How to buy disposal shares? A comprehensive guide to trading rules, risks, and opportunities

From Phenomenon to Essence: Understanding Disposition Stocks

There are always some “alternative stocks” in the stock market that experience astonishing short-term gains but suddenly become difficult to trade, with margin trading and securities lending also disabled. Investors want to buy or sell but cannot get the desired volume. These are stocks classified as disposition stocks.

Disposition stocks are a special management measure by the Taiwan Stock Exchange for stocks with abnormal trading behaviors. When a stock exhibits extreme short-term price fluctuations, abnormal turnover rates, unexplained trading volume surges, or other irregular trading phenomena, it may be placed on the watchlist. The exchange’s clear goal is—to cool overheated trading by increasing trading difficulty, restoring market rationality.

However, it’s important to note that being classified as a disposition stock is not an immediate step. The usual process is: Normal stock → Attention stock → Warning stock → Disposition stock. During the Attention stock stage, trading remains fully normal, only with risk alerts issued to investors. Only when abnormal conditions persist and worsen will the stock be officially classified as a disposition stock, at which point trading restrictions are significantly enforced.

How to Buy Disposition Stocks? An Overview of Trading Restrictions

Stocks on the disposition list can still be bought and sold, but trading methods are adjusted according to the different stages of disposition.

First Disposition Stage Trading Rules

Once a stock enters the first disposition stage, the most obvious change is that matching time shifts from anytime to every 5 minutes. This means your buy/sell orders will not execute immediately but will wait until the system matches at each 5-minute interval.

Additionally, when a single purchase exceeds 10 lots or multiple transactions reach a total of 30 lots, a circulation deposit trading mechanism is triggered. Simply put, the system will freeze the funds in your account to ensure sufficient coverage of the transaction amount before allowing the trade. This differs from the normal T+2 payment method (pay two days after purchase); disposition stocks require full immediate deduction.

At the same time, margin trading and securities lending are suspended, meaning leverage cannot be used to increase trading volume.

Second Disposition Stage Further Restrictions

If the stock’s price volatility remains unresolved and meets the criteria again within 30 days, it will enter the second disposition stage. Restrictions are further tightened:

• Matching interval extends to 20 minutes, significantly reducing trading efficiency
• All buy/sell transactions must be circulation deposit trades, regardless of amount
• Trading volume often shrinks sharply

The disposition period usually lasts for 10 trading days, but if intra-day offset transactions account for more than 60% of the total daily volume, the period extends to 12 trading days.

How to Assess if Disposition Stocks Have Investment Value?

The subsequent performance of disposition stocks varies greatly and cannot be generalized.

Positive Example: WeiFeng Electronics (6756) was classified as a first disposition stock in June 2021, then entered the second disposition. During the disposition period, its stock price increased by 24% cumulatively, and when it exited the disposition, the gains were impressive.

Negative Example: Yang Ming (2609) was also classified as a disposition stock due to excessive gains at the same time, but later, after a significant decline over six days, it was reclassified. Since then, the stock has remained sluggish.

How to judge? The key points are:

1. Fundamental Analysis

• Does the company’s core business have competitive advantages?
• How are revenue growth rate, gross profit margin, and net profit trend in financial statements?
• Is the company’s financial position stable?

2. Chip/Capital Flow Analysis Pay attention to the movement of major funds. Since margin trading and securities lending are prohibited, and trading restrictions increase difficulty, major fund flows are relatively clearer and easier to interpret. If large capital continues to buy rather than exit, it could be a sign of opportunity.

3. Price Trend Judgment

• Timing is crucial: If the stock begins to fall sharply during disposition, it’s better to avoid, as poor liquidity can accelerate declines.
• Valuation level: If the current price is significantly below historical valuation, the disposition period might be a good opportunity for low-cost entry.

4. Market Environment The overall market trend directly influences the performance of disposition stocks. In a bull market, stocks may rebound strongly after exiting disposition; in a bear market, caution is advised.

In summary: Disposition stocks are just abnormal trading states, not indicative of company quality. If fundamental analysis confirms the company’s investment value and valuation is reasonable, the disposition period might even be a good entry point.

Is the Market Rumor “The Longer the Restriction, the Bigger the Rally”?

There is a saying circulating in the investment community—that the longer a stock remains restricted as a disposition stock (“the longer the ban, the bigger the rally”). There is some logic behind this:

Many stocks classified as disposition stocks are often hot-topic or soaring stocks initially. During the disposition period, due to liquidity drying up and trading difficulties, short-term speculators gradually exit, and the chips tend to concentrate among long-term optimistic investors, making the foundation more stable. Once out of disposition, liquidity recovers, and the accumulated upward potential can be released all at once.

However, this logic has a premise—the company itself does not have fatal problems. If during disposition, the stock faces short-selling pressures or negative news frequently, and cannot be sold easily, this “shutdown” becomes a trap rather than an opportunity.

Are Disposition Stocks Suitable for Long-term Holding?

There is no definitive answer; it depends on multiple factors:

Risk Perspective: Disposition stocks often hide abnormal trading behaviors, reflecting market concerns about the company. Long-term holding requires confidence in the company’s fundamentals; otherwise, risks are high.

Market Environment: In a rising market and economic upturn, long-term holding of disposition stocks carries lower risk; in a declining market, caution is advised.

Investor Risk Tolerance: Aggressive investors who can accept large fluctuations may hold quality companies long-term; conservative investors should avoid.

Time Frame Impact: For short-term traders, matching delays and day trading bans are significant drawbacks; for long-term investors, these restrictions are mostly irrelevant. Moreover, regulatory requirements for regular financial disclosures help investors stay updated on company developments.

Practical Recommendations

To invest safely in disposition stocks, remember these points:

1. Avoid blindly chasing highs: During sharp declines, poor liquidity can accelerate losses; stay away.
2. Choose undervalued stocks: Enter at reasonable or even low valuations to leave room for future gains.
3. Monitor capital flows: Watch whether major funds continue to buy, which is an important signal for future prospects.
4. Set stop-losses: Due to liquidity restrictions, pre-set stop-loss points to avoid being trapped.
5. Know yourself: Clarify whether you are a short-term trader or a long-term investor, and adjust your strategy accordingly.

Disposition stocks are neither monsters nor free lunches; success depends on thorough research to discover value and timely entry.