Day trading, in which people buy and sell shares multiple times in a day, now accounts for two percent of market activity according to the Nairobi Securities Exchange (NSE).
The service was introduced in November last year to allow investors and speculators to make several trades in a day with the potential to make a profit from price changes.
Previously, shares bought could not be sold on the same day and one had to wait until the transaction is cleared. The introduction of day trading is meant to give more options to traders and investors besides boosting liquidity in the market.
It is off to a slow start, partly due to most market participants having longer investment holding time. Many retail investors, who are the main target of the service, are also not familiar with the risks and opportunities presented by day trading.
“Day trading has so far contributed approximately two percent of the market activity on average,” the bourse operator says in its latest annual report.
The phenomenon of buying and selling shares multiple times in a day without tying up one’s capital became a hit in the United States in the wake of the Covid-19 pandemic.
The trend was attributed to increased gamification of investing besides a sharp fall in trading commissions, with some brokers eliminating the fees altogether and opting to generate revenue from market makers.
In Kenya, day traders face substantial transaction costs though they enjoy a small discount on standard charges.
“To make day trading more attractive the NSE board approved a five percent discount on the close out trade which is levied at 0.114 percent as opposed to 0.12 percent. This discount is enjoyed directly by the investor.”
The performance of day traders in the local market is not known. In the US, scores of individuals became dollar millionaires while collectively the day traders eventually lost the gains they had made in the recent market correction.