Contents
eToro, our favorite platform for purchasing Litecoin in South Africa
Why do we recommend it?
- It offers strategies from successful investors so you can replicate them
- Admits “shorting” or short-selling
- User-friendly and straightforward
- Leverage is allowed
- There are tons of possibilities for investments
Official main site: www.etoro.com/litecoin
If you are thinking about obtaining Litecoin from South Africa, eToro is probably the best way to do it.
“Social trading”, a relatively new way of investing by replicating techniques and strategies from other experienced investors, has become trendy thanks to eToro.
If you are a beginner or haven't gained much investment experience, eToro is great for you, since it automatizes your investment by repeating strategies from other experienced people with a long profit history. On the other hand, if you are an expert in the subject willing to share your abilities with other traders, eToro rewards you with money.
Besides, the interface of this platform is amazingly intuitive, great for a user who wants to start learning about Litecoin and trading, without getting crazy with tons of diagrams and figures.
If you still don't know what “leverage” is, we'll describe it briefly. When trading, it's the capacity of increasing your investment by borrowing money from the broker. That way, if you start with $ 100 and you leverage x2, your initial investment will be $ 200.
Leverage and the importance of “Take Profit” and “Stop Loss”
Let's pretend that you have complete certainty that Litecoin will rise, and you want to “go long”. You have $ 1,000, but you actually can invest more and make more money.
Perhaps you could go to your bank, ask for a credit, wait for it to be accepted and receiving the money, send the money to eToro, confirm that it arrived, and then purchase Litecoin… However, when you finish doing all that, probably Litecoin would be already much higher, and investing wouldn't be a good idea anymore.
Leverage is like a credit, and you will only have to click a few times! You will be able to invest (and earn) much more money than what you have on the platform's wallet. It is simple, before investing you will see the different options as in the screenshot:
Within other markets, the leverage you can use is higher. This is because cryptocurrencies are a value that is invested in the medium-long term. However, leverage is used primarily for short-term operations or day trading. Let's talk a bit more about how leverage works.
If you have the $ 1,000 and choose leverage x2, you will be investing $ 2,000. eToro puts the remaining amount to reach that figure.
A week after that, turns out that Litecoin rises up and now the value of your investment is 20% higher, which means, you have $ 2,400 in Litecoin. But you don't want to be too reckless, so you decide, wisely, to sell back.
You will have to give back the $ 1,000 of leverage and you will have made $ 400 (since the other $ 1,000 was your initial investment).
By starting with $ 1000 and getting $ 400, you'll be earning 40% of your investment. That is pretty good.
But there's always a drawback. If everything goes ok and the price goes up, you will make money. Nevertheless, if the price falls, you will also lose more money in the blink of an eye.
Supposing that the price didn't increase by 20%, but it decreased also by 20%, you won't lose $ 20 but double, $ 40. For that reason, the terms “Take Profit” and “Stop Loss” are so important when operating with leverage.
Take Profit is the automatic sell order that is above the entry price: you buy Litecoin at $ 100 and you ask eToro to automatically close your operation as soon as the price goes up to $ 120. It is very useful to avoid being blinded by enthusiasm: we would all take a 20% profit when investing, but when you reach that 20% it is easy to ask yourself “what if this keeps increasing and it is a mistake to exit?”. It's like you made sure now of not acting recklessly in the near future.
Also, if you use leverage you absolutely need to place a Stop Loss order (take into account that any small loss is greater with leverage). Consider that eToro will recommend a limit for Stop Loss, but you should set it lower than that.
About ETFs
ETFs or Exchange-Traded Funds are a type of passively managed fund, similar to index funds. They can be described as a combination of stocks and mutual funds. They are traded in the market like stocks, during the day. However, their main benefit is that they are more diversified compared to stocks, and the rates are much lower than those of an actively managed fund.
About ETFs
ETFs or Exchange-Traded Funds are a type of passively managed fund, similar to index funds. They can be described as a merge between stocks and mutual funds, including the best features of both. They are traded in the market like stocks, during the day. Their main benefit is that they offer more alternatives compared to stocks, and the rates are much lower than those of an actively managed fund.
Currency market
Forex or currency trading allows obtaining profits by exchanging one currency for another.
If you decide to trade the EUR/USD pair, you speculate how many dollars it will take to buy a euro, with the expectation that the euro will raise its price compared to the dollar. Therefore, if you bought each euro for 1.15 USD and you sell them back when they cost 1.20 USD, you'll be keeping that difference.
As you may have deduced, operating with foreign exchange requires investing a lot, since variations tend to be low, or using a lot of leverage, which could be incautious. In case you are just starting in trading, we don't recommend beginning with the currency market, because it is very risky and complex.
Most currencies are available on eToro but bear in mind that Forex trading works with contract for differences, therefore the underlying asset won't be yours.
Stocks
Stocks are the most popular financial instruments. Some publicly traded enterprises divide their capital into fractions: you can be one of those shareholders, but first, you have to know where and how to make your investment.
We can categorize stocks into two different kinds: the ones that divide their earnings regularly among the stockholders, and those that don't payout. The former ones are great, of course, but investing in the latter can be a good idea too since sometimes you can make even more money by selling the shares.
When trading on eToro, if you choose a company that distributes dividends, these will be deposited into your account, and you can collect them in cash or reinvest them. We suggest, if you don't need the money right away, that you benefit from compound interest and reinvest it in the company itself.
Remember that on eToro you can use leverage to “dope” your trades, but in that case, you will not receive interest as it would be a CFD. For that reason, for long-term investments, it is not advisable to use leverage: not just because you lose dividends, but also because you will have to pay commissions as long as you keep the position open, and these can end up eating your profit.
About Contracts for Difference
If you already accessed eToro, you must have noticed that the initials CFD appear over and over. We will explain its meaning now, but you should know first that cryptocurrency trading on eToro is only CFD when you short sell.
We will also refer to terms such as going short and leverage, in case you are interested in day trading cryptocurrency or more advanced operations.
Even if you don't have a positive balance, you can still bet on eToro with CFDs. In a hypothetical case: you are sure that the Litecoin will fall, so perhaps it is obvious to think “if it is going to depreciate, I simply refrain from getting in and I'll go in when it has gone down”. But if it really falls, it might mean extra money for you.
The practice known as “going short” will allow you to do that. It works, more or less, like this:
- Someone lends you, let's say, 100 units of Litecoin, valued at a total of $ 5,000 (these are completely made up numbers)
- Next, you sell them at their current price, $ 5,000
- The Litecoin goes from $ 50 to $ 30 (as you presumed, it devaluates)
- You purchase all 100 units one more time, but now they are worth $ 3,000
- You pay back the 100 units
- You will have made $ 2000, since you keep the difference
It is far more simple than it may seem. Just consider that by trading in Litecoin on eToro, with CFDs you can make money when you anticipate the price will fall.
How does eToro work?
We mentioned previously that eToro is very easy to manage. Anyone can start using it without having to read endless explanations.
You won't have any problems with the interface if you are familiar with any of the most common social networks.
Let's talk about how to register and the different sections of eToro.
You will have to provide some personal data when registering.
To complete your registration, you will have to answer some questions about your experience at investing.
But you don't need to worry: it is not an exam. It is only a way of finding out how much knowledge you have and what type of assets they can recommend. For example, if it is your first experience in the investment world, they will not suggest that you invest in futures.
Next, we will explain the different sections of the platform.
With the “Set Price Alerts” tool, you'll be able to program an alarm when a security is at a certain price. Just click the tab and you will be able to set it. This is perfect if you want to buy an asset and you are waiting for it to decrease.
The section “News Feed” allows users to interact and learn from each other by sharing their opinion and experiences.
“Instruments”, “People” and “CopyPortfolios” are within “Discover”. As we mentioned before, the different financial instruments that eToro offers are:
- Cryptocurrencies
- ETFs
- Shares
- Commodities
- Forex
- Index funds
The concept “social trading” comes to life in the section “People”: there, you can replicate the movements of any user you choose with just one click. You'll be able to see all their profiles and historical performances.
Using the search bar, you can find the users that best suit your interests: by risk level, types of financial assets, average earnings… You just have to choose the amount you want to invest and eToro itself will be in charge of replicating the movements made by the selected investor, in proportion. This means that if you put $ 1000 and the investor puts 10% of their capital in Amazon, eToro will also invest $ 100 of your money in that asset.
Also, here you will see CopyPortfolios classified into: Top Trader, Market, and Partner.
Remember that in some cases, you might prefer copying to CopyPortfolios than to individuals, because the former offer more diversity. Besides, the different portfolios are easily identifiable: one about gaming, another about large drone companies, another about pharmacy … Do you suspect 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, like day trading or buying and holding, for naming just a couple.
In case you are just starting in the world of trading, my recommendation is something in the middle: when you open your position, set a dynamic stop loss 15-20% under the highest price, and let the rest happen on its own.
For example, if you buy a cryptocurrency at $ 15, it rises up to $ 25 and falls again to $17, the stop-loss will close your position at $ 21 or $ 22. Hence, you will get a satisfactory income.
I know it's tempting to look to sell when the price is at its peak, right before corrections, but unless you're clairvoyant, that will never be possible. The above method is much more down-to-earth and it can give great results.
Later on, you will be able to apply more sophisticated techniques, like going short to profit from bear markets or using leverage.
Virtual portfolio
Are you beginning in trading? Using a demo account can be useful. Just assure yourself that the virtual mode is set in the upper left corner of the page and you can start practicing with a “fictional” amount.
This tool is great for those who are new to this world and want to put their talents to the test before playing for real funds. With your virtual account, you will begin with a $ 100,000 balance (which of course, is fake) to do all the operations that you can think of: not only with Litecoin, you can also work with a diverse portfolio.
The first attempt is not usually that good. But don't worry, since you can ask eToro to deposit back the virtual funds to your account, and the second try you should do better.
Nevertheless, keep in mind that investing is mainly about being cold-minded, and using a practice account can have an adverse effect. It is completely different to risk your own money than to do operations with virtual funds which loss does not suppose any drama.
Finally, the demo mode is kind of absurd if you want to invest in the medium or long-term (which almost assures you a profit only by replicating an index), since you would be wasting years. Virtual accounts may be helpful for trying out short or medium-term investments.