Bring AI to your brokerage with cTrader’s MCP server
There is something about small caps that acts as catnip to the same type of person that likes spread betting and CFDs. It’s the kind of man in late middle age, who wanders through retail investor expos and AGMs, wearing a suit with trainers, carrying a plastic bag and picking up all the freebies along the way. He looks homeless but he’s worth millions. Raging on London South East forums late at night, he’s losing his mind with the IG sales desk during the day.
Of course, you can also spread bet on UK small caps. You may think the stock is going up and just want the leverage. You may want to hide your position. You may use the spread bet alongside taking a position in the shares yourself.
Get real prime of prime liquidity with ATFX Connect
I have a strong suspicion that some of you may have experienced a sudden order for an esoteric small or micro cap stock late in the afternoon, perhaps near to market close. Then the next morning it spikes at the open. Of course, no one would ever use a small cap spread bet for insider trading, as that would be illegal.
A simple way to see this kind of activity is via TR-1 forms. When an investor goes above a 3% holding in a company on the London Stock Exchange, you have to declare it. But because the broker hedging is the one holding, they appear in the form, rather than the actual punter.
The only companies left that still seem to do this business in a meaningful way are Spreadex, IG, and InterTrader. Note that InterTrader does this via Alvar Financial, which seems to operate more like a standalone business in the group.
The below lists how many small / mid-cap companies these brokers have been involved in since the start of the year. This is based on TR-1 forms. Note a company with multiple forms filed is only counted once (eg. If IG moved from holding 0% to 8%, then down to 4%, we would count it once).
| Company | No. of small/mid cap involvements |
|---|---|
| IG | 8 |
| Spreadex | 41 |
| InterTrader / Alvar | 2 |
This would seem to validate the idea, which we spoke to Spreadex about in the past, that they have become the ‘go-to’ brand for this kind of business.
Why do others not do it?
Launch Prediction Markets today with Match-Trader
My assumption is that…
- Logistics – you have to hedge exposure to illiquid, small / mid / microcap stocks, which many brokers don’t have the setup or desire to do.
- Compliance – you have to deal with the risk that the suit/trainers, middle-aged millionaire guy is doing something untoward
- Money – hedging stocks is capital intensive and most people don’t want to do it.
Hedge your crypto risk with Scope Prime
The flipside is that this is probably one of the few areas in this industry where you do not have to rely on volatility to make money, as you are just taking financing fees and commissions. As the position sizes tend to be large, these are probably fairly good money makers if you can make it work.
The other striking thing about these transactions is that you start to see the shadows of wealthier clients who may (or may not) be trading with UK brokers. This is also interesting because they are often random people you have never heard of.
Alternatively you are left wondering who is actually buying with the broker.
Start managing your broker’s risk with Hantec Prime
For example, in January someone took a position worth about £4.7m in Foxtons via IG. Who was it? No idea. IG is still holding that position and controls ~3% of the estate agent via equity swaps.
More recently, someone took a position in cinema group Everyman Media that’s equal to 3.1% of the company using IG. Everyman looks like it will be taken over by a small asset management group called Blue Coast Capital.
Everyman is weird. It is a tiny company (sub-£50m market cap) but has shareholders from three extremely wealthy families, one of which controls Blue Coast. They have all been buying huge volumes of shares this year, with the company likely to go private. Is it one of them using IG? Who knows.
All the best brokers use Pelican for copy trading – why don’t you?
Sometimes it’s easier to tell what’s going on. For example, last year someone called James Goozee used Alvar to take a position in a microcap called First Class Metals, which meant controlling about 8.9% of the business. Alas, this kind of open disclosure happens rarely.
Other times you get a hunch but can’t confirm anything. For example, a couple of years ago I had a stock screener set up and De La Rue, a company that prints banknotes, would always appear in it.
Get a 360 view of your broker’s technology with Centroid Solutions
One day checking the company, I noticed a change in the shareholder register because Spreadex had taken a decent chunk of the firm. This was at the same time as an ultra wealthy financier called Richard Griffiths was upping his stake in the company. Griffiths is probably worth north of £100m at this point but keeps a very low profile. There are very few photos of him online and the ones I found are from more than 20 years ago.
This is the basic pattern you get with most of these trades. Looking at the deals this year with the brokers in the table above, the richest man in Scotland, a millionaire property developer from Bolton, and an Israeli VC manager all look like they could be trading small and mid-caps using spread bets. They also may not be at all. But hey, you don’t need to tell me if they are. You already know.