The Nairobi Securities Exchange (NSE) Monday formally kicked off day trading of shares, which it hopes will raise market turnover by allowing investors to carry out multiple trades on stocks within a session.
Day trading allows investors to buy and sell the same company shares several times during a single day looking to make gains from small price movements, sometimes riding on events that sway share prices.
Day trading will also help the NSE increase revenue from commissions charged on transactions once activity picks up.
“Day trading is a welcome move for local investors who have previously lobbied for the activation of the intraday trading, as they seek to take advantage of intra-day price movements and increase their profit margins. We are confident of a bullish market performance going forward,” said NSE chief executive Geoffrey Odundo in an earlier statement.
Despite the rollout of the new platform, however, trading slowed down yesterday, with turnover for the day falling to Sh585.9 million from Sh849.7 million on Friday. Investors moved 18.6 million shares compared to 28.6 million in the previous session.
Experts say same-day trading and settlement will deepen liquidity on the bourse, which has fallen in recent years as the market went through a lean patch.
They also say though that it will likely cause an increase in speculative trading of shares especially when companies make material announcements, which cause the removal of daily price movement limits.
This form of trading, however, carries a significant amount of risk, and in sophisticated markets, it is carried out mainly by experienced traders who have a deep understanding of the market and stocks.
In a bid to encourage uptake, the NSE is offering day traders a five percent discount on the commission due to it per trade on the second leg of a transaction — meaning it will be levied at 0.114 percent compared to normal trades which are levied at 0.12 percent.
