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Wealth Management

ANSWERING THE NATION’S TOP 10 TRADING QUESTIONS

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By Annie Charalambous, Head of Communications at ETX Capital

 

The past year has been challenging on all fronts, the least of which being the nation’s finances. With many furloughed or having lost their jobs altogether, financial stresses are mounting, and getting the most out of our money is more important than ever.

As interest rates sit at historic lows, people are starting to rethink just how and where they invest their savings, and trading is one such avenue that’s seen a rise in activity over the pandemic.

Over at ETX Capital, we know that making an educated decision is imperative to success, and so we’ve looked at Google search data to reveal the most common questions budding UK traders are asking, and answered them.

 

What is stock trading? (9,900 monthly searches)

Stocks, or shares, are fractions of ownership in a publicly traded company, that anybody can buy (or sell) depending on the perceived value of that business. Traditionally, you’d want to get in (buy) at a lower price and hold onto that stock until it appreciates in value for you to make a profit.

 

What is options trading? (8,100 monthly searches)

Options are financial contracts that give their holders the ability – but not the obligation (hence option) – to buy or sell a security for an agreed-upon price on a set date, thus hedging against the risk of fluctuating market prices.

 

What is a CFD? (6,600 monthly searches)

A CFD, or Contract for Difference, is another type of trading contract, whereby you are speculating on the direction an instrument may move in, without owning the underlying asset.

You are therefore trading on the price fluctuation – “buying” if you believe its value will increase over time, or “selling” if you anticipate a decline.

 

What is forex trading? (5,400 monthly searches)

Forex, coming from foreign exchange, refers to the buying and selling of different currencies to profit from the difference in their values. The forex market is the largest in the world, seeing over $6 trillion a day in volume – everyone from holidaymakers to big banks partake in the FX market.

 

What is leveraged trading? (5,400 monthly searches)

Leveraged trading works in such a way that a retail trader can open a larger trade with less capital, with the broker putting up the rest of the balance (i.e., the leverage).

Having larger position sizes means your exposure is higher, resulting in bigger returns and conversely, bigger losses.

 

What is futures trading? (2,900 monthly searches)

Futures contracts work in such a way that two parties – a buyer and a seller – agree to exchange an asset on a fixed future date, with the profit (or loss) realized at the time of exchange.

Your profit or loss is realised at the time of the exchange, depending on how the price has fluctuated since the order was placed.

 

What is scalping? (2,900 monthly searches)

Scalping is the act of placing trades you intend to keep open for a very short amount of time, ranging from a few seconds to several minutes, to capitalize on high volatility or sharp spikes in the market.

While there are brokers that may allow scalping in some capacity, it is a form of market abuse if done frequently.

 

How to trade stocks (2,400 monthly searches)

As with any investment, research is the first step.

From choosing the right broker (you’ll want to consider fees, liquidity, selection of stocks, and of course, reputation) to finding the right markets to invest in, you should always know why you’re investing in a particular stock.

Some factors worth looking at may include analysts’ projections for stock performance, the company’s financial results (or earnings), published quarterly, as well as the dividends it pays out.

 

How are commodities traded? (2,400 monthly searches)

Commodities are, typically finite, physical products that have a fluctuating value. There are both hard and soft commodities, ranging from gold, silver, oil, and other natural resources to the likes of coffee, wheat, corn, and even orange juice.

Their value is dependent on supply and demand and can be influenced by anything from weather to politics.

 

How to trade cryptocurrencies (1,900 monthly searches)

Like forex and stocks, cryptocurrencies can be traded as either CFD products or bought and held in a virtual wallet. While more volatile than other traditional assets, cryptocurrencies can be a profitable investment if, like any instrument, you get in at the right time.

When trading crypto CFDs, you can short or sell, meaning you can profit from the drops and not just a rise in value.

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What happens to your investments after your death?

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By Jaco Prinsloo, certified financial planner at Alexforbes

Financial planning regarding the succession of investments is rarely carried out, at least in South Africa. As a result, potential heirs are often not sure what to do or where to start to claim and settle a loved ones investments. In many cases, the family is unaware of the existence of an investment portfolio. With succession planning, the transfer of assets (whether property, your bank accounts, cars or investments) is facilitated.

Today I want to focus on investment and the succession planning of investments, specifically discretionary investments, compulsory investments and policies. The type of investment will determine how the assets and proceeds get distributed, so we first need to look at the different investment types:

Discretionary investments

Discretionary investments are any investment you make with after tax money at your own discretion. Discretionary investments include:

  • Unit trusts
  • Money market accounts
  • Fixed deposits
  • South African retail bonds
  • Share portfolios
  • Tax free savings accounts

Jaco Prinsloo

These investments will form part of your estate and will be subject to estate duty and executor’s fees. However allthou a tax-free savings account forms part of your estate there are no executor’s fees payable. The proceeds from the investments will be distributed as per your Will to your nominated beneficiaries after your estate has been settled. Because these investments form part of your estate the investments will be “frozen” and no transaction or changes can be made to the investments until the proceeds are paid to the estate.

Investment and Life Policies

Life insurance is a type of insurance contract where you agree to pay premiums to keep your life cover active. If you pass away, the life insurance company will pay the life cover benefit directly to your nominated beneficiaries, which can be a person or your estate.

You also get investment policies like living annuities and endowment policies where the investment value pays to the nominated beneficiaries on your passing. One benefit of investment and life policies is that it does not form part of your estate, which means no estate duty and the proceeds get paid directly to your nominated beneficiaries giving them access to cash while they wait for the estate to be wind up. Making it an essential part of anyone’s overall financial plan.

Compulsory investments

Compulsory investments are investments which are compulsory with some employers. Working for some companies you might be required to be part of a provident or pension fund as part of your employment contract. Compulsory investments might also offer some tax benefits but investors have limited access to their money and these investments are governed by Regulation 28 stipulating where and how you can invest. Compulsory investments can be summarised as “retirement funds” and include:

  • Pension fund
  • Provident fund
  • Retirement annuity fund
  • Preservation funds

The proceeds from retirement funds are distributed as per Section 37C of the Pension Fund Act.

Which means the trustees of the fund will use their discretion to distribute the proceeds of your retirement savings to insure all dependents and beneficiaries receive equal and fair benefits. Belonging to a retirement fund you will be required to nominate beneficiaries but its important to remember the beneficiary nomination is seen as a guide to the trustees or a “wish list” and the ultimate decision on how the benefits get distributed lies with the trustees of the fund.

As shown above, it is important to keep your Will and nominated beneficiaries updated on your policies and retirement funds. So how to plan for succession?

The first step is to talk to your family members about your investments and the administrator of these investments. Secondly you can create an organised folder with all the documentation of your investments, policies, copy of your Will and personal documents like your ID copy and bank statements. Your family does not need to know the value of the investments but the knowledge of the investments and where to find all your important documents will make it easier for them to start the claim process. Speak to a certified financial planner for advice on your beneficiary nominations and to formalise your wishes in a document, thus setting up a will.

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Finance

YOUR PARTNER SHOULDN’T BE YOUR RETIREMENT PLAN

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By Buhle Langa, certified financial planner at Alexforbes

Financial independence is important during any person’s lifetime, at all stages.

By starting to plan for your retirement early in your working life, you can maintain your standard of living in your retirement years. While a life partner can be wonderful, they should not be considered as a part of your retirement plan as they may not even have saved sufficiently to meet their own requirements.

Women tend to live longer than men, and since research shows they generally earn less, this means that they need to save more, for longer, than their male counterparts.

It is important to familiarise yourself with how you were married and what the terms are should the marriage end either in divorce or death. If you are married in community of property, both you and your spouse’s assets will form part of your deceased estate and your spouse will automatically, by law, be entitled to 50% of the combined assets.

You can be married out of community of property with or without the accrual system. Being married without accrual is the easiest system to work with in your will and estate; your assets remain your own and you may deal with your assets as you wish with no claim from your surviving spouse.

Buhle Langa

Often, a home will be registered in one partner’s name while the other contributes to the bond repayments. If you are not married or are married out of community of property, ensure that you have a written cohabitation agreement. These financial contributions can be difficult to prove if the relationship ends, leaving the one partner with no claim to the property.

Having sufficient planning in place for both parties is always advisable, and each party should have their own savings and investments. A tax-free savings account is a great place to start, allowing you to save up to R36 000 a year without paying tax on the growth.

Increasing your contributions to your work retirement fund will help you accumulate larger savings for your retirement. To take advantage of the benefits of compound interest and avoid a hefty tax liability, it is also advised to keep your retirement savings invested when changing jobs. When leaving your employer, a number of tax-free options are available to you and one should seek financial advice in order to understand which of these is the best choice for you:

  • Transferring your savings to your new employer fund
  • Transferring your savings into a retirement annuity fund
  • Transferring your savings into a preservation fund
  • Keeping your funds invested within your previous employers retirement fund through a paid up status (not contributing further to the fund).

Each of the options noted have varying implications such as when you would be able to access the retirement funds either through resignation, dismissal or retirement and whether you are able to continue contributing towards the fund, therefore each individual person would need to seek financial advice from an accredited financial advisor so as to determine which option would best suit their individual needs.

Regular consultations with a certified financial planner will ensure that you are on track for a secure retirement.

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