How to hedge during a recession in South Africa revealed. We have extensively researched how South African investors and traders can hedge their position during a recession.
This is a complete guide on hedging during South Africa’s recession.
10 Best Forex Brokers in South Africa for 2025
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In this in-depth guide, you’ll learn:
- What is a recession?
- What leads to a recession?
- Historical Recessions
- The Business Cycle and Investing
- How does a recession affect investing and trading in South Africa?
- How to Hedge during a Recession in South Africa
- How to Choose the Right CFD Broker in South Africa
- The Best CFD Brokers in South Africa
How to Hedge During a Recession in South Africa – 10 Key Point Quick Overview
- ✅ What is a recession?
- ✅ What leads to a recession?
- ✅ Historical Recessions
- ✅ The Business Cycle and Investing
- ✅ How does a recession affect investing and trading in South Africa?
- ✅ How to Hedge during a Recession in South Africa
- ✅ How to Choose the Right CFD Broker in South Africa
- ✅ The Best CFD Brokers in South Africa
- ✅ Conclusion
- ✅ Frequently asked questions
What is a recession?
The term “recession” describes a period of economic contraction lasting more than six months. For example, suppose GDP falls for two consecutive quarters. In that case, economists agree that the economy has contracted, and the country has entered a recession.
When a nation, region, or the whole globe experiences a period of declining economic activity, this is known as a recession. Although recessions may have severe consequences, they are an inevitable element of the economic cycle.
Economies grow until they peak, then decrease until they trough, before growing again. When a nation’s economy begins to decline, we say it is in recession. A recession will persist for at least six months, but its maximum duration is undetermined.
In addition, when the effects of a recession last for an extended length of time, economists speak of depression.
What leads to a recession?
Any failing economic sector may trigger a recession by setting off a chain reaction that affects other sectors. For example, many people may lose their houses if the housing market had a bubble and subsequent collapse, and the economic crisis could spread.
A prolonged oil crisis may raise prices, shut down big companies, and force layoffs, all of which would cause many consumers to reduce their spending.
When circumstances are good, lenders may be overly willing to provide credit, leaving them empty-handed when economic conditions worsen, leaving borrowers saddled with high interest rates and high debt loads just when they face job loss or a salary reduction.
Numerous factors contribute to the health of an economy, such as the number and quality of employment available, the condition of the housing and construction markets, the output of manufacturing facilities, and so on.
When warned that the economy is in crisis. Things are likely to worsen, and individuals and companies, driven by the emotions of humans rather than reason, react by taking protective measures, which further fuel the recession, according to some experts.
Historical Recessions
Price swings in products, currencies, real estate, and stocks have been out of the norm since the early 1980s, contributing to five major financial crises, namely:
- There was a crisis in Latin America in the early 1980s
- The crisis in Japan in the early 1990s
- The East Asian crisis in the middle of 1997
- The global financial crisis of 2007-2008
- The Euro debt crisis in 2009 until the late 2010s
Latin America Debt Crisis
The political atmosphere of Latin America has changed dramatically since the 1980s when a notable wave of democracy replaced a military government with civilian authority. In 1981, the global economy entered a recession as nominal interest rates climbed.
Similarly, commercial banks started charging higher interest rates on loans and shortening the length of time borrowers had to pay them back. As a result, unbearable debt loads quickly became a problem for Latin American nations.
Economic turbulence in Japan during the 1990s
In the early 1990s, the country went from being an economic superpower and a role model for the world in industrial policy, management, and product engineering to a struggling nation amid the worst economic downturn since World War II.
East Asian Financial Crisis in 1997
After months of negative market pressure, Thailand ceased protecting the baht in July 1997, sparking a rapid decline in the currency and the onset of the Asian Financial Crisis.
Subsequently, currencies throughout the area fell, some of them drastically. Finally, however, Korea could escape a sovereign default with the support of the IMF, other international organizations, and many of its allies overseas.
The Global Financial Crisis of 2007-2008
Falling US housing values and an increase in the number of defaulting borrowers were the primary causes of the global financial crisis.
Midway through 2006 was the high point for housing prices in the United States, coinciding with a surge in the number of newly constructed homes in certain regions.
By the summer of 2007, it was becoming clear that the world’s financial markets were ready for poetic justice for a decade-long excess of easy lending.
Two Bear Stearns hedge funds had failed, BNP Paribas was advising investors that they would not be able to withdraw monies from three of its funds, and Northern Rock was due to request emergency liquidity from the Federal Reserve.
But despite the red flags, few investors were prepared for the greatest crisis in almost eight decades, which brought Wall Street’s titans to their knees and triggered the Great Recession.
Many regular individuals lost their jobs, life savings, or houses because of the catastrophic financial and economic collapse.
The Euro debt crisis from 2009 to late 2010s
There was a multi-year debt crisis in the European Union (EU) beginning in 2009 and continuing into the middle of the late 2010s. This crisis goes by a few names, including the eurozone crisis and the European sovereign debt crisis.
Greece, Portugal, Ireland, Spain, and Cyprus were just some of the eurozone countries that needed help from other countries.
The European Central Bank (ECB) and the International Monetary Fund (IMF) were approached to back or refinance their government debt or bail out over-indebted banks under national supervision.
The rapid drying up of international capital flows into nations with large deficits and reliance on foreign credit precipitated the Eurozone crisis.
The crisis was exacerbated because governments could not reduce their currency’s value, a strategy known as devaluation. Ireland and Portugal were allowed to leave their bailout programs in July 2014 because of a return to economic growth and reduced structural deficits.
In 2014, both Greece and Cyprus re-established limited market access. An official bailout plan was never granted to Spain. Financial aid for the government was not part of the ESM bailout package, which was used to recapitalize banks.
The effect on the global crisis and South Africa 1980s to date
South Africa has been hit particularly hard by the worldwide economic collapse. There was a recession in 2008/2009, the first in the economy in 19 years. The unemployment rate has remained stubbornly high at 25%, and almost a million jobs were lost in 2009.
Although economic growth has picked up again recently, the recovery remains weak, and a new recession is still a distinct possibility.
Government is under increasing political pressure to re-evaluate its economic policies in the face of rising unemployment and poverty, which have increased demands on public resources despite declining income.
The Business Cycle and Investing
The business cycle is the best starting point for figuring out the current economic climate and how it influences the stock market. The business cycle typically consists of four distinct phases, each of which might span from a few months to years.
Phase 1 – Peak
The economy is at full throttle during this phase. In addition, incomes are rising, employment is at or near record highs, and the real gross domestic product (GDP) is expanding at a solid clip.
The stock market has responded positively to the improving economic climate, with numerous firms and sectors seeing their share values reach new highs. Companies could even increase dividend payments to demonstrate appreciation to shareholders for their sustained support and investment.
Phase 2 – Recession
Income and employment drop after a period of rapid expansion for a variety of reasons.
A supply shock, an invasion, a quick correction in asset values that had gotten out of hand, or a decrease in consumer spending because of inflation might cause a recession, which could cause businesses to lay off workers.
Normal stock price declines occur during economic downturns. Stock values in the market may fluctuate wildly. The stock market is overly sensitive to any rumors of news, good or bad, and the rush to safety may prompt some investors to withdraw their funds completely.
Consumer spending falls more as unemployment rises, creating a downward spiral that worsens the economy.
Phase 3 – Trough
Production and employment drop to their lowest levels before beginning to grow again at the trough of the economic cycle. In addition, price drops and pay decreases result from a recent consumer and business investment slowdown.
Phase 4 – Recovery/Expansion
Companies employ more people because of increased output brought on by increased consumer spending. As a result, wages are pushed upward as employers compete for available employees and the resulting increase in disposable income benefits both workers and consumers.
That lets businesses increase prices, which sparks inflation that is initially mild but has the potential to stop growth and restart the cycle if it goes too high. But most economies develop over the long run, with each peak greater than the previous.
How does a recession affect investing and trading in South Africa?
Overall, stock values tend to decline during recessions. There are a few different causes for this. One reason is that people lose faith in the economy and their purchasing power when it drops.
Businesses lose money when consumers cut down on spending. Several stock prediction programs let you observe the general sentiment of the market. This can offer you an idea of how other investors are currently acting.
When businesses experience a downturn, they might be forced to reduce expenses, including wages, to survive. This includes reducing spending on R&D, which might be detrimental to future growth. Because of everything said above, stock values are more likely to fall than rise.
However, every rule has its exceptions. Although the market tends to fall during recessions, there are always some bright spots. Because even if some of your stocks are falling, others may be thriving, which is another reason a varied portfolio is so crucial.
How to Hedge during a Recession in South Africa
By creating short positions in markets that would provide gains that mitigate the total loss on a portfolio of shares during market declines or by investing in unrelated markets, “hedging” is a strategy that aims to lower the overall risk on a portfolio.
Diversifying your holdings by purchasing different asset classes, such as real estate, commodities, or bonds, is one way to lessen your overall exposure to risk.
A diversified portfolio will contain some asset allocations that may experience stronger returns in times of economic distress and avoid over-concentrating on a single asset class like stocks.
The second strategy is to boost holdings of “defensive” equities like utilities, which often outperform more volatile sectors during market downturns. The large dividends these companies often pay and their outperformance may help mitigate losses without preventing them.
Finally, shorting stocks or indexes is another way to make money from price declines. However, it is important to carefully manage risk and close these positions when the market starts to climb again to avoid further losses.
Consider going short (selling) on stocks
The best stocks to buy in a favorable market have been doing the best recently. On the other hand, when equities gradually lose value in bear markets, investors should seek opportunities to short the worst performers.
South African traders and investors can mitigate losses on their portfolio’s ‘long’ side by shorting equities. CFDs allow this, giving you access to a wide variety of stocks worldwide.
Investors and traders may use leveraged trading through CFDs to take advantage of lower prices without converting currencies. Even though the gains from these short positions may not be enough to cover the losses sustained by the main portfolio, they might help mitigate such losses.
Increase Cash Reserves
Putting money in the bank does not provide particularly good profits. But in a down economy, it may be a real lifesaver.
Having money in a money market account or CDs might assist cushion your finances in the event of a stock market crash. In addition, if you worry that a recession may force you to be out of work for a lengthy period, it is essential that you have some savings put aside.
Avoid Volatile Sectors that are most affected by a recession
You may want to re-evaluate your asset allocation plan if a recession seems likely.
It is important to evaluate the level of risk you are willing to accept with your money and the types of industries you are putting your money into. In a down economy, certain industries are more resilient than others.
According to some analysts, the industries that survive recessions the best are the ones that people depend on daily. So, by analyzing past industry patterns, you may determine where it is safest to invest before a downturn.
Consider Passive Income Streams
Having regular passive income assets may be especially useful during tough economic times. Dividend stocks, P2P loans, and index funds with little management are all options.
Protect yourself from Inflation
The effects of inflation on purchasing power may be significant. As a result, some recommend investing in gold and silver as a potential inflation hedge. Instead, invest in commodities or Treasury Inflation-Protected Securities (TIPS). Your portfolio might take less of a hit from inflation.
Use ETFs to Hedge your position
Hedge funds, or exchange-traded funds (ETFs), are a type of hedge that enable investors to protect their holdings without resorting to derivatives or other convoluted financial instruments.
Some investors may choose ETFs due to their lower costs and greater accessibility. For example, hedge funds often utilize exchange-traded funds (ETFs) that are short a headline index like the S&P 500 to protect their long equity portfolios against falling markets.
Using such ETFs, like short positions on stocks, should be considered a means to a goal rather than a long-term investment strategy.
Reduce risks on your investment portfolio
First, you may protect your savings against a downturn by shifting your holdings away from riskier investments to more stable ones.
Of course, there is always some danger when putting money into the stock market, but certain investments are riskier than others.
Government bonds, treasury bills, and corporate bonds issued by reputable, developed-country corporations tend to have low levels of risk. However, every other investment option is riskier.
As the likelihood of a recession increases, investors sell high-risk assets to purchase low-risk ones to protect (hedging) against a potential loss in value. Due to this, hazardous asset values decline.
There has been a recent downturn in the stock and cryptocurrency markets. In the meanwhile, the stock and cryptocurrency markets have been dropping.
Consider other Asset Classes
Investments with returns that are not directly tied to GDP growth have historically outperformed their peers. For example, gold and silver are examples of precious metals, whereas heavy metals are examples of commodities.
South Africans who want to protect their money from a potential economic downturn often buy commodities and precious metals.
Use Indices to Hedge your position
CFD traders can use short positions on indices as a hedging tool, much as ETF traders can use short bets on individual stocks. When the index falls, investors who have shorted it earn money.
While this is true, it also holds that investors utilize short positions more as a short-term hedge during market corrections and bear markets than as a long-term investment strategy. The purpose of hedging is to lessen rather than eliminate exposure to market declines.
Since it involves leverage, it must be combined with sound risk management to prevent the catastrophic loss that would make the whole hedging operation futile in the event of a rapid market upswing.
Invest in Real Estate
The fact that individuals will always have a place to live makes real estate investments a great strategy to hedge against economic downturns. Buying real estate with the expectation of selling it after the recession ends is another viable option.
How to Choose the Right CFD Broker in South Africa
It would be unwise to label all CFD brokers as fraudulent. While not all brokerages engage in fraudulent activity, some could engage in tactics that put their customers’ money at risk.
Therefore, it is not the best method to choose a broker only to verify whether they are a fraud or not. However, using the broker’s demo account could give you a more objective assessment when you utilize certain measures.
Client Fund Security
The practice of separating financial assets into separate accounts, often known as “ringfencing,” is mandated by law in several countries. If this is lacking, customers’ money will be at risk of being lost completely if the company goes bankrupt.
Regulatory Status
A CFD broker must be registered and regulated by the country’s financial market regulations to process, clear, and settle traders’ money.
Regulated brokers are likelier, to be honest and forthright with their customers about handling their money. Moreover, the consequences of breaking the rules are severe. Subsequently, the regulation establishes channels of responsibility that safeguard the stability of financial markets.
The Financial Sector Conduct Authority (FSCA) requires all South African CFD brokers and leading stockbrokers to prominently display their regulatory credentials (license number, etc.) on their website’s landing pages.
Fees
The cost of buying and selling CFD instruments has decreased significantly with the development of trading technologies. As a result, fees for CFD trades, options trades, mutual fund trades, and ETF trades should all be reasonable with a top-notch online broker.
Therefore, commissions and fees for internet brokers could range from a few ZAR to a few hundred. However, they are often much below the thousands of ZAR typical in the middle to late 20th century.
History and Reputation of the Broker
Regulation is not the only factor when selecting CFD brokers in South Africa. Even if a broker is fully compliant with all laws and regulations, there could still be problems with the experience.
Your sole option for determining a broker’s suitability for your CFD trading is to review their previous work. Thankfully, there is no shortage of discussion groups and blogs available online.
You can find out how dependable a South African broker is through actual clients’ experiences on these trading blogs. In addition, such third-party sources could shed light on the CFD broker’s past performance.
Trading Platforms
Traders that want to have access to the market in more than one way would benefit from platforms that provide many possibilities. For example, most online CFD brokers provide customers access to various trading platforms, including web, desktop, and mobile apps.
Customer Support
A CFD broker’s dedication to its customers is the center of each successful trading experience. Therefore, helpful customer service personnel are essential when further information is needed.
A growing number of brokers are adapting their customer service departments to meet their international clientele’s needs better.
Education and Research
Building one’s trading skills might benefit from a comprehensive instructional package. Learning resources for many traders include webinars, live lessons, and articles from professional blogs.
The Best CFD Brokers in South Africa
In this article, we have listed the best brokers which offer share trading to traders. In addition, we have further identified the brokers that offer additional services and solutions to traders.
Best MetaTrader 4 / MT4 CFD broker in South Africa
Overall, XM is the best MT4 CFD broker in South Africa. However, when compared to other MT4 brokers, XM stands out due to the quality of its instructional resources and support for its clientele.
Furthermore, XM is a globally regulated broker that offers low trading expenses and three different account kinds that are simple to use.
Best MetaTrader 5 / MT5 CFD broker in South Africa
Overall, Eightcap is the best MetaTrader 5 CFD broker in South Africa. Eightcap is a market maker authorized by the Australian Securities and Investments Commission (ASIC).
Eightcap’s MT5 trading account grants entry to a wide range of CFD indices, commodities, and US and Australian equities.
Best CFD broker in South Africa for beginners
Overall, Admirals is the best broker in South Africa for beginners. In addition, admirals is a great broker for new traders because of all the helpful resources it provides, such as articles, webinars, and tutorials.
Through Trading Central, traders may obtain real-time assistance in the form of chart analysis and suggestions from experts.
Best Low Minimum Deposit CFD broker in South Africa
Overall, FBS is the best Low Minimum Deposit broker in South Africa. South Africans who open an account with FBS may begin trading with as little as $1 / 19 ZAR and use the leverage of up to 1:3000 to participate in bigger deals.
FBS also provides three different trading platforms—the MT4, the MT5, and the FBS Trader—that traders may utilize to access international financial markets.
Best ECN CFD broker in South Africa
Overall, Exness is the best ECN broker in South Africa. ECN pricing is available in Exness’ trading accounts, and traders can jump right into the low-cost, global market action without effort. Exness also provides zero-pip spreads on popular instruments like the EUR/USD.
Best Islamic / Swap-Free CFD broker in South Africa
Overall, IC Markets is the best Islamic / Swap-Free broker in South Africa. For Muslim traders seeking flexibility, IC Markets offers two types of Islamic Accounts. Trading spreads begin at 0.0 pips on the Islamic Account, and there are no further fees.
Best CFD Trading App in South Africa
Overall, Skilling is the best trading app in South Africa. iOS and Android users in South Africa can easily download the Skilling app. The software contains a Trading Assistant that guides traders through the interface, and it is designed with newcomers in mind.
Traders can make deposits and withdrawals, search for instruments, and set up personalized watchlists inside the Skilling app. The charts are in-depth, and various technical indicators are available.
Best ZAR CFD broker in South Africa
Overall, HFM is the best ZAR broker in South Africa. HFM has a market share of over 11% in South Africa, making it a prominent broker. In addition, when opening an HFM account, South Africans may choose to have their funds denominated in ZAR, making trading a breeze.
Several convenient local deposit and withdrawal methods are available for use with HFM.
Best Lowest Spread CFD broker in South Africa
Overall, FxPro is the best lowest-spread broker in South Africa. As a cTrader broker, FxPro has competitive spreads. The commissions while trading on cTrader begin at 9 USD round turn, and spreads begin at 0.0 pips.
FxPro, authorized by the Financial Sector Conduct Authority of South Africa (FSCA), is a well-regarded broker in that country.
Best Nasdaq 100 CFD broker in South Africa
Overall, OANDA is the best Nasdaq 100 CFD broker in South Africa. OANDA has developed into one of the leading brokers and trading platforms.
In addition, OANDA provides a Contract for Difference (CFD) on the Nasdaq and the stocks that make up the index.
Best Volatility 75 / VIX 75 CFD broker in South Africa
Overall, Pepperstone is the best Volatility 75 / VIX 75 broker in South Africa. South Africans can easily trade VIX 75 with spreads from 0.16 pips and leverage up to 1:10 with Pepperstone.
Pepperstone is a prominent, well-regulated broker in South Africa with access to more than 70 technical indicators and auto trading tools.
Best NDD CFD broker in South Africa
Overall, SuperForex is the best NDD CFD broker in South Africa. South Africans may choose between STP and ECN Accounts at SuperForex, and the broker gives access to more than 400 products.
The spreads on these accounts are tighter than the market average, and the commissions are low in comparison.
Best STP CFD broker in South Africa
Overall, AvaTrade is the best STP broker in South Africa. Hundreds of thousands of traders use AvaTrade every day. In addition, a total of 1,260 instruments are available for trading by South Africans on the MetaTrader 4, MetaTrader 5, and AvaTrade platforms.
Spreads on main instruments for the retail account at STP/Market Maker broker AvaTrade start at 0.9 pips.
Best Sign-up Bonus CFD broker in South Africa
Overall, Tickmill is the best sign-up bonus CFD broker in South Africa. South Africans can easily choose from three different trading accounts at Tickmill, an FSCA-regulated STP and ECN broker.
Tickmill offers new traders a $30 no-deposit incentive to use on their MT4 or MT5 platform once they have signed up and validated their account.
Conclusion
When economic downturns occur, some assets tend to fare the same way they did before. However, no one can foresee the short-term future of the market. Stock prices might drop significantly over a month, recover the next month, and then drop again.
One way to limit the damage to an investment portfolio is via the practice of hedging. While hedging your investment is not a guaranteed way of preventing losses, it may assist in mitigating them.
In addition, there is nothing like reading the news during a recession to make you feel like the world is ending. However, after you learn about the economic cycle, you will better appreciate that recessions are unavoidable for any healthy economy.
South Africans must prepare a risk management plan based on their financial condition when the economy shows symptoms of a recession.
10 Best Forex Brokers in South Africa for 2025
Rank
Broker
Review
Regulators
Min Deposit
Official Site
Frequently asked questions
Which investments would do well in a recession in South Africa?
Investing in funds, such as ETFs and index funds, may reduce your risk compared to buying stocks individually.
What should South Africans avoid doing during a recession?
South Africans should avoid taking on risky investments, creating debt, or getting an adjustable-rate mortgage, among other things.
How can South Africans hedge against both inflation and a recession?
One tactic is to invest less in bonds and equities, particularly preferred stocks. Inflationary periods tend to be beneficial to real estate investments, and real estate investment trusts (REITs) are the most practical means.
Including international equities and bonds in your investment strategy may protect you against home inflationary cycles.
Why is “Cash King” during a recession in South Africa?
Cash is king because of its importance, especially in tough economic times. This expression refers to the fact that having access to liquid cash could be especially useful because of its leeway in times of crisis.
Which industries and sectors in South Africa are safe investment options during a recession?
Industries, including healthcare, food production, consumer staples, and public transportation, tend to do well during economic downturns because of their low adaptability.
During a public health crisis like the one caused by COVID-19, these sectors could also gain from being recognized as critical.
Addendum/Disclosure
No matter how diligently we strive to maintain accuracy, the financial markets are volatile that could shift and change at any given time, even if the information supplied is correct at the time of going live.
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