I have a spread betting account with IG but I cant trade the US penny stocks which are clearly trending.
I use their platform Pro Real Time, its really good but I would like to spread bet the smaller stocks from the US and UK etc.
I was wondering if I can do this with ETX or other brokers
Spread betting on smaller cap stocks is a good way speculate in a tax-free manner. As with all spread betting there is currently no capital gains tax payable for spread betting profits. So if you buy into a “ten bagger” as the spivs love to call stocks that are worth “filling your boots” with you don’t have to split your winnings with HRMC. On the downside of course, if you lose money you can’t offset losses against other investment profits.
IG are one of the best spread betting brokers and will usually make a market in areas that other brokers fear to tread. So it is surprising that they do not offer the stocks you want. Have you tried phoning to ask if they can be traded over the phone as often this is possible?
However, if you want a broker that specialised in smaller stocks try Spreadex. They like to pitch themselves as a broker that tries a little harder to keep customers happy. You mention ETX who have a wide market range, but not quite as good a reputation for small stock service as Spreadex.
For more information, you can:
When spread betting on smaller cap stocks there are a few things to be mindful of:
- Spreads can be wide on smaller cap stocks. This is not necessarily down to the spread betting broker, but the underlying bid/offer in the market. A spread betting broker will decide their spread based on a percentage from the market price so always check where the actual market is trading.
- There is sometimes little to no liquidity in small cap stocks. If a small cap stock is trending, flying, being ramped or moving a significant percentage then it may be because of relatively small volume. It is worth checking the NMS of a small cap stock. NMS is the “normal market size” which is the volume a market maker is obliged to provide a price in. Some small caps are still traded over the phone through market makers called Gavin, Trev, or Dave who remember the good old days “during the floor”. If you want to trade in a volume over the NMS you may not get a price at all (or one so wide it’s not worth it).
- It is possible to get in side the spread by working a limit, but this depends on your relationship with your spread betting broker. Small cap specialist brokers like Spreadex may be able to work an order for you if it’s not too small. As a client you have to bear in mind that brokers have complex relationships with market makers. The process of changing orders left with market makers is also complex. They get very upset if you constantly chop and change or pull orders and you may get a partial fill.
- Keep an eye on margins too. In some cases smaller cap stocks will be margined at up to 99% and you’ll be lucky to get below 50%. This is because of low liquidity and potentially high volatility as they can half and double in price relatively quickly.
- The final thing to be mindful of is going short. Unlike being long your losses when short a stock are potentially unlimited. A small cap penny stock can have big moves on contract wins, takeover bids and so on. So you can lose much more than the value of your entire position almost instantly.
With regards to spread betting on small US pick sheet stocks, this is at the discretion of your broker and as with UK stocks will depend heavily on your relationship with them. But frankly pink sheet stocks in the US are an absolute nightmare for every one involved and worth staying away from.
Here is a little video produced from Spreadex that may be worth watching at the end of this post.
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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.