Contents
eToro, our favorite broker for buying Stellar from South Africa
Pros:
- It's uncomplicated and easy to use
- It uses other successful investment strategies so you can emulate them
- Admits short-selling
- Leverage is allowed
- There are uncountable products you can invest in
Homepage: www.etoro.com/stellar
In case you are interested in purchasing Stellar from South Africa, eToro is probably the best way to do it.
“Social trading”, a relatively new form of investing by replicating techniques and moves from other experienced investors, has become trendy because of eToro.
eToro is very helpful if you don't have much experience in trading, since it puts your investment on automatic by repeating strategies from traders with a long profit history. Additionally, in case you are an investor, the platform pays for your knowledge.
It is also worth mentioning how accessible is this platform, ideal for new traders who are starting in the investment world.
How does eToro work?
We mentioned before that eToro is very friendly and intuitive. Anyone can start investing without having to read endless explanations.
If you have used before any of the most popular social networks today, you can perfectly manage eToro's interface.
Now we are going to detail the registration process and the sections of the page that you should familiarize yourself with.
When you open your account, you will have to enter all the information that eToro asks for: first and last name, address…
Also, you will have to answer some questions about your experience at investing.
But don't feel like you are taking an exam. The only intention is to know more about you and be clear about which financial instruments they should recommend according to your knowledge and experience.
Let's see what the different sections of the site are.
In “Set Price Alerts”, you have, as its name says, the possibility to put alerts on the price of certain assets. It is a very useful tool for when you want to purchase an asset that is falling, but perhaps you think that it has not finished falling yet.
“News Feed” is the more “social” section. There, users can interact and share experiences.
“Discover” includes the tabs “Instruments”, “People” and “CopyPortfolios”. And we already mentioned the different financial instruments that are available on eToro:
- Cryptocurrencies
- ETFs
- Shares
- Commodities
- Forex trading
- Index funds
The term “social trading” makes sense within “People”: that is where you can replicate the strategies of the best investors with just one click. You'll be able to see all their profiles and historical performances.
In this section, you can search for those users that you find more interesting. When you select an investor and indicate how much money you want to invest, eToro will automatically replicate their movements, proportionally. If you have $ 1000 and the trader puts 20% of their funds in an asset, eToro will also invest 20% of your money in the same asset, in this case, $ 200.
You will also see the three main types of CopyPortfolios, which are “Top Trader”, “Market” and “Partner”.
The advantage of copying to CopyPortfolios instead of people is that this way the risk is more diversified. The portfolios are identified so you can recognize them easily: one about gaming, another about large drone companies, another about pharmacy … Do you suspect that a certain sector will prosper in the future? Then you will surely find a CopyPortfolio about it.
BTW, do you know what leverage is? Just in case, we'll put it simply:
another good thing about trading is that it lets you invest even more than you can have in a given time. That is, if you have $ 100 and you choose to leverage x2, you will be actually investing $ 200.
Leverage and the importance of “Take Profit” and “Stop Loss”
Let's say now that you are sure that the price of Stellar is about to raise its price, therefore you are thinking about “going long”.
You are positive that Stellar will rise, but you can only invest $ 1,000. Isn't it a shame to miss out on the possibility of earning more money?
You could go to your bank, ask for a credit, wait for it to be accepted, wait for the money, send the money to eToro, confirm that it arrived, and then buy Stellar… But by that moment it is likely that your prediction was confirmed a long time ago, and Stellar would be already so high that it is not worth investing.
Using leverage, you can get that amount just by clicking your mouse. It's like borrowing money, but much better: from eToro itself. You can get financing to operate with much more money than you actually have on the eToro Wallet. Before trading, you will be able to choose between the different options as in the screenshot below:
Trading with other assets allows you to use higher leverage. Why? Because leverage is most common in short-term operations, and cryptocurrencies tend to be a medium or long-term investment. Let's talk a bit more about how leverage works:
- If you decide to invest $ 1,000 and you use leverage x2, you will be starting with $ 2,000 (remember that$ 1,000 was borrowed from eToro).
- A few days later, Stellar does rises, as you thought, and now the cost of your investment is $ 2,400 (20% more), so you decide to sell back.
- Once the $ 1k from leverage is returned, you will have $ 1,400 left; which means you've earned $ 400, since the other $1,000 was yours from the beginning.
In conclusion, by investing $ 1000 and obtaining $ 400, your net profit would be 40%. That is quite good.
The trick is that the risk of losing out also increases. If everything goes according to plan and the price goes up, you will earn profits in little time; but if the opposite happens, you will also lose more really quickly.
For instance: if instead of increasing by 20%, the price falls by 10%, you do not lose $ 10, but twice (the leverage) that figure, that would be $ 20. For that reason, the terms “Take Profit” and “Stop Loss” are fundamental when trading with leverage.
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 Stellar at $ 100, you can ask 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.
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). You always need to mark a Stop Loss lower than that suggested by the broker.
How to deposit funds on eToro
Within the payment methods that eToro accepts you will find: credit card, PayPal, bank transfer, Neteller, and Skrill. There is not much to say here: making a deposit with eToro is a very easy process. You just have to click “Deposit funds”, type the amount and select your payment method.
(Consider that you must be the account or credit card owner, for security reasons).
The lowest amount you can deposit is $ 200, and there is a maximum allowed for unverified accounts, so if you want to trade with larger sums, you should verify your account first.
Finally, know that you can make the deposit in any currency you want because eToro will make the conversion to USD, but charges a commission for it, so it is preferable to make the transfer directly in USD.
About ETFs
ETFs or Exchange-Traded Funds are similar to index funds. We can say that ETFs are halfway between stocks and funds: they can be traded like regular stocks, but include a wide diversity of assets and the rates are much lower than those of an actively managed fund.
Forex trading
Forex or currency trading allows obtaining profits by converting one currency for another.
If you want to exchange euros and dollars, you speculate how many dollars it will take to buy a euro, thinking that the first currency (the euro) will revalue compared to the second (the dollar), to make a profit by selling it. Assume you entered when the price of one euro is 1.10 USD and you exit when it reaches 1.15: thus, that margin will be yours once you sell back.
Perhaps you already deducted this, but trading with currencies requires large resources, since fluctuations tend to be low, or using much leverage, which is a bit like skating on thin ice, as you know. If you are a novice in trading, we don't recommend beginning with the currency market, because it is very risky and complex.
eToro allows trading with the most known currency pairs. Still, keep in mind that this market works through contract for differences, thus you will not own the real asset.
Equities
Stocks are the most common securities. Some companies decide to split into portions and have several shareholders. By investing money in them, you can own a portion of a company and obtain returns.
We can classify 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 the profit you can make by selling the shares can be even larger.
When trading on eToro, if you choose a company that pay out dividends, these will be reflected in your balance, and you can collect them in cash or reinvest them. Our suggestion is, if you don't need the money right away, that you benefit from compound interest and reinvest it in the company itself.
Consider that when investing in shares 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 long-term investments, it is better not to use leverage: not just because you lose dividends, but you will also have to pay commissions during the days that the operation is open, and these can end up with your profit.
About ETFs
Have you heard about Exchange-traded funds? They are similar to index funds and are known for combining the advantages of stocks and mutual funds, because they can be exchanged at any moment in the market, but include a much wider diversity of assets and considerably lower rates.
Commodity market
The major benefit of investing in commodities is that their price varies less than that of other assets. In fact, their intrinsic stability is what makes most investors choose commodities when facing possible inflation or market volatility. Nonetheless, the cost of commodities depends on supply and demand, so if faced with the fear of inflation, demand rises a lot, so will the price.
Consider that commodities don't pay dividends. Therefore, the only prospective income would come from a future sale of the asset.
Commodities can be divided into two main categories: hard raw materials and soft raw materials. The former are precious metals (such as gold, silver, copper, and platinum), industrial metals (like iron, nickel, or aluminum), and oil; and the latter are agricultural resources, such as sugar, coffee, corn, soy, among many others.
How do Contracts for Difference Function?
It is possible that you have found the acronym CFD repeatedly if you entered eToro before. Before we come back to this, we must say that cryptocurrency trading on the platform is only CFD when you are short-selling or select leverage over x2 (and the platform does not even allow this).
We will also explain concepts like going short and leverage, in case you are thinking about day trading cryptocurrency or other more advanced operations.
eToro allows you not only to bet if you are “in the black”, but with CFDs you can also bet “in negative”. For example: you have the conviction that the Stellar will fall, so you obviously think “if it is going to depreciate or go down, I simply refrain from getting in and I'll go in when it has gone down”. Nevertheless, if you are pretty sure that it is going down, why not take advantage of that and earn money?
The practice known as “going short” will allow you to do that. It works, pretty much, this way:
- You ask for a loan of, let's say, 100 units of Stellar, which cost $ 5,000 at the moment (obviously, these figures are made imaginary)
- Then, you make $ 5,000 by offering them at their price at that moment
- As you presumed, the price falls, and the unit of Stellar goes from $ 50 to $ 30
- You buy all 100 units one more time, but now they are worth $ 3,000
- Now you return the 100 units to whoever loaned them to you
- 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 Stellar on eToro, with CFDs you can make a profit if you anticipate downs in the price.
Practice account
For those who still don't have much experience in investing, a demo account can be useful. You just need to set the virtual mode and you can start trading with fictional funds.
A virtual portfolio can help you to practice and gain experience before starting to trade with real money. When you create your demo account, you will begin with a virtual amount of $ 100.000, to operate with a variety of assets available on eToro, besides Stellar.
Don't worry, since if you lose all your virtual funds, you can contact support so they can add them back to your portfolio and you can make a second attempt.
Take into account that you should always be cautious when investing, and perhaps using a demo portfolio can prevent you from controlling your impulses. It will never be the same as risking your own money.
Finally, the virtual mode is kind of absurd if you intend to invest in the medium or long-term, since you would be wasting years. Demo accounts may be ideal for trying out before trading in the short or medium-term.