Now that the IHT on AIM shares has been reduced, they are not quite as tax efficient as they once were, but there are still ways to reduce your tax exposure liabilities when trading AIM stocks.
But it is still possible to trade AIM shares and reudce the amount of tax you pay on profits. You can do this through financial spread betting, stocks and shares ISAs and SIPPs.
AIM is the junior market of the London Stock Exchange and often acts as a feeder to companies that do well.
Which is good if you are a trader but not so great if you are investing.
Spread betting brokers for trading AIM stocks.
One of the key elements of AIM is that the value of the companies listed on the exchange is smaller and less liquid. This means that they are harder to trade. On the LSE, stocks are liquid, spreads are tight and there is always a happy appetite for trading. Volatility is around 7.5% to 1% per stock, which means margins can be high too. In some cases, you can get as good as 2.5% intraday.
The best spread betting brokers give access to stocks on AIM but and here are the key points of spread betting on AIM…
Spreadex and IG are also decent brokers for dealing in AIM stocks.
One must be careful spread betting on the AIM market. The Alternative Investment Market (AIM) is very different from the traditional markets attractive to spread betting customers i.e. Large cap stocks, FX, index and commodities.
Watch out for the spread on AIM stocks
Just because the market is quoting 12.5 bid 13 offered on your screen it doesn’t mean that this is a good price in size. Traditional stockbrokers will have lines into market makers via their RSP if it is within the NMS (normal market size). But if you intend on dealing larger than this accept the spread will be wider. Also accept that a spread betting broker will see very little business in this market and will want to hedge the trade. So expect to see a line go through on level 2.
Be careful of suspended shares (leverage issues)
Many AIM stocks are subject to constant M&A rumours of takeovers. This is part of the fun and attraction of trading on AIM. As the good AIM stocks are growing companies with expanding client bases and revenue streams. The good thing about this is that you can make big profits if a company you are long of is bid for. The disadvantage is that when a company produces an RNS re bid talks, the shares are normally suspended. What happens then is the margin rate is up from 15% to 100%. As a customer you have to stump up the cash for your entire position. Which can be expensive.
Beware going short on AIM stocks
As will any short position, your profits are limited and your losses are unlimited. The problem with going short AIM stocks is that they are generally much lower priced. If a company trades at 2.3 bid 3p offered, you are short and they are bid for at 30p, you are going to lose a huge amount. So beware!
Liquidity issues for spread betting on AIM stocks
It maybe easy to buy stock but selling may be another matter. Aim stocks traditionally have some very early stage investors looking to get out so you may find plenty of sellers when you are buying stock on the way in. But if you are dealing in size it’ll be difficult to get out.
- Want to invest rather than trade? Read our guide on how to buy AIM shares
Richard is the founder of the Good Money Guide (formerly Good Broker Guide), one of the original investment comparison sites established in 2015. With a career spanning two decades as a broker, he brings extensive expertise and knowledge to the financial landscape.
Having worked as a broker at Investors Intelligence and a multi-asset derivatives broker at MF Global (Man Financial), Richard has acquired substantial experience in the industry. His career began as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson), following internships on the NYMEX oil trading floor in New York and London IPE in 2001 and 2000.
Richard’s contributions and expertise have been recognized by respected publications such as The Sunday Times, BusinessInsider, Yahoo Finance, BusinessNews.org.uk, Master Investor, Wealth Briefing, iNews, and The FT, among many others.
Under Richard’s leadership, the Good Money Guide has evolved into a valuable destination for comprehensive information and expert guidance, specialising in trading, investment, and currency exchange. His commitment to delivering high-quality insights has solidified the Good Money Guide’s standing as a well-respected resource for both customers and industry colleagues.
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