Alternative Investing Market (AIM)
The Alternative Investment Market (AIM) is part of the London Stock Exchange and houses high-risk, high-reward investments. Less stringent listing requirements and regulatory oversight attract speculative investors. This tutorial explains how the Alternative Investment Market works, from the advantages and disadvantages to trends and companies to watch. Our team also rank the best brokers with access to AIM:
Top 3 Brokers With AIM
Interactive Investor are a hugely respected, FCA-regulated investing firm. The trading platform is easy-to-use while the sign-up and deposit process is straightforward for new investors. ii also has a long track record and a string of industry awards under its belt.
Demo Account Regulated By MT4 Integration No FCA No Min. Deposit Min. Trade Leverage £0 £25 None
IG is an award-winning broker that has an excellent reputation globally. The brand offers spread betting, CFD and forex trading across a comprehensive suite of markets. IG is also multi-regulated, provides a great trading app and has 50 years experience.
Demo Account Regulated By MT4 Integration Yes FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA Yes Min. Deposit Min. Trade Leverage $0 0.01 Lots 1:30 (Retail), 1:222 (Pro)
Spreadex is an FCA-regulated broker that offers spread betting opportunities on an impressive 10,000+ instruments including 60 forex pairs as well as shares, indices, bonds, interest rates, ETFs, commodities and cryptocurrencies. Traders can also speculate on financial markets with CFDs and options, and take positions on sporting events. The brand has been around for over 20 years and won multiple awards.
Demo Account Regulated By MT4 Integration No FCA No Min. Deposit Min. Trade Leverage £0 £0.01 1:30
How To Invest In The Alternative Investment Market
Research into your chosen securities is important as the AIM has been described as the “wild west” with high-risk investments. However, if investments are successful the rewards can be high, for example, the AIM-listed company Novacyt SA NCYT saw a 6890% return performance for investors in 2020.
There are several key ways to speculate on the Alternative Investment Market:
- Stocks – Trading shares in companies listed on the AIM is a good option for investors that want to pick individual firms. Investors can buy, hold and sell stocks to potentially profit from rising prices. However, this is also a high-risk way to access the AIM.
- ETFs – Exchange-traded funds are essentially baskets of shares, reducing the risk of a single stock losing value. Small-cap ETFs in the UK are popular options, including the iShares MSCI UK Small Cap UCITS ETF, available at IG Index.
- CFDs – Contracts for difference are leveraged derivatives that allow traders to speculate on rising and falling prices. Yet unlike shares, traders do not own the underlying stock – they merely bet on its price.
- Indices – The FTSE Group maintains three real-time indexes for tracking the AIM: FTSE AIM UK 50 Index, FTSE AIM 100 Index and FTSE AIM All-Share Index.
What Is The Alternative Investment Market?
The Alternative Investment Market sits under the London Stock Exchange. It was created in 1995 to allow smaller companies to get funding from public markets.
There is more regulatory flexibility when listing on this sub-market, such as no set number of shares issued, meaning it is more accessible to small businesses.
When it was launched the Alternative Investment Market was made up of only 10 companies valued at a total of £88.2 million. Now the size of the Alternative Investment Market has grown – over 3,865 companies from around the world have used AIM-traded stocks in the UK to raise over £115 billion.
Importantly, AIM-listed companies can offer investors good potential for returns but they are also high-risk.
Companies that list on Alternative Investment Market are those that require access to the public market to continue to grow but are not yet large enough to go through a FTSE initial public offering (IPO). Therefore, they have an IPO on the Alternative Market where fewer regulations apply (for example no set requirements for market capitalisation).
Companies listed on the Alternative Investment marketplace are looking to raise capital usually between £1 million and £50 million, although some AIM-listed companies have reported up to £100 million of capital.
The firms listed on the AIM span 37 sectors and from more than 25 countries. The Sarbanes-Oxley Act of 2002 increased regulations for publicly traded US companies motivating many US-based companies to join the London AIM.
Firms from the market segments of healthcare, finance, oil and gas, technology, industrials and consumer services are the most commonly listed Alternative Investment Market members. Other examples include real estate, commodities, collectables and cryptos.
In 2021 the top three listed AIM companies were:
- ASOS PLC – £4.869 billion market cap
- Boohoo Group PLC – £4.035 billion market cap
- Abcam PLC – £3.211 billion market cap
Floating on the AIM essentially follow the same process as a traditional IPO just with less strict requirements. A flurry of pre-IPO marketing activity, sharing of historical financial information and a post-IPO lock-up all take place similarly to other IPOs.
An admissions document is required containing:
- A list of company directors
- Annual financial statements
- Information on business activities the company is engaged in
- The company’s overall business plan or strategy
The Alternative Investment Market is subject to fewer regulations than the traditional FTSE, especially when unique collectable items are involved (e.g. coins or art).
However, fraud cases have been seen in the Alternative Investment Market highlighting why investors should conduct thorough research before considering buying on the alternative marketplace.
One key difference between the AIM and other markets is the role of nominee advisors (or nomads) in regulating the alternative stock market. Their role is to advise companies listing on the AIM pre- and post-IPO and are responsible for the company’s compliance with regulations during the listing process.
The individual company appoints their own nomad who fits the AIM rules and successfully applies them. This is different to the FTSE where the role of the nomad is done by an independent body.
One issue that is commonly raised is the fact that the “nomads” are responsible for ensuring compliance with regulations but they also profit from the fees from companies they list and oversee. This is seen as a conflict of interest and cases have been found where nomads have failed in their duties.
The Alternative Investment Market is home to small companies that offer high-risk, high-reward trading opportunities. Lax regulatory requirements and listing rules are common criticisms of the AIM, though some investors have generated impressive returns.
Make sure you sign up with UK-regulated AIM brokers to protect your investments.
What Is The Definition Of The Alternative Investment Market?
The Alternative Investment Market (AIM) is a submarket of the London Stock Exchange that is used by small, high-growth companies to access the public market. These businesses have usually used all private sources of capital and now need a way to access the public market but are not big enough to go through the FTSE IPO. Therefore, they join the AIM which has less strict requirements for listing.
Importantly, these companies are typically higher-risk investments though they can provide high rewards to investors if successful.
Can AIM Shares Be Purchased In An ISA?
Yes, AIM shares can be purchased within an ISA. This makes AIM a tax-efficient market for investors (ISAs are free of income tax, capital gain tax and inheritance tax if held for two years).
What Are The Tax Implications Of Investing In The AIM?
The Alternative Investment Market offers various ways for investors to take advantage of government-sponsored tax relief such as Capital Gains Tax Relief, Business Property Relief and other forms of loss relief on shares invested through Venture Capital Trusts or that qualify for the Enterprise Investment Scheme.
A financial and tax advisor can be consulted by investors to best understand the tax implications and protections for assets.
How Does Inheritance Tax Effect AIM Investments?
Many AIM-listed companies are included in Business Relief provided by the UK government. Once these assets qualifying for business relief are held for two years they are exempt from inheritance tax (providing they are still held at the time of death).
Do Market Abuse Regulations Apply To The AIM?
Yes, Market Abuse Regulations (MAR) apply to the Alternative Investment Market. MAR ensure market integrity and protects investors (MAR includes disclosure obligations and closed-period rules).