A guide to AIM stocks: everything you should know about AIM
Rebecca Cattlin November 24, 2021 9:00 AM
AIM stocks account for a large percentage of retail trading as, despite the risks, there is an excitement to the market’s volatility. Find out everything you need to know about the AIM stock exchange and how you can take a position on AIM stocks with us.
What is AIM?
AIM, formerly the Alternative Investment Market, is a sub-market of the London Stock Exchange (LSE) that smaller, less developed companies can float shares on. These companies have less capital behind them than those on the LSE Main Market and will only be aiming to raise between £1 million to $50 million when they list – by comparison, Main Market stocks would typically raise over £100 million.
Companies will list on the AIM market when they’ve attempted all other means of raising capital privately. The market gives them the means to attract public investment, without them having to go through the regulatory requirements of the LSE initial public offering process (IPO). The market is known for having a more ‘flexible’ – some would say riskier – regulatory system.
What are AIM stocks?
AIM stocks are the units of ownership in companies that are publicly traded on the AIM stock exchange. The appeal of AIM stocks is that they’re often fast-growing companies, so you can enter at the ground floor of what could be the next big thing.
Learn more about growth stocks.
Since AIM’s launch in 1995, 3,865 companies have listed on the market, raising over £118 billion on AIM. As of October 2021, there were around 836 companies listed on AIM, with a combined market cap of over £104 billion. At the time of writing, the top companies on AIM by market capitalisation are:
- Hutchmed Limited
- ITM Power
- Fevertree Drinks
- RWS Holdings
- Ceres Power Holdings
- Keywords Studios
Perhaps surprisingly, there are some fairly large companies listed on AIM, but it’s largely due to the lack of regulations they face. Although this strategy is not the norm, as most companies use AIM as more of a springboard to help them list on the Main Market eventually.
AIM stocks span nearly all 41 sectors of the Industry Classification Benchmark (ICB), but oil, gas and mining stocks have historically dominated the market. Here’s a look at the current AIM industry breakdown:
What are the London Stock Exchange AIM listing rules?
The London Stock Exchange AIM listing rules are much laxer than the Main Market, as there’s no minimum market capitalisation for a company to be admitted to AIM and they also don’t require a trading record. This means that the companies are a lot newer and smaller – they tend to have market values of between £25 million to £500 million.
The LSE Main Market requires listing companies to have existed for three years, to have a market value of at least £700,000, to be willing to float a minimum of 25% of their share capital, and to have enough working capital for at least one year’s trading.
The danger of these lack of rules is that AIM stocks can be extremely volatile investments. When a larger company runs into financial trouble, there’s an element of trust that it will bounce back, but when it happens to smaller companies it can cause their share price to plummet quickly. This also has an impact on the liquidity of AIM stocks, as fewer investors are willing to buy them, so you could find it harder to sell them when the time comes.
As a lot of these entrepreneurial companies come with greater risks, there are different benefits that they can offer investors to encourage capital. Some companies that list on AIM can qualify for the Enterprise Investment Scheme, which means they can offer generous income and capital gains tax relief. They’d also be able to offer loss relief in the event that the company fails, and its shares become worthless.
Who are the AIM Nomads?
AIM Nomads are the ‘nominated advisors’ that act as gatekeepers, advisers and regulators of all companies that are listing, or have listed, on the market. Each AIM company has its own Nomad that will continue to assist it throughout its time on the market.
The system of nomads has been widely criticised because these individuals are paid fees by the companies, so arguably have little incentive to impose regulations upon them. There have been plenty of instances of nomads failing in their duties and cases of outright fraud.
How to trade AIM stocks
You can trade AIM stocks either by buying and selling the shares of individual companies listed on AIM, or via ETFs and investment trusts that hold the underlying AIM stocks. The latter method would enable you to get a much broader exposure to the market.
Whichever way you decide to take a position, follow these steps to get started:
- Open a City Index account, or log in if you’re already a customer
- Search for the market you want to trade
- Choose your position and size, and your stop and limit levels
- Enter your trade and monitor the market
Alternatively, you can practise trading AIM stocks and ETFs with a risk-free demo account.
Trading the shares of AIM-listed companies via spread bets and CFDs enables you to profit from both periods of growth and decline. If you think a company’s value is going to rise, you’d opt to ‘buy’ the market – known as going long – and if you thought it was going to fall, you’d ‘sell’ or go short.
As mentioned, the AIM shares available to you include mid-cap firms like Asos, Boohoo.com and FeverTree, as well as the smaller-cap stocks the market is known for.
Learn more about share trading
AIM ETFs and investment trusts
When you buy a share in an ETF or an investment trusts, you’ll be getting exposure a basket of AIM stocks from a single position. If AIM company shares increased in value, the ETF or trust would profit and so would you. But if AIM shares decreased, you’d experience a loss.
For example, you could trade the iShares MSCI UK Small Cap, an ETF that seeks to track the performance of the MSCI UK Small Cap Index but also offers protection by investing in some FTSE 100 stocks too. Or you could buy and sell shares of Montanaro UK Smaller Companies Investment Trust, which aims to achieve growth by investing in small cap companies listed on the LSE Main Market and AIM.
Is AIM a recognised stock exchange?
AIM is a recognised investment exchange as a subsection of the London Stock Exchange, but it is not a regulated market in its own right. It operates as a multilateral trading facility (MTF) and a prescribed market – which describes a market that is subject to the Financial Services and Markets Act 2000.
What does AIM stand for?
AIM stands for Alternative Investment Market, the name given to the sub-market of the London Stock Exchange that’s focused on small-cap growth companies. AIM was launched as a replacement to the previous Unlisted Securities Market (USM).
Discover what growth companies are.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.