What is AIM and how can you trade or invest?

What is the Alternative Investment Market (AIM)?

The Alternative Investment Market – or AIM, as it is commonly referred to – is a sub-market of the London Stock Exchange (LSE). This market was created to allow smaller companies access to the public markets. The exchange allows these companies to list on the stock exchange with more regulation flexibility.

AIM was started in 1995 with ten companies. The exchange was much smaller than other stock exchanges with its total market cap being £82 million, compared to the London Stock Exchange which had a market cap of £2.3 billion at the same time.

Since then, the exchange has grown to over £115 billion and is helping more than 3865 companies raise capital on the public stock exchange. While the market is well regulated, it allows companies a much easier process to getting listed.

What companies list on AIM and why?

Companies who list on the AIM have usually exhausted all possible private alternatives but are not yet large enough to go through a FTSE initial public offering (IPO). They thus have an IPO on the AIM, giving them access to the capital and markets needed with much less regulatory requirements.

Discover the best AIM shares to watch

How do you list on AIM and who are the nomads?

To list on the AIM, companies still go through the pre-IPO market blitz and sharing of financial information; however, the process is much more straight forward.

Even though AIM is a smaller market, the IPOs still gain a lot of interest from investors and hedge funds. The market is seen as a more speculative and riskier investment that attracts those investors with a larger risk appetite.

One notable difference between AIM and other markets is the nomads. These ‘nominee advisors’, often referred to as nomads, are seen as the regulatory system for the Alternative Investment Market. They advise companies pre- and post-IPO and are responsible for regulatory compliance of the company during the listing process. This is unlike the FTSE – where an independent body is responsible for regulating the companies before, during and after the IPO.

These nomads are often under fire as many have pointed out a potential conflict of interest. The advisors are paid and profit from the listing in form of fees per companies listed. This is an issue that’s raised frequently, and there have been cases where nomads have been found to have failed in their duties.

Is trading in AIM higher risk?

While AIM may make it easier for companies to list and get access to the public markets, their relaxed regulations have given the market the reputation of being a speculative market. The market is essentially self-regulated where the nomads are tasked with complying to broad guidelines.

While the Alternative Investment Market has been described as the wild west at times, the market has been shown to provide value to investors as cash-strapped businesses get the capital needed to accelerate growth. A top performer in 2020 was Novacyt SA NCYT who saw a 6890% return for its investors.

This reputation attracts risk hungry traders as the market is considered to be of a higher risk to trade in. While the risk may be higher, there can also be much higher rewards if your trade moves in your favour.

How do companies perform after their IPO?

The tables below show how companies’ share prices performed after the first day, first week, and first month of their IPOs.

What are the ways to trade in AIM markets?

ETFs, short for exchange traded funds, are similar to mutual funds in that they are groups of shares. Unlike mutual funds, ETFs can be traded on the stock exchange. This allows you to get a diversified portfolio in a number of shares.

You can trade in UK small cap ETFs to gain better exposure to the AIM markets. The ETFs hold a fair bit of exposure in the AIM stock exchange as well as holding of small caps in other exchanges. An example of such a fund is the iShares MSCI UK Small Cap UCITS ETF.

Steps to trading in AIM ETFs:

1. Create an account or log in and go to our platform
2. Identify your opportunity
3. Take steps to manage your risk
4. Open and monitor your position

Trading in AIM shares

Trading in shares might be more suited to you if you want to pick your own stocks, as opposed to having exposure to a pre-selected basket. By using our trading platform, you can trade shares on the AIM without owning them.

See some of the top performing AIM shares

Steps to trading in AIM shares:

1. Create an account or log in and go to our platform
2. Identify your opportunity
3. Take steps to manage your risk
4. Open and monitor your position

Note that trading via CFDs, means you can speculate on both rising and falling prices and you’ll trade using leverage. You only need to put down a deposit, called margin, to trade, while your exposure is based on the full value of the position. This has clear pros and cons, as leveraged trading magnifies profits and losses. You could even lose more than your initial margin amount.

AIM summed up

• AIM is a stock exchange where small companies can get access to capital and the public markets with much less red tape than other exchanges
• While the market has been criticised for its regulatory processes, namely their nomads, the market has proven many times that there are good returns to be made
• AIM can be a suitable place for traders with a larger risk appetite and those who are looking to diversify
• With us, you can get exposure to the AIM via CFD trading