What trading is — Trading Module 1 | LeadAfrik Public Economics Hub

Trading and investing are different disciplines that share vocabulary. An investor buys a business and holds it for years, extracting return from the business's underlying performance. A trader buys and sells securities on horizons from seconds to months, extracting return from price moves. The skills, infrastructure, mindset, and risk-management are different — even when both happen at the same institution.

Trading vs investing

Time horizon: investing = years to decades; trading = milliseconds to months.
Source of return: investing = fundamental value creation; trading = price discovery and short-term inefficiencies.
Information used: investing = fundamental analysis; trading = order flow, technical signals, news, microstructure.
Risk management: investing = drawdown tolerance; trading = position-sizing discipline + hard stops.
Edge: investing edges erode slowly; trading edges erode quickly as others discover them.

The trading-floor cast

Sell-side: investment banks and broker-dealers. Provide markets, execute client orders, sometimes run prop books. Examples: Goldman Sachs, Morgan Stanley, J.P. Morgan, Standard Chartered, Stanbic. Their traders are organised by asset class (rates, FX, equities, credit) and instrument (cash, derivatives).
Buy-side: asset managers, hedge funds, pension funds, family offices. Take positions for their own portfolios (or their clients'). Examples: BlackRock, Bridgewater, Citadel, Renaissance Technologies. Traders here are often called portfolio managers or execution traders depending on role.
Market makers: provide continuous bid-ask quotes. Earn the spread (the difference between buy and sell prices). Examples: Citadel Securities, Virtu Financial, Susquehanna. The largest equity-market-making firms now match exchange-traded volumes.
Proprietary trading firms: trade firm capital. No client orders. Examples: Jane Street, Hudson River Trading, Optiver, DRW. Highest comp in the trading world; most quantitative.

The three trading archetypes

text

Archetype       Time horizon    Source of return       Typical risk
────────────────────────────────────────────────────────────────────────
Market maker    Milliseconds-   Bid-ask spread on      Inventory risk
                seconds         many small trades

Prop / directional Seconds-     Correct directional   Position risk
                  months         view

Execution       Hours-days      Client commission,    Slippage risk
                                tight execution
                                vs benchmark

Three distinct ways to make money trading. They require different skills, infrastructure, and temperaments.

Why most retail traders lose money

Retail traders typically compete in the wrong arena. They try to do directional prop trading without the infrastructure, information, or risk discipline of professional prop firms. Statistical studies (FCA UK, ESMA EU, CMA Kenya) consistently find 70-85% of retail forex / CFD traders lose money over any 12-month period. Surviving as a retail trader requires either: (a) very long horizons (so you're effectively investing), (b) edge in a niche large firms don't cover, or (c) trading as recreation, not income. There's no fourth path.

Trading in Kenya and East Africa

Kenya's trading ecosystem: NSE for equities (~$20bn market cap, daily turnover often <$5m); CBK for government bonds and FX (active OTC market); a small derivatives market launched in 2019 but with limited liquidity. Most sell-side trading is at Stanbic, ABSA, NCBA, StanChart, KCB Capital. Buy-side institutions include pension funds (Britam, Sanlam, ICEA Lion), insurance investment arms, and a few independent fund managers. Retail forex and CFD trading is large and CMA-regulated since 2018 — but consistently produces large-scale losses for participants.

Exercise

You're applying for an analyst role and the bank asks: 'Why do you want to trade rather than do corporate finance?' Write a 200-word answer for someone who genuinely wants to trade — without slipping into clichés. What's the honest case for trading as a career?