NSE urged to start Day Trading

October 4, 2010
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, NAIROBI, Kenya Oct 4 – The Nairobi Stock Exchange is being urged to introduce Day Trading in the equities market to facilitate buying and selling of shares within one day.

Speaking to Capital Business, the Director of Investment Banking at Standard Investment Bank, Amish Gupta, said the system would allow investors to trade several times in one session and settle a net position with their stockbroker at close of business.

Currently, equities settlements are completed after four days (T+4) from the day of purchase, limiting the number of times an investor can trade.

The new proposal is expected to ensure faster settlements, with Mr Gupta arguing it will ultimately lead to increased volumes at the bourse making the stock market more attractive to investors.

“We need the regulators, Nairobi Stock Exchange (NSE), Capital Markets Authority and the Central Depository and Settlements Corporation to initiate a process that will lead to it (Day Trading) and increase the level of activity in the equities market,” Mr Gupta said.

According to NSE Chairman Eddy Njoroge the equities market had traded Sh77 billion by the third quarter, compared to Sh38 billion in 2009.

Mr Gupta however believes automation of trading in equities could double the figure substantially citing an example of the bonds market, which after automation has traded Sh361 billion.

“The question is not that we are doing better than last year; the real question should be why we are not doing as well as the bonds market. It all boils down to faster settlements where you trade and settle on the same day,” he said.

Due to the nature of Day Trading, it is not considered as a long-term investment tool.  Mr Gupta however says the fine line between investment and trading is slowly being broken as investors look to realise faster returns.

“What is the bottom line? A return on investment, which you can make from trading or investing. The only difference is that they have different strategies with one (day trading) focusing on capital gains while the other one is focused on capital gains plus dividend yield over time,” he said.

With its introduction, he believes it gives investors the option of splitting shares between short and long term.

Because of the nature of financial leverage and the rapid returns that are possible, day trading can be either extremely profitable or extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses.
 

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