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AIM spread betting risks!?

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Hello,

I'm currently formulating a day trading strategy as I will be using IG Index to spread bet on UK shares only. When previously buying and holding actual shares I avoided AIM listings due to the liquidity risk.

Now my intention is to day trade only, holding zero overnight positions. Taking this into account, can anyone highlight the risks of placing small orders on AIM listed securities?

I understand how the liquidity issue of AIM assets affects holding physical stock but I don't believe the same risk applies to taking short-term positions through spread betting?

Appreciate any guidance on this matter.

Many thanks,

Simon

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@SPMILLER81 / Simon,

First of all, around 90% of AIM is junk. Therefore why would one want to purchase shares and hold shares in such companies (very high risk). So you are on the right lines when thinking about spread betting UK AIM shares. If the price action is supporting a strong trend then you may wish to hold for a few days or even weeks but that is up to you and your trading plan. Day trading is fine too. 

A lot of companies listed on AIM suffer major liquidity risk issues. So again you are right to highlight this. A potential risk you may face when using IG's Spread Betting platform to place small orders on AIM listed companies is how wide the spread is and the margin requirements for such small positions. 

The one thing to bear in mind with the article that @Caseynotes has shared is that it refers to top 100 AIM shares and these are by market cap and not the best performing 100 AIM shares. There is a major difference. It is not necessary that the top 100 companies listed on AIM by market cap are going to be the best performing shares in terms of returns and points. In my personal experience of trading AIM listed shares they are usually not. Once they have achieved such large market caps the share price movements are far less than the really small nano caps. 

When trading via Spread Betting it is all about the £ per point based on price movement that is important. Not the market cap or turnover, etc. 

One of my strategies is to check InvestEgate every morning around 7:00 am and any RNS's released which show new contract wins, or significant revenue increases, etc. one could day trade those shares as in my experience they tend to shoot up by high double digits in a day and then fall back down to earth the next day or couple of days. So one could day trade on the way up and down. 

https://www.investegate.co.uk/Index.aspx?sector=AIM&date=20190429

Also from my personal experience in trading AIM shares is that it does not matter about the following:

  • Company balance sheet
  • Company turnover / revenues
  • What the company even does!

Do not get emotionally attached to any AIM listed share. The AIM market is rife with speculative capital and the usual 'PUMP & DUMP'. Use this to your advantage. There is absolutely no problem in trading a share knowing full well the price is being driven by the herd and speculative capital.  Once a positive RNS with the usual SPIN is released where it mentions significant revenue generating CONTRACT WIN go long as early as you can and then make sure you sell before the market closes that day. Of course there will also be those AIM listed shares that do not move on such RNS's. These one's you must avoid or exit straight away. If the price does not move up then you must get out and use your capital elsewhere more efficiently and effectively. 

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@SPMILLER81,

One other thing. If you conduct some basic research on the internet then you will find that the best performing AIM shares in 2018 were all triple digit returns. Now if you add leverage to this and remember £ per point then the number of points for grabs is staggering. 

I think this was taken around August 2018 time so it may well be different when looking from January 2018 to December 2018. 

Biggest risers on AIM in 2018

  Company Share price (p) Increase in 2018 (%)
1 Tern 16.5 633
2 Bushveld Minerals 46.5 447
3 SalvaRx Group 82.7 319
4 Pebble Beach Systems 5.3 213
5 Sopheon 1,067.50 197
6 Creo Medical 194 179
7 Anglo Asian Mining 87 172
8 Beeks Financial Cloud Group 111 156
9 Elektron Technology 44.5 151
10 Ormonde Mining 5 135

Source: interactive investor

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