Recently, I’ve seen many people discussing the issue of stocks being delisted. In fact, this is a risk point that’s easy to overlook but especially important. Many people think that delisting means they get nothing back, but the reality isn’t that absolute.

First, let’s clarify what delisting means. Simply put, it refers to a company’s stock that was originally listed on an exchange and traded there no longer being eligible to remain listed—either because it no longer meets the listing standards or because it has voluntarily applied to be delisted. At this point, the shares you hold can’t continue to be bought or sold on the exchange, but it doesn’t mean the stock is completely worthless.

Why do stocks get delisted? I’ll summarize the most common reasons. First is when a company’s financial reports are non-compliant or when it records continuous losses—for example, Chesapeake Energy, which has reported losses year after year and had a situation with negative net worth. Second are violations of regulations; for instance, Luckin Coffee was delisted from NASDAQ in 2020 due to financial fraud—this is very serious. Another case is when a company voluntarily goes private or is acquired; for example, Dell Technologies delisted from NASDAQ in 2013 as a result of privatization.

Delisting doesn’t happen overnight. Usually, it goes through several stages. First, the exchange issues a warning, and the stock name gets marked with an “ST” prefix—this is when you should start being vigilant. Then the company has a 3 to 6-month improvement period, during which it can supplement its financial reports or bring in investors. If it still doesn’t meet the standards, the exchange will convene a review meeting to decide whether to delist. The entire process may take several months, so as long as you closely monitor notifications from your broker and announcements from the exchange, you can respond in a timely manner.

So what should you do with delisted stocks trading over-the-counter? That depends on the reason for the delisting. If the company goes private voluntarily and the proportion of shares you hold isn’t too large, major shareholders are likely to buy back shares later at a higher price—under that scenario, your stock could even increase in value. But if the company goes bankrupt, there’s basically no hope, because in bankruptcy liquidation, shareholders are typically the last to receive any remaining assets—so the money you get back is essentially zero.

If a company is delisted because its market value is too low or its stock price is too low, liquidity will drop significantly, making it very difficult to find someone to take over the shares. If you’re lucky, you might find an over-the-counter buyer, but if you’re unlucky, you could face total loss. If the company is delisted due to violations, your holdings may be frozen, and you’ll have to wait until the company completes the legal process before it can be resolved—during that time, your money can’t be used.

After your stocks are delisted, what should you do? I recommend a few steps. First, closely monitor company announcements, especially information about the delisting date and subsequent handling. Second, if the company proposes a share repurchase plan, complete the procedures within the deadline; otherwise, you may lose your right to participate in the repurchase. Third, some companies move to the OTC (Over-the-Counter) market to trade—although liquidity is lower, at least trading can still occur, and there’s also a possibility that they may relist in the future.

If the company goes bankrupt or enters liquidation, you’ll need to wait for the liquidation process to be completed, but the amount you can realistically recover is usually limited. If there are no buyback or OTC options, you may consider privately transferring shares with other shareholders, or consult your broker to understand the share transfer process. Another important point is taxes: if the stock can’t be traded due to delisting, you can report it as an investment loss to offset capital gains.

When it comes to preventing this kind of risk, the most practical advice is to diversify your investment portfolio. Don’t concentrate all your funds into a single stock or a single type of asset; instead, allocate based on your risk preferences. For example, a risk-tolerant investor could set up a portfolio like: 15% to CFDs, 50% to stocks, 30% to funds, and 5% to bank deposits.

When buying stocks, you should also seriously analyze the company’s business prospects, financial condition, and whether it meets the exchange’s listing requirements. Doing this can’t completely eliminate risk, but it can greatly reduce the chance of stepping into a problem. In short, handling OTC/delisted stocks requires you to do your homework in advance, stay on top of information when issues arise, and respond appropriately—so you can reduce losses as much as possible.