platform is very intuitive and easy to use. It isn't necessary to read a lot or have previous knowledge to start trading.
You won't have any issues with the interface if you are familiar with any other social network.
Now we will detail the sign-up process and the different sections of the eToro interface that you should familiarize yourself with.
You will have to provide some personal data (like full name or address, for instance) when registering.
They will also ask you about your previous experience as an investor.
But don't worry: it is not an exam. It is only a way of finding out how much knowledge you have and what type of financial instruments they can suggest. For example, if you have never invested before, they will not suggest that you invest in futures.
Let's see what the different sections of the platform are.
In the “Set Price Alerts” tab, you have, as its name indicates, the possibility to set alerts on the price of certain assets. You just have to click on the three points at the end of the line and you will be able to program a price alert. It is a very useful tool for when you are after an asset which price is decreasing, but perhaps you think that it has not finished falling yet.
The section “News Feed” allows users to interact and learn from each other by sharing their opinion and experiences.
In “Discover” you will find: “Instruments”, “People” and “CopyPortfolios”. As we discussed previously, the six types of instruments on eToro are:
- Cryptocurrencies
- Exchange-Traded Funds
- Stocks
- Raw materials
- Forex trading
- Index funds
In “People” are all the profiles and historical performances of other investors, and you can replicate their strategies with just one click. This is where the “social trading” term is best applied.
You can search for those investors that you find more interesting: by risk level, types of financial assets, average earnings… Just indicate the amount of your investment and eToro will replicate the movements of the selected investor, in proportion. “In proportion” means that if you put $ 1000 and the investor puts 10% of their capital in Amazon, eToro will invest $ 100 of your balance in the same company.
Also, here you will see CopyPortfolios classified into three categories, Top Trader, Market, and Partner.
Remember that in some cases, you might prefer copying to CopyPortfolios than to particular traders, since you avoid putting all your eggs in one basket. The portfolios are identified so you can recognize them easily: one about gaming, another about large drone companies, another about pharmacy … You think that a certain industry will prosper in the future? Then you will surely find a CopyPortfolio about it.
Investment strategies
There are different methods or ways for crypto trading, such as buying and holding or day trading (and using market volatility in your favor), for naming just a couple.
My suggestion for those who are starting to invest is something in the middle: when you open your Bitcoin position, set a stop-loss 15-20% under the maximum price, and let the magic happen.
This means that if, for instance, you purchase a cryptocurrency at $ 10, it reaches $ 20, and after that it falls to $ 12, your stop loss will close your position at $ 16-17 and you will obtain a pretty good profit.
It may sound more appealing to sell when the cost is at its maximum, but unless you're psychic, that will never be possible. The mentioned method is much more realistic and, well applied, it can work very well for you.
Later on, you will be able to apply more complex strategies, like going short to profit from bear markets or using leverage.
Virtual portfolio: How does it work?
For those who still don't have much experience in investing, using a demo account can be very helpful. You just need to set the virtual mode and you can start practicing with a “fictional” portfolio.
A virtual account can be a good way of gaining confidence before starting to operate with real funds. When you open your demo account, you will begin with a virtual amount of $ 100.000, to trade with a variety of financial instruments available on eToro (not only with Bitcoin).
The first attempt is not usually that good. But don't worry, because you can ask eToro to replenish the virtual funds to your portfolio.
But keep in mind that investing is mostly about being cold-minded, and using a practice account can have an adverse effect. It is not the same to risk your own money than to trade with virtual funds which loss does not suppose any drama. Also, using fake money can prevent you from learning to control your emotions, something you should be able to do when trading.
And of course, the virtual mode is kind of absurd if you intend to trade in the medium or long-term, since you would be wasting years. Demo accounts may be ideal for trying out short or medium-term investments.