What Happens When a Stock Gets Delisted?

What happens to a stock when it gets delisted? Do you lose your money and can you sell delisted stocks?

These are hugely important questions right now. A bill just passed the Senate that would force delisting of Chinese stocks like Alibaba and Baidu. It’s not just stocks of Chinese companies though and the recession could mean that hundreds of other stocks are delisted soon.

I’m going to show you what happens when a stock is delisted from the Nasdaq or New York Stock Exchange. I’ll show you why the exchanges delist stocks and what happens to your money. Then I’ll reveal how trading delisted stocks may actually make you money!

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When a company wants to sell stocks, it lists on one of the market exchanges. By meeting certain requirements like number of shares available and price, the stock is listed on the exchange to buy or sell.

If the company fails to maintain some of these requirements, the exchange will send it a notification letter for delisting…basically kicking the shares off the market. Reasons why a stock is delisted range from failure to file annual reports, a stock price that falls under $1 for a long period or just low investor interest in the shares.

If the company doesn’t fix the problems, it’s shares get delisted and you won’t be able to buy or sell them on that exchange…but don’t freak out! The shares will immediately start trading on the over-the-counter, or OTC market. In fact, nothing happens to the shares or the company.

There are even some benefits to a company delisting its shares. The company can save millions in reporting and other fees and it allows management to focus on long-term growth. Of course, there are also cons to having your stock delisted.

For investors, delisting a stock will make its price go on a roller-coaster…mostly lower. There is a way to trade delisted stocks though that could mean big profits. Share prices usually crash right before delisting but then often jump higher when the stock starts trading again. All you have to do is time it right to make some of the highest returns you’ll ever get!

Often a company will do a reverse split of its stock before delisting. Check out this video for everything you need to know about reverse stock splits. https://youtu.be/-bKC3T20pa8

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
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