I trade most global equity markets and find a lot of attractive stocks in the UK small cap space but the spreads just make them unbuyable - 5-10% on a small cap is quite common. I don't see this in any other market. Why is this?
Thanks,
Dave
Small stocks tend to be illiquid as they are traded in small volumes. By widening the spread, market makers can buy and sell at a substantial premium. This makes the market more liquid, and it also makes a lot of money for the market makers. A sort of win-win. If it weren't for the large spreads, ordinary retail investors would have little access to promising small caps.
