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Day Trading in Uganda

Written By

Royston Wild

Written By

Royston Wild

Royston is an experienced investor and writer. His expertise includes stock recommendations through to commodities, forex, and macroeconomic news. Royston's background includes roles as a stocks and commodities reporter, and editor of forex coverage at Shares Magazine.

» Royston Wild Profile Page

Edited By

James Barra

Edited By

James Barra

James is an investment writer with a background in financial services. As a former management consultant, he has worked on major operational transformation programmes at prominent European banks. James authors, edits and fact-checks content for a series of investing websites.

» James Barra Profile Page

Fact Checked By

Michael MacKenzie

Fact Checked By

Michael MacKenzie

Michael is a writer and editor with over a decade in journalism and publishing. His niche lies in editing and fact-checking content in the financial services sector, with a focus on online brokers and trading platforms. Michael previously reported on politics and economics in the Middle East and edits books for established publishers.

» Michael MacKenzie Profile Page

Updated

Aug 16, 2024

While considered to be one of the poorest countries in the world, Uganda’s economy is growing rapidly and tipped to accelerate thanks to its growing oil industry. Day trading in the African country is rising from a low base as awareness of financial markets steadily improves.

This guide explains how day trading in Uganda works. It covers how markets are regulated, which taxes traders must pay, and provides an example of a stock trade on the Uganda Securities Exchange (USE).

Quick Introduction

• Day traders in Uganda can choose from a wide collection of financial securities, including equities listed on the Uganda Securities Exchange (USE), currency pairs containing the Ugandan Shilling (UGX) and prominent commodities like oil.
• Uganda’s financial markets are regulated by the Capital Markets Authority (CMA) and the Bank of Uganda (BoU). Under DayTrading.com’s Regulation & Trust Rating, Uganda’s CMA is classified as an ‘orange tier’ regulator.
• Active traders may have to pay income tax of between 10% and 40% on their gains to the Uganda Revenue Authority (URA). They may also be subject to a withholding tax of 15% on any share dividends they receive.

What Is Day Trading?

Day trading involves buying and selling assets – such as stocks, forex, cryptocurrency and derivatives like CFDs – to cash in on short-term price changes.

As part of this fast-paced, high-risk strategy, traders can hold positions from just a few minutes up to many hours. And to maximize their chances of making a profit, investors generally look for markets with deep liquidity and the potential for price volatility.

Traders in Uganda can deal in a wide range of financial assets, although the dealing of digital currencies is unregulated and discouraged by the Bank of Uganda (BoU).

Shares are traded at the Uganda Securities Exchange (USE) between the hours of 9:30 and 15:00 Eastern Africa Time (EAT), Uganda’s official time zone, on typical weekdays.

The USE is small compared with most other global stock exchanges, and is home to around 20 companies.

Major names that trade here include tobacco manufacturer British American Tobacco Uganda, telecoms provider Airtel Uganda, and financial services provider Stanbic Uganda.

Royston Wild

Author

Is Day Trading Legal In Uganda? 

Yes. Uganda’s Capital Markets Authority (CMA) is tasked with ensuring that the country’s financial markets function in a fair, structured, and effective way.

It sets out to do this by pursuing (in its own words) the following objectives:

1. Promoting confidence in the capital markets
2. Ensuring honesty and transparency in capital markets transactions
3. Carrying out investor education
4. Protecting investors; and
5. Reducing systemic risk

The CMA regulates and supervises the workings of Uganda’s markets, and carries out enforcement actions where it deems necessary. A list of financial institutions licenced to do business by the authority can be found here.

The BoU also plays a role in maintaining market stability and transparency, including supervising and regulating financial organizations. It plays a particularly prominent role in the country’s forex market.

How Is Day Trading Taxed In Uganda?

Day traders may have to pay tax on their profits to the Uganda Revenue Authority (URA), the body responsible for administering the tax system.

Gains are subject to income tax on progressive rates at the following levels:

• 0% on income below 2,820,000 Ugandan shillings UGX
• 10% on income between 2,820,001 and 4,020,000 UGX
• 20% on income between 4,020,001 and 4,920,000 UGX
• 30% on income between 4,920,001 and 120,000,000 UGX
• 40% on income over 120,000,001 UGX

Traders must also pay a 15% withholding tax for any share dividends they receive. Such instances are rare, and will occur only if the investor holds the company’s stock through its ex-dividend date. As its name implies, the withholding tax is applied at the source.

Getting Started 

There are three main tasks you must undertake to begin day trading in Uganda:

1. Finding a broker. After checking that the brokerage is officially licensed – either by Uganda’s regulators or a reputable one abroad – you’ll want to consider other things like the quality of their charting platform, the leverage (loaned funds), the variety of Ugandan and global markets, and the range of educational materials.
2. Opening an account. Once you’ve found a company you’re happy with, you’ll need to provide some personal information, including proof of residence and ID, to create a trading account. It’s also likely you’ll be asked questions on your trading goals and experience. Opening a demo account to begin with allows you to ‘road test’ the broker before depositing any cash. This is especially useful for novice traders.
3. Depositing some Ugandan Shillings. After opening a full-fat trading account, you’ll need to put some money in your account to start buying securities. This can be done quickly and easily via a debit card, wire transfer, or by using the services of an online payment provider. Airtel Money is one such popular provider in Uganda.

A Day Trade In Action

With these actions completed, you’ll be ready to begin short-term trading in Uganda. Now let’s look at how a trade involving a local-listed stock could play out.

The Background

My plan is to trade shares in the telecommunications business MTN Uganda. More specifically, I plan to turn a profit by buying the stock before the BoU makes its next interest rate announcement and selling it shortly thereafter.

My expectation is that the central bank’s lending rate will be cut by a quarter-of-a-percent, to 12.5%. The broader market, by contrast, is pricing in an interest rate freeze, at 12.75%.

If my research – which included studying recent economic data and BoU meeting minutes – is correct, MTN’s shares could rise in value.

Lower rates are favourable for the telecoms sector. They reduce borrowing costs on these debt-heavy companies, while they can also help to stimulate consumer demand.

MTN is the largest telecoms provider on Uganda’s stock exchange. With higher-than-average trading volumes, there’s a greater chance of price volatility than with other shares, which in turn boosts my chances of making a profit. I might also enjoy lower trading costs thanks to narrower bid and ask spreads.

Before placing the trade, I also conduct technical analysis to get a better idea of where the telco’s share price might go.

Day trading relies heavily on chart-based research, and by correctly identifying patterns and trends I can significantly boost my chances of making a profit.

The Trade

With my research concluded, I’m ready to place the trade. The central bank tends to release interest rate statements between 10:00 and 11:00 EAT, so I open my trading terminal 10 minutes beforehand.

At this time, I find MTN shares trading at 171.26 UGX apiece. So I set a ‘take profit’ order at 171.62 UGX and a ‘stop loss’ instruction at 171.05.

This tactic enables me to manage risk: the ‘take profit’ books any gains I make by automatically closing my trade if MTN’s share price rises to my pre-selected level. The ‘stop loss’ works in the same way, but exits my position if the stock drops to my specified level, thus limiting any potential losses.

At 10:18 EAT, the BoU announces an interest rate cut to 12.5%, as I’d predicted. It leads to MTN shares appreciating, and within a few hours triggering my ‘take profit’ instruction at 171.62. As a result, I’m left with a profit of 0.36 UGX for each share I bought.

Bottom Line

Day trading participation in Uganda is growing. This is thanks in large part to steady economic expansion and improving technological infrastructure, and rising broader interest in financial markets.

The CMA and BoU regulate the country’s markets, but scammers still operate regularly in the country, so day traders should ensure that the broker they choose is licensed to deal by a reputable regulator.

To get going, use DayTrading.com’s selection of the best brokers for day trading.

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