A Complete Guide to Buying Disposal Shares: Trading Rules, Investment Risks, and Opportunities

If you’ve ever encountered a situation in the stock market—such as a stock soaring over 100% in just a few weeks, yet being unable to execute quick trades or having margin trading disabled—then this stock is very likely already on the Disposal Stock list. Many investors feel confused: Can you still buy disposal stocks? Will you get trapped if you buy? This article will comprehensively analyze the trading mechanisms, investment value, and risks of disposal stocks.

What are Disposal Stocks? Why are they Listed?

Disposal stocks refer to stocks with abnormal trading conditions in the short term, which are placed under special observation by the Taiwan Stock Exchange. Specifically, there are three abnormal situations: excessive short-term price fluctuations, abnormally high turnover rates, and sudden increases in trading volume.

The Taiwan Stock Exchange’s mechanism is designed with a clear purpose—to calm the market by increasing trading difficulty. Once a stock is listed as a disposal stock, its buy and sell matching times are extended, payment methods become stricter, and margin trading may even be suspended.

It’s important to note that stocks do not directly jump to disposal status; instead, they progress through stages:

Step 1: Attention Stock — If a stock’s price increases over 100% within 30 trading days, or its daily turnover rate exceeds 10%, or other abnormal indicators are triggered. Trading of attention stocks is not restricted; it serves as a warning to investors.

Step 2: Warning Stock — If abnormal conditions persist for attention stocks, they are upgraded to warning stocks.

Step 3: Disposal Stock — When a stock meets the criteria for attention stocks for 3 to 5 consecutive trading days, or directly meets warning stock conditions, it enters the disposal list, and trading rules become restricted.

How to Buy Disposal Stocks? What Are the Trading Restrictions?

The key question is: Can you buy disposal stocks? Yes, but the method differs.

Depending on the stage of disposal, trading restrictions vary:

First Stage of Disposal

At this stage, matching times are every 5 minutes (not continuous). If a single buy or sell order exceeds 10 lots, or multiple orders total over 30 lots, a circular deposit transaction is required.

What is a circular deposit? Simply put, when buying stocks, the system first checks if your account has sufficient cash. If the prepayment is insufficient, the system will block the transaction. In contrast, normal stocks can be paid T+2 (two days later). Margin trading is also suspended at this stage.

Second Stage of Disposal

If stock price volatility remains intense and triggers disposal conditions again within 30 days, the stock enters the second disposal stage. Now, matching occurs every 20 minutes, and all trades are conducted via circular deposit transactions, regardless of trade size.

This significantly increases the difficulty of executing trades, often leading to a sharp decline in trading volume. Investors will feel most acutely: — they want to buy but can’t, want to sell but can’t.

Disposal period is usually 10 trading days, but if the proportion of intraday offset transactions exceeds 60% of total volume, it extends to 12 trading days. After the period ends, the stock is removed from the disposal list.

Do Disposal Stocks Rise? Case Comparisons Tell You

This is the most concern for investors. The answer is: It depends on the specific situation; there is no absolute answer.

Let’s compare two real cases:

Positive Case — WeiFeng Electronics (6756): Listed as a disposal stock in June 2021. Despite entering the first disposal stage, it remained hot, and later entered the second disposal. However, during the entire disposal period, the stock price accumulated a 24% increase. This shows that some stocks, even when restricted, can still have strong upward momentum.

Negative Case — Yang Ming (2609): Also listed as a disposal stock due to large gains and high turnover in the same period. But the situation quickly turned worse. When re-listed as a disposal stock at the end of July, the reason was “large decline over the past 6 days.” Since then, the stock has performed poorly for a long time.

These cases illustrate that the subsequent performance of disposal stocks mainly depends on the company’s fundamentals and market expectations, not the trading restrictions themselves.

Do Disposal Stocks Have Investment Value? The Most Scientific Judgment

Being listed as a disposal stock is merely a temporary abnormal trading state and does not indicate the quality of the company. To judge whether there is investment value, two dimensions should be analyzed:

Fundamental Analysis

• Business Competitiveness: Understand core business, product strength, market position
• Financial Health: Study revenue growth, gross profit margin, net profit, and other key indicators to assess profitability
• Financial Trends: Observe whether financial performance over recent quarters is stable and improving

Market Position Analysis

Since disposal stocks cannot be margin traded, the movement of major funds tends to be more “clean,” making it easier to identify. You can observe after-hours data to see the scale and persistence of major fund inflows or outflows, helping decide whether to follow or reduce holdings.

Practical Tips:

1. Avoid buying during sideways consolidation with large drops — Confirm whether the stock price is consolidating or rising during disposal; if it starts to fall sharply, avoid buying.
2. Assess valuation reasonably — If the stock is obviously undervalued, you can consider entering during low liquidity, waiting for future upside.
3. Pay attention to financial report updates — Regulatory authorities will periodically release the latest financial reports for disposal stocks, allowing investors to better understand operational status.

Are Disposal Stocks Suitable for Long-term Holding?

It depends on three factors:

(1) Company Fundamentals — Disposal stocks generally carry higher risks than normal stocks. If the company has poor management or financial issues, long-term holding is risky. But if fundamentals are stable, long-term holding could be an opportunity.

(2) Market Environment — In a rising market cycle, disposal stocks tend to recover better; in a declining market, they may face greater pressure.

(3) Investor Risk Tolerance — If you can accept significant stock price fluctuations and have a high risk tolerance, disposal stocks with stable fundamentals may be worth holding long-term; otherwise, be cautious.

Key Point: For short-term traders, the inability to day trade is a major restriction; but for long-term investors, extended matching times are negligible. In fact, it can help better track company updates through periodic financial reports.

Disposal Stocks vs Attention Stocks vs Warning Stocks: Knowing the Difference Is Important

These three represent a progressive deterioration in stock status:

• Normal Stocks → Fully tradable, T+2 settlement, support margin trading
• Attention Stocks → No trading restrictions, just a warning label
• Warning Stocks → If abnormal conditions persist, upgraded to warning status
• Disposal Stocks → Trading restrictions, extended matching times, no margin trading support

Final Investment Advice

Disposal stocks carry both risks and opportunities. The key is to make judgments based on solid company research, rather than blindly follow or avoid.

If thorough fundamental analysis confirms that the company still has investment value, then being listed as a disposal stock is not a big concern. Conversely, if the fundamentals are questionable, even excellent liquidity won’t save your investment.

While the rules for buying and selling disposal stocks are complex, fundamentally, they are risk management tools used by the exchange. Learning to understand and utilize this mechanism can help you identify high-quality companies that are being unfairly punished.