Novice investor with a question

12th Jan '21 by NeedsGloves

15 comments 674 reads

Good evening all, I have decided to get into the world of stocks and shares, I've done some research and decided to take the plunge.

All seemed well, I found a platform and found the share I wanted to buy but got this message:

Please note that liquidity for X is currently low and is not available for trading due to inflated spreads.

I haven't come along this in my research so far, I know it doesn't sound great on the face of it, but it's a company I know well that is going through significant change so I'd like to start off here with a small investment. Do you have any advice please on what this means, whether it means shares won't be available on any platform (or is it limited to the one I tried) and do I just check regularly to see when it's available again?

Also, the platform I've signed up to is Etoro - it gets good reviews for beginners and has an app. I won't be a hardcore investor - less than £10k in total.

Thank you for reading!

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GloucesterBob

12th Jan '21

Basically means, you may struggle to buy some, though a call to your broker will probably help rather than buying through their web site.

The bigger issue will be, you may find it very hard to sell them, which will be a real pain, if they are heading South due to bad news and you want to get out quick.

Check out its Stocko page for major shareholders, it will give you a good indication whether 2 or 3 people are holding most of the stock.

Inflated spread would for me be the largest red flag for me. If the spread is 10%, add in dealing charges, and you probably need 13-15 per cent rise on a small purchase just to get your money back (if you can sell them)

Listing the company make get you further advice from people here who may have experience with the company

Rusty2

What is the share?

Are you in the U.K.?

I would not buy any share with a spread of over about 6%. If there is bad news spreads usually get wider or you won’t be able to sell, had that with one share. I usually avoid illiquid shares, if just starting out I would certainly avoid them, it maybe ok to have 1 or 2 as part of a large portfolio.

Larger platforms may give you buying options but depends on the shares.

Momoko Miyamoto

You may find other brokers able to deal in the stock you want. I use HL & AJ bell and find that availability of some shares can vary between platforms. Unlike some others here I'm not necessarily put off by a big spread but the investment case and/or valuation must be exceptional to compensate for the higher dealing costs. I've also found that the spread can also narrow if positive company developments attracts investor interest and market volume increases.

NeedsGloves

15th Jan '21

Thank you for your comments. The share is Mitie who have just bought Interserve. I expected prices to be lower due to the acquisition etc but now there will inevitably be streamlining and cost saving measures, which I anticipate would lead to a return.

I was therefore blindsided with the broker saying I couldn't buy them!

Id appreciate any insight as to what you would do next, is it likely that the spread will decrease before the price goes up? Or does the price fall to meet the split?

I have to say - I thought I was well researched but this forum is another level!

Thank you

sharw

By your description I thought this would be a microcap and not traded on the order book. To find that it is Mitie (LON:MTO) I am astounded that you should have got that message.

Here's how to check such things. There used to be a number of sites showing the spread at each trade but they have decreased. I use this:

https://www.lse.co.uk/ShareTrades.asp?shareprice=MTO&share=Mitie

It shows a limited number but enough to show that between 4 and 4 30 p.m. it was at 42.1/42.25 for most of the time - a spread of less than half of 1%. Not only that you will see some buys for 'O' trades - that is the type you do through a broker - where people were getting a price inside the spread - like the one at 16.21 at 42.2095 when the offer price was 42.25.

If you want to see all the trades for the day (but without the spreads) go here:

https://www.londonstockexchange.com/stock/MTO/mitie-group-plc/trade-recap

Set the 'Show last' box to 'All for today' and press go.

You can also play with the bar chart under. On Tuesday when you started your post over 543k shares were traded - hardly illiquid!!

Westway001

Based on this screenshot just now on the basis of spread and volume I’m surprised there’s an issue

Thank you so much. I'll have a look at different brokers, maybe it was an isolated issue but I got that message and was out of my depth.

Thank you for the information and screen shot, based on the research I'd done I was shocked to not be able to buy. Hopefully then I can invest in this stock.

I have never heard of that platform, seems be Israeli based.

If I were you I would look for a UK based platform, such IG and HL and many others, I would also use a share ISA that will avoid any tax.

PLS1nve5t

Service providers such as Mitie are barge poll territory for me. Masses of employee's paid minimum wage, contract prices pared to the bone leading to wafer thin margins, one hiccup and they are toast. Reducing dividend for a number of years and now cut to zero, best of luck with it though....

The margins are very low, I don’t usually buy shares if the margins are less than 5%. There was a profit warning back in November.

I would have thought they will have been affected by lockdowns and working from home.

I think it’s fairly high risk share to start with.

Snowbum

16th Jan '21

I’d second Herbie’s and the other comments. Can I suggest you look at a different platform if you are looking to actually hold shares, I always thought of etoro as a robo, copy trading platform that allows users to ‘follow’ hot traders with their capital and only uses CFD’s to allow exposure to stocks, FX etc.

If indeed you prefer to hold stocks in this way, myself and many others here prefer to use IG or Spreadex.

Thank you again. I have looked at IG and will buy through them as you suggest. It's a real minefield, I do want to buy and hold, I don't see myself trading multiple times in a month.

Ref the ISA, would you say that for someone investing under £20k a year would go with that option because of tax and if you invest more than that, that's when you buy shares? Or would you put money in both regardless of value?

I've read about funds and bonds and ideally you have a mixture to spread risk. It looks like the ISAs cover the funds/bonds but not Individual shares?

Suggest you research 'Stocks & Shares ISA' more carefully. You can hold everything you describe in one of these...

https://www.moneysavingexpert....

doug2500

Since you identify as a novice I'll echo other's comments.

Use a quality well known broker, IG are fine but iweb are a good option for buy and hold. Zero holding charges and cheap dealing. Single upfront fee is only downside. Depending on circumstances Halifax could be a better option, same platform, no joining fee, slightly more expensive dealing charges.

I wouldn't touch Mitie either for the reasons mentioned, but it is your right to buy what you want.

There is no reason at all to buy outside an ISA until you've used the annual allowance. No tax & no tax return. You should keep records but at least you don't have to in an ISA. You can still remove cash in the same timescale if you need to as in a trading account. You should be able to buy almost every share, IT and fund you would want to in an ISA. If you can't buy something in an ISA I'd suggest you don't buy it as a novice.

Personally I'm not excited about bonds, they may have a place if you're older but if you're young......You have to decide this for yourself though. Funds are effectively shares, just managed for you with built in diversification, although you do also get bond funds etc. I wouldn't touch a fund that invests in illiquid assets e.g. property. Use an IT or REIT for that.

HTH

I would do £20k in an ISA each year. It is not just capital gains but also dividend tax. Dividends are now taxed although you do have an allowance.

If you have any cash ISAs these can be transferred into your Stock and Share ISA, usually without any fees.

You can buy shares in your ISA, even many foreign shares now.

If you have more than £20k to invest then you can do a share account as well, just watch the dividends and capital gains though.

You can also look into SIPPs, if you eligible.

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NeedsGloves

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