## Stocks Suddenly "Frozen"? Everything You Need to Know About Disposition Stocks

Have you ever encountered this situation: a stock doubles in value within just a few weeks, and just as you're about to enter the market, trading becomes unusually difficult, and margin trading is prohibited. This usually indicates that the stock you're watching has entered a special list — the Disposition Stock list.

Many investors know little about disposition stocks, and some even regard them as forbidden zones. But in fact, understanding how disposition stocks operate can help you discover hidden investment opportunities.

## How Are Disposition Stocks Created? What Are the Trading Rules?

**The emergence of disposition stocks stems from abnormal trading activity.** When a stock experiences sharp fluctuations in a short period — for example, a rise of over 100% in 30 trading days, a daily turnover rate exceeding 10%, or abnormal trading volume — the Taiwan Stock Exchange will first classify it as a "Watch Stock" for observation.

If abnormal conditions persist and worsen, and the stock continues to meet these abnormal criteria over several consecutive trading days, it will be upgraded to a "Disposition Stock." This is a more stringent regulatory measure. The core purpose of disposition stocks is to reduce market enthusiasm, allowing market participants to think calmly and avoid excessive speculation.

Once a stock enters the disposition list, its trading methods will change significantly:

Disposition stocks are divided into two stages. **In the first stage, the transaction matching interval changes from continuous to every 5 minutes,** which directly limits trading flexibility. Additionally, if you want to buy more than 10 lots or accumulate over 30 lots, the system will require you to freeze funds — meaning the full purchase amount must be available immediately, with no deferred payment, which is a stark contrast to the T+2 settlement for regular stocks. Margin trading and short selling are also prohibited during this stage.

**If abnormal trading conditions persist without improvement, the stock will enter the second stage.** At this point, the transaction interval extends further to every 20 minutes, and all buy and sell orders require full fund freezing, greatly reducing liquidity. These two stages typically last for 10 trading days, but if the proportion of offsetting transactions on that day exceeds 60%, the period is extended to 12 trading days.

Investors often joke that disposition stocks are "like sitting in jail" or "in confinement," which is quite apt — the stock can still be traded, but trading is heavily restricted.

## Disposition Stock vs. Watch Stock vs. Warning Stock: What Are the Differences?

Abnormal stock statuses are progressive. A normal stock first becomes a Watch Stock, which may then upgrade to a Warning Stock, and finally become a Disposition Stock.

**During the Watch Stock stage, trading is completely unrestricted.** Investors only need to heed the alerts, and can still trade freely with T+2 settlement and margin trading. The Watch Stock label is merely a risk warning.

**Warning Stocks indicate that abnormal conditions have persisted,** and investors should exercise greater caution.

**When it comes to Disposition Stocks, the restrictive measures truly take effect.** This is the most stringent stage, which is why disposition stocks are often the most overlooked by the market, creating potential opportunities.

## Can You Still Profit from Disposition Stocks? Two Real Cases

The subsequent performance of disposition stocks is not fixed. For example, Wavetech Electronics (6756) was classified as a disposition stock in June 2021, and even entered the second stage of disposition, but its stock price increased by a total of 24% during the entire disposition period. After the restriction was lifted, the stock continued to rise.

In contrast, Yang Ming (2609) was also classified as a disposition stock during the same period due to excessive gains, but by July, it was reclassified after a sharp decline. Its stock price remained sluggish afterward until it recovered much later.

These two cases show that the future trajectory of disposition stocks depends on the company's fundamentals.

After being classified as a disposition stock, trading volume usually shrinks significantly due to liquidity restrictions. This is unfavorable for short-term traders and increases trading costs. However, it also leads to an interesting phenomenon — there is a saying in the market: "The more a disposition stock is restricted, the bigger its tail."

This reflects a reality: stocks designated as disposition stocks are often hot stocks that surged earlier. Once in the disposition period, trading restrictions stabilize the chips (ownership). When the disposition period ends and restrictions are lifted, these stocks with stabilized chips sometimes resume upward movement — provided the company's fundamentals haven't deteriorated.

## Are Disposition Stocks Worth Investing In? An Objective Approach

Disposition stocks are merely a temporary trading status label and do not necessarily reflect poor company quality. **If thorough research indicates that the company still has prospects, stocks on the disposition list are worth considering.**

Judging whether a disposition stock is valuable follows the same framework as evaluating regular stocks, focusing on two main aspects:

**Fundamentals:** Understand the company's core business and competitive advantages, analyze key financial indicators such as revenue growth, gross profit margin, and net profit. Also, observe the historical trend of these indicators to assess whether the company maintains steady upward momentum. If the company's financial performance is solid, being on the disposition list shouldn't cause excessive concern.

**Chips (Ownership) Perspective:** Pay attention to the flow of major funds. During the disposition period, margin trading is unavailable, and trading restrictions make the movement of major funds more transparent. You can observe whether institutional investors are continuously buying or gradually exiting through closing data, which is often easier to judge than during normal trading.

Additionally, before entering, confirm a few details: First, whether the stock price during the disposition period is consolidating sideways; if it starts to decline sharply, it’s better to avoid. Second, whether the current stock price is reasonable or even undervalued, which adds value to entry. Third, whether the company has recent major negative news or operational issues.

## Are Disposition Stocks Suitable for Long-term Holding?

This depends on a comprehensive assessment of multiple factors.

First, **disposition stocks carry higher risks than regular stocks.** Being classified as a disposition stock often reflects significant market disagreement about the stock. If the company faces operational difficulties or financial concerns, long-term holding could entail substantial risks.

Second, consider the macro environment. If the overall stock market is in a downtrend or the economy is in recession, disposition stocks will face greater pressure. Conversely, if the market is rising and the economy is improving, there may be more profit opportunities.

Third, the investor’s own risk tolerance is crucial. Investors with high risk tolerance can hold disposition stocks long-term if the fundamentals are stable. Conservative investors should avoid them.

Finally, **long-term investors have advantages over short-term traders.** Short-term traders are limited by the inability to offset positions on the same day, which can lead to larger losses. Long-term investors are less affected by extended transaction times and fund freezes; they can even take advantage of the period of low liquidity to enter, waiting for the rebound after the disposition period ends. Moreover, regulatory authorities require disposition companies to disclose financial reports promptly, giving investors clearer insight into the company's situation.

**Ultimately, the decision should be based on confidence in the company's long-term prospects.** If you believe the company's future development path is correct, temporary difficulties caused by disposition status won't change its long-term value.