In-depth Analysis of Disposal Stocks: Stock Trading Mechanisms Every Investor Must Understand

Have you ever been optimistic about a stock but found yourself unable to buy? Or watched its price double within just a few weeks, yet trading becomes unusually difficult? This may indicate that you are dealing with a stock classified as a Disposal Stock. Why are these stocks treated differently? Do they still present investment opportunities? This article will provide a detailed explanation from a practical trading perspective.

The Core Mechanism of Disposal Stocks: Why Are They Placed on the Watchlist?

When a stock exhibits abnormal trading behavior over a short period—such as a gain of over 100% in a month, an unusually high turnover rate, or a sudden surge in trading volume—the Taiwan Stock Exchange will place it under special observation. This is what is known as a Disposal Stock.

The purpose of regulatory measures like this is straightforward: by artificially increasing trading difficulty, they aim to cool overheated markets and protect investors from blindly following the trend. The disposal stock system is divided into two stages:

Stage One Disposal: Trading pairs can only be matched every 5 minutes. If a single purchase exceeds 10 lots or accumulates over 30 lots, a full payment “collateralized trading” method must be used, and margin trading is suspended. This stage typically lasts for 10 trading days.

Stage Two Disposal: If abnormal volatility persists after Stage One, a more stringent Stage Two is enacted, extending trading pair matching to every 20 minutes, with all trades requiring collateralized trading.

In contrast, normal stocks operate under a T+2 settlement system (payment two days later), with real-time trade matching and no restrictions on margin trading. This comparison highlights the sharp decline in liquidity for disposal stocks.

From Normal Stocks to Disposal Stocks: The Complete Abnormal Evolution Process

Not all abnormal stocks are immediately classified as disposal stocks. The market has a progressive regulatory framework:

Normal Stock → No trading restrictions, freely marginable

Alert Stock → Triggered when 30-day gains exceed 100%, daily turnover rate exceeds 10%, or trading volume in the past 6 days is abnormally high, but trading methods remain unaffected

Warning Stock → When Alert Stock criteria are continuously met, it is further classified as a warning (often alongside disposal stocks)

Disposal Stock → When the criteria for Alert Stock are met for 3 to 5 consecutive trading days, it is officially included, with trading restrictions applied

In other words, investors receive multiple early warning signals, with disposal stocks being the final regulatory step.

The Current Trading Status and Practical Considerations of Disposal Stocks

The key question is: Can disposal stocks still be bought and sold? The answer is yes, but under different conditions.

The most immediate impact of trading restrictions on disposal stocks is deteriorated liquidity. Since matching times are extended from real-time to 5 or 20 minutes, investors seeking quick entry or exit will find it significantly more difficult to execute trades. Short-term traders will face higher transaction costs. This is why many jokingly refer to disposal stocks as “prison” or “locked up”—literally unable to trade freely.

However, an interesting market phenomenon exists, known among investors as the “Growing Big Tails While Locked Up” effect. Simply put: some hot stocks that surge significantly enter disposal status, and due to trading restrictions and stabilized chips, liquidity is artificially suppressed. When the restrictions are lifted, these stocks sometimes experience a new wave of upward movement. For example, in 2021, WeFone Electronics(6756) is a typical case; it underwent two disposal periods, yet its stock price still increased by a total of 24%.

On the flip side, there are counterexamples. During the same period, Yang Ming(2609) entered disposal due to excessive gains but was subsequently reclassified after a “cumulative decline over the past 6 days,” and its stock performance then plummeted.

How to Assess the True Investment Value of Disposal Stocks?

Core point: Disposal stocks are merely in an abnormal trading state; it does not mean the company’s quality is problematic.

To determine whether they are worth investing in, the same analytical framework used for normal stocks should be applied:

Fundamental Analysis

• Deeply understand the company’s core business and product competitiveness
• Review financial statements, focusing on revenue growth, gross margin, net profit, etc.
• Observe financial trends to confirm stable performance

Chip (Ownership) Analysis

• Track buying and selling trends of major institutional funds. Since margin trading is restricted during disposal periods, major fund movements tend to be more transparent and easier to interpret
• Persistent buying by certain funds often signals strong confidence

Practical Trading Tips Before entering, ensure: the stock price is in a sideways consolidation during the disposal period (avoid if it starts to decline sharply); and the current valuation is reasonable (consider buying if undervalued).

Are Disposal Stocks Suitable for Long-term Holding?

This depends on three factors:

The stability of the company’s fundamentals. If the company operates normally with good financial health, the abnormal state of disposal stocks is likely temporary, and long-term holding risks are manageable. Conversely, if the company faces operational difficulties or financial issues, the disposal label may conceal deeper risks.

Macro and market environment. During a bullish market and favorable economic conditions, disposal stocks tend to perform better after restrictions are lifted; in a downturn, risks increase.

Investor risk tolerance. Short-term traders may suffer higher opportunity costs due to inability to day trade; long-term holders are less affected by extended trading halts. In fact, regulatory requirements for disposal stocks to periodically disclose financial reports can help long-term investors stay informed about the company’s status.

From another perspective, for investors who believe in the company’s long-term prospects, being temporarily classified as a disposal stock is not a problem—it’s just part of regulatory procedures and unrelated to the company’s intrinsic value. The key always lies in assessing the company’s future development.

In summary: Disposal stocks mean trading restrictions, but do not eliminate investment opportunities. The crucial factor is how you analyze the underlying corporate value behind these stocks.