Something you don’t hear much about from many brokers in SA is how many of their clients lose money through trading. European-regulated brokers are required to disclose this, and the figures are quite sobering, with three-quarters on average losing money, according to a survey by Finance Magnates’ Intelligence.
For online broker IG Markets, that figure is 66% and falling. “That figure has been higher in the past and is now getting less,” says Shaun Murison, senior market analyst at IG Markets SA. “Market conditions definitely play a role in the success of traders overall, and prices have been going up for a long time now which makes it hard to bet against the trend. Interest rates are low and that has given impetus to equities, but there are those trying to call the tops of the market and they can get hurt doing that.”
Murison says Covid lockdowns, remote working and booming markets are behind a spike in client numbers. Of more importance to the company is making sure those who sign on become long-term clients – and that means making sure they succeed.
A crucial factor in getting a higher percentage of winning traders is education and market analysis.
“There’s no doubt that better educated traders who stick to a trading plan, with stop-losses, and who don’t overtrade or risk too much capital are the ones who tend to win,” says Murison.
“We’ve got great quality educational material on our website and through IG Academy, which can also be downloaded to your smart phone. It’s important as a broker to have your interests aligned with your clients’. We make our money from financing and transaction fees, not from betting against our clients. So we have a very strong interest in seeing our clients succeed.”
IG Markets, part of the London-listed IG Group, has been around more than 40 years and for a decade in SA. It has offices in 17 countries and services over 300 000 clients globally. It is licensed in every jurisdiction in which it operates, including SA, where it has been issued an ODP (over-the-counter derivative provider) licence – and was the first non-bank market player to be granted this licence by the Financial Sector Conduct Authority (FSCA). Earlier this year, IG Markets acquired US brokerage and financial-media firm Tastytrade Inc for $1 billion.
IG offers its South African clients contracts for difference (CFDs) on more than 150 JSE stocks, exchange-traded funds (EFTs) and the Top 40 index. CFDs are a type of derivative instrument that track the price movement of the underlying security without actual ownership. For example, you can buy a CFD on Anglo American which will give you leveraged exposure to the underlying share, without the benefits (such as the right to earn dividends or vote) or liabilities (such as custody) of actual share ownership.
South Africans with an offshore account can trade more than 17 000 global instruments from forex pairs to commodities, stocks and global indices. The ability to purchase equities directly is a service being rolled out in the UK, and will eventually come to SA.
Risk management tools
Because of the risks of leveraged trading IG Markets offers negative balance protection to keep clients from going into debt in the event that a market move wipes out the capital and drives it into negative territory. This can happen when markets move quickly in response to some unexpected event, such as the ‘Covid crash’ of March 2020. This sudden move was so rapid that markets were suspended temporarily, and only resumed the following day. It was a disaster for many traders with leveraged exposure to the market.
Negative account protection sets a client’s account back to zero in the case of losses running to negative – at no cost to the client.
Other risk mitigation features offered by IG Markets include automatic stop-losses, which allow traders to set close-out prices in case the market moves against them. The same applies to take-profit levels.
“We strongly encourage our clients to take basic precautions when trading – not to overtrade, not to risk too much capital on a trade, to develop a trading plan – and we provide all the tools online to help them do that. Once they are in a trade we encourage them to set stop-loss and take-profit levels,” says Murison.
Regular webinars keep traders and investors in the loop on the latest corporate and fundamental events impacting the markets.
Murison advises those interested in beginning online trading to open a demo account, study up on the educational material on the IG Markets website, and experiment with various trading styles and strategies. When you’re ready to go, you can fund your account and start live trading.
“This is a new age of online broking,” says Murison. “In the old days the broker had all the information and would give you the advice. Today, clients have access to the same information. It’s creating a more level playing field – and for those with patience and diligence, is becoming a hugely popular way to work towards individual wealth.”
About IG Markets South Africa: IG Markets South Africa was established in 2010 and is regulated by the FSCA operating with a Financial Advisory and Intermediary Services (Fais) licence, FSP No 41393, and is an over-the-counter derivative provider. It has an office in Sandton to service its thousands of South African clients. Its board and senior management in South Africa consist of largely South Africans making it a truly South African operation. As one of the biggest employers in the online broking category, it is proud to be playing a leading role in the growing financial services industry in South Africa.
Brought to you by IG Markets South Africa.
Note that CFD losses can exceed your deposits.
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