![]() Penny punts need to be well researched, particularly their longer term history which may give clues as to why they have failed in the past. On a spread bet you can suffer from material losses if you get caught on the wrong side of a move with an Aim company since it is not always easy to unwind positions. Technically a penny share is one that trades below 100p-a-share, but in reality all companies with valuations lower than £50 million fall within the small cap spectrum. Such stocks can also be prone to choppy moves and are thus harder to analyse with technical analysis. Quotes for most small caps are normally market-maker controlled as opposed to relying on automatic quotation (as with FTSE 100 shares). Your job is to weigh up the positives against the negatives. The spread will, however, depend greatly on the liquidity – the more liquid the share, the narrower the spread. ![]() It is true that the spread on certain AIM companies can be quite narrow but spread betting providers insist on higher margins for these stocks for good reason – some small cap stocks can be particularly illiquid and volatile and it is not uncommon for margins to be as high as 50% or more. Smaller caps in particular tend to depend on a single product or service or a particular company or region and their cash reserves are normally modest and generally their access to capital will be more restricted. Such companies tend to have stronger balance sheets and a more diversified reach than the smaller AIM companies so more likely to survive a downswing. Most long term investors and pension funds in particular tend to favour the bigger companies as these serve as a haven during times of financial turmoil. Just keep in mind that at the end of the day smaller growth companies are higher risk than a blue-chip and the sector can be quite risky. One tactic I use is to keep a close eye on the investments that successful penny punters (like John Mckeon, Bruce Rowan etc) have made in the past and are currently making to try to understand what makes one a success and which are worth looking at. The main problem with small caps and AIM stocks is slippage/gapping – which means that stop orders are sometimes unable to be filled at the preset levels (so spread betting companies will execute them at the next best level). Having said that, I don’t see any harm in them if your trades are done with strict limits on pot percentage (and try to steer clear of the ones riddled with debt). However, I would never encourage people to focus all their attention on penny shares, or in my case smaller cap, higher risk companies. You should be able to find most AIM stocks and small caps at IG Index. As such its much harder to control risk and this is one reason most providers don’t even quote small cap shares.” A move of just 1p on a 10p shares is equivalent to a 10% gain or loss without even utilising any leverage. “Very low priced stocks carry a higher risk compared to blue chips. This did more than offer cheer for company directors of listed small cap firms, it also captured investors’ imaginations once more, encouraging traders to look again at opportunities they may not have considered in the past. Recently stamp duty was removed from AIM Shares and now shares traded on small and medium-sized exchanges are even allowed to be held with an ISA. ![]() ![]() In fact, research from TD Direct Invest found that traders’ interest in AIM is continuing to grow with the company witnessing a 36% rise in trades on its platform since the start of 2013. Considered the most successful growth market, the AIM is an entrepreneurial playground and is home to some 1,100 companies across multiple sectors – that’s three times as many as the FTSE 350.ĪIM is a highly successful market, which continues to provide a strong platform for entrepreneurial businesses to raise capital. It is open to start-up companies from around the world who are aiming to raise capital for their businesses. However, it has grown over the years into a recognised and much-loved market for investors and traders alike. Back in 1995 when it launched the Alternative Investment Market (AIM) was something of a mystery. AIM is the London Stock Exchange’s international market for smaller growing companies.
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