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How much in Brokerage Fees is charged for Trading Online in South Africa? Image credit: AdobeStock

How much in Brokerage Fees is charged for Trading Online in South Africa?

Before we get into the fees, it is essential for traders to be aware that online Trading brokerages in South Africa are regulated by the FSCA, and all the firms that want to deal with the clients in SA & offer financial services must be regulated to operate legally.

An image with a hand written note.

How much in Brokerage Fees is charged for Trading Online in South Africa? Image credit: AdobeStock

The exact total charges for trading at regulated brokers depends on the instruments which you are trading, and your broker of choice.

For example, a stock broker would have different commissions for trading securities than a forex or a commodities broker.

But there are a few common charges involved that you should be aware of & check when doing your due diligence.

Overview of Online Trading in South Africa

Online Trading in South Africa is regulated by the Financial Sector Conduct Authority (FSCA).

The FSCA is responsible for licensing brokerage firms, capital market exchanges in South Africa. FSCA also oversees & supervises the conduct of financial services operators and financial institutions which includes investigating allegations of malpractice relating to financial service providers. That is why it is advisable for traders to only patronise brokers that are regulated by the FSCA.

The major stock exchange market in South Africa; Johannesburg Stock Exchange (JSE) was founded in 1887. Shares on the floor of the exchange are denominated in South African Rand (ZAR), the official currency of the country.

Well established companies which are not ready to be listed on JSE can be listed on AltX exchange; which is the subsidiary of the stock exchange. On AltX, a trader will find new companies that want to raise capital by attracting new investors.

Online traders can get the needed information of companies and trading instruments listed on the Johannesburg Stock Exchange on the JSE’s website. They can also have access to necessary details and links to companies’ websites, where they can see information about the viability and success of the companies.

There are various trading Instruments that can be traded on the floor of JSE.

These are: stocks, bonds, derivatives on currencies, commodities, debentures, Exchange Traded Funds (ETF), Real Estate Investment Trust.

What types of Fees are Involved in Online Trading?

Those who want to engage in online trading should note that every broker has different ways of charging their trading fees/commissions. The fees you will pay also depend on the type of trading instrument you are dealing in.

Karan of Safe Forex Brokers South Africa advises, “Some brokerage firms may charge traders flat rates irrespective of the volume of trade, which is common in the new age stock brokerages with zero-cost model, while some may charge you commission per share or units of trade like spread charged in forex by CFD brokers.”

“Traders should take note that the fees they will be charged for trading in stock is different from the ones they will be charged for CFDs, Forex trading, ETFs and other speculating Instruments.”

Depending on the brokerage firm, the fees for trading online can be from little amount of money to $20 or around R300 going by the current exchange rates of 1USD = 14.6633 ZAR.

1: Commission

Brokers charge commission on traded volume or at a flat fee per volume of trade.

In South Africa, on many occasions, the commission is either a flat fee per trade (for example, 70 ZAR per trade) or based on the number of traded shares, such as 0.005 ZAR/share.

Some brokers don’t charge commissions on regular accounts but charge for premium accounts where the transaction volume is usually large, and the risk is also higher.

If a forex broker charges a commission of R70 per lot of EUR/USD traded (100,000 units) and you want to initiate a 0.07 lot trade, you will pay a commission of R70 x 0.07 = R4.9.

2: Margin rate

Trading on margin can be defined as a situation where a trader borrows money from his broker to engage in trading activities.

For example, if an investor has a margin account with a stockbroker and deposited $1,000 cash, the investor may end up purchasing stocks that are more than $1,000; he must pay interest on the money he borrowed.

The rate at which brokers charge interest rate on margin differ. Some brokerage firms may set interest rates at 5% while some may set lower interest rates of 1% to 3 %.

So, imagine that the trader borrowed  $500 to engage in online trading and his broker charged 2% interest rate; therefore, 2% of  is $500 equals $10. So, in this case, $10 is the interest charged by the brokers.

3: Currency conversion fee

This fee is charged by your broker when you perform a trading transaction that requires currency conversion.

For instance, assuming you want to buy stock of a company denominated in USD from your ZAR brokerage account, your broker will be required to convert your ZAR to USD and charge a fee for it. The amount will depend on the exchange rate at that particular time.

Conversion fees could have serious negative impact on your trade. You can reduce the effect or even avoid it totally if you have different trading accounts in different currencies with the same broker.

In the case of deposits and withdrawals, the broker would first change the local currency to dollars before transferring it into your trading account. This also attracts a commission from your brokerage firm.

4: Spread

This can be defined as the difference between the bid and ask price of a security. This spread is simply the cost for providing transaction.

Against this background, it is known as “transaction cost”.

The broker, instead of charging another fee for this, would inculcate the cost into the buying and selling price of the stock, commodity or currency pair (forex) you want to trade in.

In Forex trading, to calculate the spread; a trader needs to figure out the difference between the buy and the sell price in pips. This can easily be achieved by subtracting the bid price from the ask price.

For example, if you are trading EUR/USD at 1.3089/1.3090, calculating the spread will give you 1.3090 – 1.3089 which results in 0.0001 (1 pip).

5. Stock Exchange Fees

Brokers are charged some fees by the JSE and majority of the brokerage companies make the traders bear the brunt of the cost in form of flat rate fees, standard fees and so on. Albeit, the expenses may be much, but not as the cost of federal stamp duties.

6: Account Fees

A sizeable number of Brokerage firms charge account fee: which is charged with a view to maintaining an account with them. Just like others, the fee depends on the trading Instrument and the type of broker.

7: Overnight Trading Fees

A trader who holds a short-term trade and wants to keep the trading activities open overnight, will be charged an overnight interest fee by his brokerage firm. The fees will be charged on CFD trading activities from 10 pm UK time. Your broker will ensure he reflects the cost of funding your trade overnight

8: Account inactivity fees

This is charged when your trading account has been dormant for a period of time. The dormancy period differs with each broker. 

9: Capital Gain Tax

This is not exactly a brokerage fee, but you will have to pay taxes on any profits which you make from your trading activities. 

Long term capital gain (LTCG) tax is levied when you sell an asset you have held for more than 365 days while short term capital gain (STCG) is levied on sales proceeds of assets held for not more than one year.

10: Account closure fees

Although it is not common, some brokers could also ask you to pay charges if you are closing your account and transferring the money to a different broker. 

Managing Effects of Trading Costs

Every broker is different when it comes to the fees they charge on trades. Having a knowledge of trading costs is essential for managing your portfolio.

You should have it at the back of your mind that excessive fees can seriously cut into your returns.

You can trade with a brokerage firm that doesn’t charge commissions on stocks and other speculative online Investments. Some of these firms are new and they are adopting strategies to woo traders to their folds. Many of them waive minimum deposit fees to encourage new traders.

Beware of Scams

Many scam brokers & robo-advisors try to take advantage of traders by promoting themselves as low-cost alternatives. New traders can find such promotions lucrative because of low costs. But to save up on costs, you should not fall for scams. 

Do your due-diligence on the safety of your funds with that provider, and don’t just consider the costs only.

After deciding on a particular trading Instrument which you want to trade, choose a reliable & regulated broker or brokerage firm.

It should be noted that there are some foreign brokers that accept clients in South Africa, but don’t have offices in South Africa. Such brokers can turn out to be scams.

Hence, it is advisable for the traders to patronise only brokers that are authorised by FSCA as this will ensure easy access and prompt response when there is any complaint.