Quick Facts

• Shorting and options are advanced trading strategies on the JSE
• You must use an FSCA-licensed broker to trade derivatives
• High risk – you can lose more than your investment
• Not suitable for beginners with low financial knowledge

🚨 Critical Warning for South African Readers

This article covers advanced trading strategies. Shorting and options trading are high-risk activities.

You can lose MORE than your original investment. These strategies are not suitable for most people.

If you have low financial literacy, start with basic investing first. Do not use money you need for living expenses.

What Are Shorting and Options?

Basic Definitions

Normal Share Buying: You buy a share for R100. You hope it goes up to R150. You make R50 profit.

Shorting (Short Selling): You borrow a share worth R100. You sell it immediately. You hope the price drops to R50. You buy it back for R50. You return the borrowed share. You keep R50 profit.

Options: You pay R5 for the right to buy a share at R100. If the share goes to R120, you can still buy at R100. You make R15 profit (R20 minus the R5 you paid).

Why People Use These Strategies

Shorting lets you profit when share prices fall. Options let you control shares with less money upfront.

Professional traders use these to protect other investments. They also use them to make money from market movements.

The Johannesburg Stock Exchange (JSE)

The JSE is Africa’s largest stock exchange. It is located in Sandton, Johannesburg.

As of December 2024, over 400 companies are listed on the JSE. The market value is over R21 trillion.

The JSE offers shares, bonds, and derivatives. Derivatives include futures and options.

How the JSE Works

Trading Hours

The JSE is open Monday to Friday. Trading hours are 9:00 AM to 5:00 PM. It is closed on weekends and public holidays.

In July 2025, the JSE announced plans to consider 24-hour trading. This would allow trading at any time of day.

You Cannot Trade Directly

Important: You cannot buy or sell shares directly on the JSE. You must use a licensed stockbroker.

The broker acts as the middleman between you and the JSE. They place your orders on your behalf.

Recent JSE Changes in 2024

In September 2024, the JSE split its main board. It now has three segments:

• Prime Segment (for large companies)
• General Segment (for medium companies)
• AltX (for small and growing companies)

These changes aim to make it easier for companies to list on the JSE.

Requirements to Start Trading

Step 1: Choose a Registered Broker

You need a stockbroker who is a member of the JSE. The broker must be licensed by the FSCA.

Check the FSCA register: Visit www.fsca.co.za to verify your broker is licensed.

Step 2: Open a Trading Account

Contact your chosen broker to open an account. You will need to provide:

• Copy of your South African ID or passport
• Proof of residence (utility bill or bank statement)
• Bank account details
• Completed application forms
• Tax number (for SARS reporting)

Step 3: Fund Your Account

You deposit money into your brokerage account. The minimum amount varies by broker.

Some brokers require R1,000 minimum. Others may require R10,000 or more for derivatives trading.

Special Requirements for Derivatives

Options and shorting are derivatives. They have stricter requirements:

• You may need to prove investment experience
• You may need a higher minimum balance
• You must sign additional risk disclosure forms
• Some brokers require you to pass a knowledge test

Can Foreigners Trade on the JSE?

Yes. Foreign investors can trade on the JSE. You need to find a South African broker who accepts international clients.

Costs and Fees

Broker Fees

Different brokers charge different amounts. Fees typically include:

Fee Type	Typical Cost
Account Opening Fee	R0 – R500 (one-time)
Monthly Admin Fee	R50 – R150 per month
Trade Commission (Shares)	0.5% – 1.5% of trade value
Derivatives Trading Fee	R30 – R100 per contract
Options Premium	Varies (market price)
Inactivity Fee	R50 – R500 if no trades

Example Cost Calculation

Scenario: You buy R10,000 worth of shares

• Trade commission (1%): R100
• Monthly admin fee: R100
• Total cost for first month: R200

The share price must increase by at least 2% just to break even.

Additional Costs for Shorting

When you short sell, you borrow shares. You must pay:

• Stock borrowing fee (varies by share)
• Interest on the borrowed value
• Commission when you sell
• Commission when you buy back

Tax Implications

You must pay tax on profits from trading. SARS considers this income.

If you trade frequently, you may pay income tax (18% to 45%). If you invest long-term, you pay capital gains tax.

Keep records of all trades for tax purposes. Consult a tax professional for advice.

Understanding Shorting (Short Selling)

How Short Selling Works

Step 1: You think a share price will fall. For example, Company ABC is R200 per share.

Step 2: Your broker borrows shares from another investor. You sell these borrowed shares at R200.

Step 3: The price drops to R150. You buy the shares back at this lower price.

Step 4: You return the shares to the original owner. You keep the R50 difference as profit.

JSE Rules on Short Selling

The JSE allows short selling but has strict rules:

• You must own the shares OR have borrowed them before selling
• Naked short selling is illegal (selling without borrowing first)
• Your broker must confirm shares are available to borrow
• Settlement must happen within the required timeframe

New Disclosure Rules (2025)

In February 2025, the FSCA proposed new rules for short selling disclosure. These rules may require:

• Reporting of significant short positions
• Public disclosure of short sales
• Greater market transparency

Check with your broker for the latest requirements.

When Shorting Can Work

Professional short sellers research companies carefully. They look for:

• Companies with declining profits
• Businesses with high debt levels
• Industries facing permanent changes
• Overvalued share prices

Famous short sellers like Viceroy have exposed problems at South African companies. But they do extensive research first.

⚠️ Why Shorting Is Extremely Risky

With normal share buying, your loss is limited. If you buy a R100 share and it goes to R0, you lose R100.

With shorting, your losses are UNLIMITED. The share price can keep rising forever.

Example of unlimited loss:

• You short 100 shares at R100 each (R10,000 total)
• Instead of falling, the price rises to R300
• You must buy back at R300 (R30,000 total)
• You lose R20,000 – double your original investment

The price could go even higher. There is no limit to your potential loss.

Most beginner traders should NEVER use short selling.

Understanding Options Trading

What Is an Option?

An option is a contract. It gives you the RIGHT (but not the obligation) to buy or sell a share at a set price.

You pay a fee called a “premium” to get this right. The option expires after a certain date.

Two Types of Options

Call Option: The right to BUY a share at a set price

Put Option: The right to SELL a share at a set price

Call Option Example

Shoprite shares cost R200 today. You think they will go up.

• You buy a call option for R10 per share
• The option lets you buy at R200 (called the “strike price”)
• The option expires in 3 months

If the price goes to R250:

• You use your option to buy at R200
• You can sell immediately at R250
• You make R50 per share
• Minus the R10 premium = R40 profit

If the price stays at R200 or falls:

• Your option is worthless
• You lose the R10 premium you paid
• You don’t have to buy the shares

Put Option Example

Discovery shares cost R150 today. You think they will fall.

• You buy a put option for R8 per share
• The option lets you sell at R150
• The option expires in 2 months

If the price falls to R120:

• You buy shares at R120
• You use your option to sell at R150
• You make R30 per share
• Minus the R8 premium = R22 profit

JSE Options Available

The JSE offers single stock options on major companies. These include:

• Top 40 companies (Shoprite, Discovery, Naspers, etc.)
• Major bank shares
• Mining companies
• Index options (ALSI Top 40)

Options Advantages

• Your maximum loss is the premium you paid
• You can control shares with less money upfront
• You can profit from price movements without owning shares

Options Disadvantages

• The premium is lost if the price doesn’t move enough
• Options have expiry dates – time works against you
• More complex to understand than buying shares
• If you SELL options, you can face unlimited losses

🚨 Major Risks and Dangers

Risk 1: Unlimited Losses (Shorting)

When you short sell, there is no limit to how much you can lose. Share prices can rise indefinitely.

In extreme cases, traders have lost their entire savings plus borrowed money.

Risk 2: Time Decay (Options)

Options lose value as they approach expiry. This is called “time decay.”

Even if the share price stays the same, your option loses value every day.

Risk 3: Leverage Amplifies Losses

Derivatives let you control large positions with small amounts of money. This is called leverage.

A 10% move in the share price can mean a 100% loss (or gain) in your position.

Risk 4: Margin calls

If your positions move against you, your broker may demand more money immediately. This is called a margin call.

If you cannot provide the money, your broker will close your positions at a loss.

Risk 5: Market Volatility

Share prices can move violently. News, elections, or global events can cause sudden price changes.

In 2024-2025, South African markets faced uncertainty from elections, grey-listing, and global instability.

Risk 6: Complexity

Derivatives are complex financial instruments. Even experienced traders make costly mistakes.

If you don’t fully understand how they work, you should not trade them.

🚨 Scams and Red Flags

Common Investment Scams in South Africa

In 2024-2025, the FSCA issued over 100 warnings about investment scams. Scammers target people interested in trading.

Red Flag #1: Guaranteed Returns

No legitimate investment can guarantee profits. If someone promises you will definitely make money, it is a scam.

Example scam claims: “Earn 20% per month guaranteed” or “Double your money in 6 days.”

Red Flag #2: Social Media Contact

Legitimate brokers do not sell services on Telegram, WhatsApp groups, or TikTok.

If someone contacts you on social media with “investment opportunities,” it is likely a scam.

Red Flag #3: Cryptocurrency Payments

Scammers prefer Bitcoin and cryptocurrency because transactions cannot be reversed.

Legitimate JSE brokers accept normal bank transfers, not crypto.

Red Flag #4: Pressure to Act Quickly

“Invest now or miss out!” is a common scam tactic. Legitimate opportunities do not disappear in hours.

Red Flag #5: Unlicensed Operators

Always check the FSCA register. If the broker is not listed, do not send money.

Website: www.fsca.co.za – Click on “Authorised Financial Services Providers”

Recent South African Investment Scams

• Tiger Agriculture (2024): Promised 257% monthly returns from farming. Was a pyramid scheme.
• Fake JSE Trading Apps (2024-2025): One person lost R6 million to scammers posing as bank employees with fake JSE apps.
• Telegram Investment Groups (2025): Fake groups impersonate legitimate companies like Sanlam.
• Mirror Trading International: Over R8 billion crypto scam.

Protecting Yourself

• Never share your banking passwords or OTPs
• Never download apps from unofficial sources
• Check the FSCA register before investing
• Be suspicious of unsolicited investment offers
• Do not trust celebrity endorsements on social media

Where to Report Scams

Organisation	Contact
FSCA (Financial Sector Conduct Authority)	0800 110 443 www.fsca.co.za
SABRIC (Banking Fraud)	www.sabric.co.za
SAPS (South African Police)	10111 (emergency) Your local police station
National Consumer Commission	0860 003 600

✅ Your Consumer Rights

FSCA Protection

The Financial Sector Conduct Authority (FSCA) regulates all financial services in South Africa.

FSCA-licensed brokers must follow strict rules:

• Keep your money separate from their own money
• Provide clear risk warnings
• Give you proper documentation
• Handle complaints fairly

Right to Clear Information

Your broker must explain:

• All fees and charges in writing
• The risks of each product
• How the products work
• How to make complaints

Cooling-Off Period

For some financial products, you have a cooling-off period. This means you can cancel within a certain time.

Ask your broker about cooling-off rights for derivatives accounts.

If You Have a Complaint

Step 1: Contact your broker’s complaints department in writing.

Step 2: If not resolved within 30 days, contact the FAIS Ombud:

• Phone: 012 762 5000
• Email: info@faisombud.co.za
• Website: www.faisombud.co.za

Step 3: You can also report to the FSCA at 0800 110 443.

✅ Safer Alternatives for Beginners

If shorting and options are too risky, consider these alternatives:

1. Buy-and-Hold Shares

Buy shares in good companies. Hold them for many years. This is the safest way to invest.

You can only lose what you invested. No unlimited losses.

2. Exchange Traded Funds (ETFs)

ETFs let you buy a basket of shares in one transaction. They spread your risk.

Popular South African ETFs include Satrix Top 40 and CoreShares S&P 500.

Minimum investment can be as low as R500 per month.

3. Unit Trusts

Professional fund managers invest your money. They make the decisions for you.

You pay management fees but get professional expertise.

4. Tax-Free Savings Accounts

You can invest up to R36,000 per year tax-free. Lifetime limit is R500,000.

Choose from ETFs, unit trusts, or bank savings within the tax-free wrapper.

5. Paper Trading First

If you still want to try derivatives, use a demo account first.

Practice with fake money for at least 6 months. See if you can make consistent profits.

Only then consider risking real money – and only money you can afford to lose.

Frequently Asked Questions

Q: Can I short sell on my phone banking app?

A: No. Most bank apps only allow basic share buying. You need a specialized derivatives broker.

Q: How much money do I need to start?

A: Most derivatives brokers require R10,000 to R50,000 minimum. Some require more.

Q: Is derivatives trading like gambling?

A: Without proper research and risk management, yes. Professional traders use these tools carefully with stop losses and position limits.

Q: Can I get rich quickly with options?

A: No. Most option traders lose money. “Get rich quick” is a scam mentality that leads to losses.

Q: What if my broker goes bankrupt?

A: Your shares are held separately at the Central Securities Depository (Strate). But cash in your account may be at risk. Check your broker’s financial strength.

Q: Are there courses to learn derivatives trading?

A: Yes. The JSE offers free educational materials on their website. SAIFM (South African Institute of Financial Markets) offers paid courses. Be wary of expensive “trading gurus.”

Q: Can I lose my house through derivatives trading?

A: Yes, if you borrow money (take out a bond) to trade. Never borrow to invest in derivatives. Only use money you can afford to lose completely.

For Most South African Readers:

Do NOT trade derivatives. The risks far outweigh the potential rewards for beginners.

Focus on building wealth through proven methods:

• Start with a tax-free savings account
• Buy low-cost ETFs monthly
• Hold investments for 10+ years
• Reinvest all dividends

If You Still Want to Try Derivatives:

• Only use money you can afford to lose completely
• Practice on a demo account for 6-12 months first
• Never use borrowed money
• Use only FSCA-licensed brokers
• Never risk more than 2% of your capital on one trade
• Always use stop-loss orders
• Accept that most traders lose money

Warning Signs to Stop Trading:

• You are losing more than you win
• You feel stressed or cannot sleep
• You are borrowing to cover losses
• You are hiding trading from family
• You are chasing losses with bigger bets

Building wealth takes time and patience. There are no shortcuts. Protect your financial future by making wise choices.