South-Africa faces Load shedding, Brain drain, Violent crime, Corruption, Political instability and many more challenges.
And When you find yourself in a position where the only government department in your country that works seems to be the receiver of revenue all hope may seem lost…
Yet there are still things you can do to secure your financial future, the types of things that make you anti-fragile and detach you from the direction the country is going, while allowing you more freedom than you thought possible.
That something is naturally
Cryptocurrency
And if you’re interested, we are gonna cover everything you need to know as a South-African to setup your accounts and trade effectively, even the nitty gritty regulatory and tax related stuff that is so easy to neglect, however that will be covered in the later parts of this series on the South-African Crypto Markets.
For now, let’s focus on what’s important
Our other articles in this 5-part series cover:
- Introduction to cryptocurrency trading in South Africa
- Legal and Regulatory Framework for Cryptocurrency Trading in South Africa
- Tax Implications of Cryptocurrency Trading in South Africa
- Future Developments and Trends in the Cryptocurrency Market in South Africa
- Picking the right exchange for trading cryptocurrency in South-Africa
For now however, let’s continue with this introduction, as we explore:
What is Cryptocurrency and how does it work?
Just in case you’ve been living under a rock for the past 14 years or so while the bug was biting your friends.
Do not worry however, even if that’s the case we’ve got you covered!
Cryptocurrency is a digital or virtual currency that uses cryptography for security. It is intended to operate independently of a central bank and is decentralized, which means that it’s not controlled by any government or financial institution. Bitcoin is the most well-known cryptocurrency, but there are thousands of others in circulation.
In the case that you really are brand new to cryptocurrency, I strongly recommend checking out our complete beginner’s guide, where you will find a comprehensive overview of how cryptocurrency works, it’s potential benefits, risks and everything else you need to know to trade safely and successfully!
What are the risks associated with trading cryptocurrency?
As with any investment, there are risks involved in cryptocurrency trading.
Here are five main risks you should be aware of, depending on the nature of trading you are doing:
- Volatility: Cryptocurrencies are notoriously volatile and their value can fluctuate rapidly. This means that you could potentially lose a significant amount of money.
- Hacking and theft: Cryptocurrency exchanges and wallets have been targeted by hackers in the past, leading to the theft of millions of dollars’ worth of cryptocurrency.
- Regulatory risk: The regulatory landscape for cryptocurrency is constantly changing, which could affect the value of your investment.
- Liquidity risk: Cryptocurrency markets can be illiquid, which means that it can be difficult to buy or sell large amounts of cryptocurrency at once.
- Operational risk: Technical issues or errors can cause losses, particularly if you’re trading on margin.
To minimize these risks, we recommend following these best practices:
- Never invest more than you can afford to lose.
- Always secure your passwords and key phrases offline
- Always do your own research before investing in any cryptocurrency.
- Store your long term assets in a secure wallet that only you have access to.
- Create a trading plan to provide a framework and limit emotional reactions
Always trade carefully, especially with high margin! Be sure yo check out our guide on how not to lose all your money trading crypto if you’re new to differential trading!
What are the fees associated with trading cryptocurrency?
When researching exchange fees, you are very likely to come across a comparison table resembling something like this:
Maker/Taker Table
| Exchange | Trading Pairs | Maker Fee | Taker Fee |
|---|---|---|---|
| Bybit | Spot/Futures | 0.1/0.01% | 0.1%/0.06% |
| Binance | Spot/Futures | 0.1%/0.012% | 0.10/0.030% |
| Kucoin | Spot/Futures | 0.10%/0.02% | 0.10%/0.06% |
| Valr | Spot | 0.25% | 0.25% |
| Luno | Spot | 0.10% | 0.10% |
Unfortunately a lot of this information is a LIE!
Well at the very least concealing the truth.
You see, these are not the only fees exchanges add. In the example above, while both the statements on Bybit and Luno are true. Bybit‘s is actually a good deal, where Luno’s great offer has you paying in other ways!
These fee’s only show the maker and taker fees, but none of the other hidden fees!
The South-African exchanges, have a supply and demand surcharge policy in place, which basically means that you pay anywhere up to 35% more than market for crypto on some of them.
We cover more of this in in part 5 of this series where we explore the best exchanges in South-Africa in depth!
In case you’re wondering
What is a maker fee?
Maker fee: a fee charged to traders who add liquidity to the order book by placing limit orders that don’t immediately execute.
What is a taker fee?
Taker fee: a fee charged to traders who remove liquidity from the order book by executing a market or limit order.
What is a Order book?
The order book is a list of buy and sell orders for a particular asset on a trading platform. It shows the current market demand and supply for the asset, with buy orders on one side and sell orders on the other.
When you start using API’s or Application programming interfaces to link various trading platforms in order to creation of a global order book you get a larger movement towards something called decentralized finance (DeFi), which seeks to create a more open and transparent financial system that is not dependent on centralized intermediaries like banks and exchanges.
How is the Maker-Taker Model used?
This maker-taker fee model is used by many cryptocurrency exchanges to encourage liquidity and trading activity on their platform. By offering lower fees for makers, exchanges hope to incentivize traders to add more orders to the order book, which in turn increases liquidity and trading volume.
Hence a platform like Bybit is willing to incur a “loss” on their Maker fees, to encourage more users to trade on their plotform
Where do the hidden costs come in?
Usually when you see trading fees, we are presented in a table form similar to the one seen above, however in addition to maker and taker fees, cryptocurrency exchanges may also charge other fees. Which makes all the difference to us Saffas.
Here are some common ones:
- Deposit and Withdrawal Fees: Some exchanges may charge fees for depositing or withdrawing funds from your account. These fees can vary depending on the type of currency and the amount being deposited or withdrawn.
- Trading Limits: Some exchanges may have trading limits, which restrict the amount of cryptocurrency that you can trade in a certain period. These limits may be based on factors such as your account level, verification status, and trading history.
- Inactivity Fees: Some exchanges may charge inactivity fees if you don’t use your account for a certain period of time. This fee is usually charged on a monthly basis and can range from a few dollars to a percentage of your account balance.
- Network Fees: When you send cryptocurrency from one address to another, you may need to pay a network fee to cover the cost of processing the transaction on the blockchain network. These fees are typically paid to miners and are not controlled by the exchange.
- Higher Resale rates: The one most applicable to exchanges like Luno and Alt coin trader, where you are simply paying 15-20% more for a product, meaning that any asset you purchase, is already purchased at a higher than market rate, and should you transfer it to another exchange trading at normal exchange rates, you would have already incurred a loss.
Hidden Fees like this can become really costly to a new trader, especially if you are depositing larger amounts, the percentages stack up very quickly.
Luckily there are some work arounds that will save you a lot of time, money and frustration
How do I choose the right cryptocurrency exchange in South Africa?
Unfortunately, just like with everything else in South-Africa nothing is a perfect fit, and we have a few extra steps we need to complete if we would like to have that easy breezy trading experience every journeyman crypto trader so desires.
If you’re looking for a well balanced and affordable platform for spot trading, then it’s definitely got to be VALR or Binance. They both offer multiple services affordable rates, a wide variety of tokens, fair trading fees, reasonable deposit & withdrawal fees and as an overall a pretty user friendly experience.
Binance also offers futures trading to it’s customers
However, when it comes to futures trading, if Bybit claimed to be second best for leverage traders, no company would claim to be first.
With x100 leverage on major pairs and a seamless user experience it is a traders dream, just that unfortunately it does not offer withdrawals into Rands
To work around this, personally I simply use bybit for my deposits and trading and Binance or VALR for my withdrawals.
Using the Binance protocol and BEP-2 a transfer between bybit and binance costs me $0.25!
Conclusion
While trading Crypto in South-Africa is not as seamless as it is in certain other countries, it has come a long way, and by making use of the right trading platform you can create a pretty user friendly and easy to setup up trading experience for yourself.
Substantially easier than trading International stocks or even getting set up on the JSE. All of this with the added benefit of 24 hour markets, higher leveraged trading and much friendly user experience than these more traditional platforms.
We aren’t done with our introduction yet, so if you want to create a strong foundational knowledge of what you’re planning to spend a large part of your life playing around with, the I strongly recommend you check out the next part in this series where we explore:
Legal and Regulatory Framework for Cryptocurrency Trading in South Africa
Then be sure to check out our trading resources to make sure you have the knowledge and capability to match your shiny new trading platform!
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