Understanding the Derivatives Market

Trading in the stock exchange is largely considered by many to be cumbersome and perceived as an activity for the select few for the few. When it comes to the derivatives market in Kenya, it is relatively new and as a result more is seen to be more complex and tedious. While the stock exchange and the derivatives market have their complexities and challenges, they also offer various opportunities for investors and traders alike. Most investors will engage in both markets to diversify their portfolios and manage risks.

Trading in the stock exchange refers to the buying and selling of shares or stocks of publicly listed companies. The derivatives market on the other hand is a financial market where derivatives are traded, Derivatives get their value from an underlying asset such as stocks, bonds, commodities or currencies. Derivatives offer opportunities for traders and investors to manage risks, speculate on price movements and hedge their positions.

As financial markets education and awareness increases, more individuals and institutions may participate in both the stock market and the derivatives market, leading to a more inclusive and dynamic financial landscape in Kenya.

It is against this background that students undertaking the  Masters of Commerce Programme, Finance specialization, had the opportunity to explore this unique form of trading for a period of three months as part of their knowledge to action project. During this period, the students were expected to identify brokers, invest and report their findings and experiences.

After the 3 months trading period, the students come together in their last session of the semester, on 3rd August 2023, to share their experiences with their classmates and officials from the Nairobi Securities Exchange (NSE) and theCapital Markets Authority (CMA).  Some of lessons learnt, as narrated by the students, include but are not limited to; market volatility, the derivatives ecosystem and investment dynamics in the sector.

By going through this knowledge to action project, the students gained valuable insights into trading, risk management and investment dynamics in this relatively new market in Kenya. Further, their learning experiences provided them with real-world insights and knowledge to complement their theoretical, in class learnings.

The session was facilitated by Dr. Freshia Waweru, a senior lecturer at Strathmore University Business School and a board member of the Capital Markets Authority of Kenya, was graced by Justus Ogalo and Gift Kori, Derivatives Manager and Business Development Manager at NSE respectively, Dr. Peter Onyango, Principal Specialist Risk & Stress Testing and Dr. Faith Mwende, Senior Compliance Officer at CMA.

Having industry professionals from NSE and CMA during the student’s presentation session signifies the importance of practical engagement and knowledge sharing between academia and industry. Such collaborations play a major role in fostering an understanding of market dynamics and promote the development of competent well informed professionals.

The Master of Commerce (MCOM)  Programme is designed for those who wish to advance academically and professionally in business science, with specializations in Management Accounting and Control, Forensic Accounting and Investigations, Human Resource Management, Finance, Marketing, International Business Management, Management Science and Strategic Management. In addition the course incorporates new trends in the market and how they interact with the different sectors of the business world.