Will disposal stocks really rise? Trading restrictions and risks investors must know

Have you ever encountered this awkward situation? A certain stock rises over 100% in a month, making you feel excited and eager to buy, only to find that day trading and margin trading are frozen, and buying and selling take forever. These stocks are known as “disposal stocks,” often joked about as “locked up.” So, what exactly are disposal stocks? Can they still be traded after being classified as such? Most importantly—Will disposal stocks go up? This article will answer these questions from an investor’s perspective.

The true identity of disposal stocks: How regulators define these “problem stocks”

Disposal stocks do not refer to stocks of poor quality companies, but rather stocks exhibiting abnormal trading fluctuations. The Taiwan Stock Exchange (TWSE) will include such stocks in a special observation list based on certain standards.

Specifically, the following situations trigger the disposal stock criteria:

• Large price swings in a short period (e.g., over 100% increase within 30 trading days)
• Abnormal turnover rates (e.g., daily turnover rate exceeding 10%)
• Significant increase in trading volume (e.g., abnormal multiple growth in trading volume over the past 6 days)

The typical process is: normal stock → watchlist → warning stock → disposal stock. Stocks do not directly escalate to disposal status; instead, they are first placed on the watchlist to alert investors without restricting trading. Only when a stock continuously meets watchlist criteria over multiple days and reaches specific conditions will it be further upgraded to disposal stock, at which point trading restrictions are truly imposed.

The “imprisonment” life of disposal stocks: Your trading freedom is limited

Stocks listed as disposal stocks face significantly increased trading difficulty. Restrictions vary depending on the disposal stage:

First Disposal Stage

• Trading frequency reduces from continuous to every 5 minutes
• For single trades exceeding 10 lots or cumulative over 30 lots, full collateral deposit trading (similar to margin system) is required
• Margin trading and short selling are suspended
• Normal T+2 payment method changes to immediate payment upon purchase

Second Disposal Stage If the stock continues to fluctuate wildly and triggers disposal criteria again within 30 days, it enters the second stage with stricter restrictions:

• Trading frequency extends to every 20 minutes
• Regardless of trading volume, all trades are conducted via collateral deposit
• Trading becomes much less convenient, often leading to a sharp decline in trading volume

Generally, the disposal period lasts for 10 trading days. However, if intra-day closing volume accounts for more than 60% of total volume, the disposal period extends to 12 trading days.

Below is a straightforward comparison:

Do disposal stocks go up? The truth revealed by real cases

This is the most concern for investors. The answer is: They may rise, or they may fall—completely dependent on company fundamentals and market sentiment.

Positive Case: Weifu Electronics (6756) This stock entered disposal status in June 2021, experiencing first and second disposal phases, yet remained hot. During the entire disposal period, the stock price accumulated a 24% increase, ultimately reversing its trend. This indicates that the market still has confidence in the company; even trading restrictions couldn’t prevent capital from entering.

Negative Case: Yang Ming (2609) In the same period, due to excessive rise and high turnover, it was classified as a disposal stock. But the good times didn’t last. After July, the stock experienced a “large decline over the past 6 days” and was reclassified as a disposal stock. Since then, its performance remained sluggish, trapping investors.

The investment logic of disposal stocks: “The more restricted, the bigger the tail”—truth or myth?

A popular saying is “The more restricted disposal stocks are, the bigger the tail,” reflecting a certain investment phenomenon, but it needs proper understanding:

Why does this happen?

• Disposal stocks are often previously hot stocks with large gains; entering disposal status stabilizes their chips (ownership)
• Trading restrictions reduce liquidity, forcing short-term speculators to exit, optimizing the holding structure
• After the disposal period ends and restrictions are lifted, the former hot spots can reignite, potentially leading to a new rally

But risks are real too

• If during disposal, the stock faces a bearish attack, escaping becomes difficult
• Poor liquidity means higher risk of being trapped; buying is easy, selling is hard

How to judge whether disposal stocks have investment value

The key is to detach from the disposal label and return to fundamental analysis. Disposal status is just a temporary trading state tag and does not determine the company’s quality.

Fundamental analysis

• Understand the core business, product competitiveness, and market position
• Review financial statements, focusing on revenue growth rate, gross profit margin, and net profit trend
• Analyze financial health—whether the company maintains stable growth or faces difficulties

Chip (ownership) analysis

• Observe the main capital flow. Since margin trading and short selling are suspended, the main funds’ movements are relatively “clean” and easier to interpret
• Check post-market data—whether institutional investors are continuously buying or selling, to gauge their attitude
• This step is crucial because during disposal, liquidity is poor, and main capital actions better reflect future market expectations

Practical tips

• Confirm whether the stock price is in a sideways consolidation during disposal; if it starts to decline sharply, it’s better to avoid
• Verify if the current valuation is reasonable and whether the stock is undervalued. If undervalued, you might consider entering during disposal, waiting for the unlock
• Don’t be misled by the saying “The more restricted, the bigger the tail”; focus on the company’s fundamentals

Is disposal stock suitable for long-term holding?

It depends on multiple factors:

Company fundamentals risk Compared to normal stocks, companies classified as disposal stocks tend to carry higher risks. Abnormal trading behaviors may hide poor management, financial issues, or other major problems. In-depth investigation is essential before long-term holding.

Macro market environment

• If the overall stock market is declining and the economy is sluggish, disposal stocks face doubled risks
• If the market is rising and the economy is friendly, disposal stocks may have opportunities

Investor risk tolerance

• High risk-tolerant investors who can accept large fluctuations might consider holding fundamentally stable disposal stocks long-term
• Conservative investors should avoid them

Time dimension For short-term traders, inability to day trade is a fatal flaw, but for long-term investors, it’s less impactful. Moreover, disposal stocks are required to disclose latest financial reports during the period, allowing investors to better monitor company developments.

Overall, disposal stocks are not inherently bad; the key is whether the company is worth investing in. If thorough research indicates good future prospects, the temporary disposal status is insignificant.