Why 25% spread ?17 Nov 2025 17:02
A 25% spread on a UK-listed share is extremely high and typically signals significant risk, illiquidity, or inefficiency in the market for that security. Here’s a breakdown of why such a wide spread might occur:
🔍 1. Low Liquidity
• Thinly traded stocks—often AIM-listed or micro-cap companies—have few buyers and sellers.
• Market makers widen spreads to compensate for the risk of holding inventory they may struggle to offload.
⚠️ 2. High Volatility or Uncertainty
• If the stock is subject to speculative trading, pending news, or regulatory risk, market makers may price in a large buffer.
• This is common in junior mining stocks, biotech firms awaiting trial results, or companies in legal disputes.
🧾 3. Market Maker Dominance
• Some illiquid stocks are dominated by a small number of market makers, who can set wide spreads due to lack of competition.
• This is especially true in AIM or Standard Listing stocks where retail order flow dominates.
🧮 4. Large Retail Interest Without Institutional Depth
• If a stock is popular on forums (e.g. PREM, GGP, EUA), but lacks institutional support, spreads can widen during sentiment shifts.
• Retail-driven demand can be lumpy and reactive, making pricing riskier for market makers.
🧨 5. Suspension Risk or Corporate Events
• Stocks facing suspension, delisting, or major restructuring (e.g. CVA, administration, or reverse takeovers) often trade with massive spreads.
• The spread reflects the uncertainty of future tradability or valuation.
📉 6. Price Manipulation or Pump-and-Dump Activity
• In some cases, manipulative trading or coordinated pump-and-dump schemes can distort spreads.
• Market makers may protect themselves by setting wide spreads to avoid being caught on the wrong side of a sharp move.
Hope this helps.
Acker
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