The emergence of Robinhood in the investment and trade sector was a breath of fresh air due to the mouth-watering benefits that came with the introduction of the app-based company. Quite a large number of stocks could be traded on the platform which made trading attractive to both new and old investors. It is important to note that not all stocks are supported on this platform. So why are some stocks not supported on Robinhood?
The exchange has put a hold on trading, major exchanges, as well as, trades available in the OTC market have delisted the stock, have foreign security that is not supported on the platform, or the security could be experiencing a corporate action.
These are the major reasons why some stocks may appear untradeable on Robinhood and users interested in such trades may have to either hold or opt for a different trading platform, depending on what the issue might be at the time.
What is an untradeable stock?
An Untradeable stock is a stock not supported on a trading platform, so let’s analyze some of the reasons why some stocks are not supported on Robinhood.
The exchange has put a hold on trading
There is a common basic rating system among brokerage firms such as Robinhood which comprises “Buy”, “Sell”, or “Hold”.
When a brokerage firm issues “Buy”, this implies that a firm like Robinhood recommends customers purchase this stock, that’s if they don’t already own any.
“Sell” implies that the brokerage recommends customers to sell a stock if they currently are in possession.
Finally, “Hold” on a stock means that a brokerage such as Robinhood recommends customers to continue holding their security if it’s already in their possession, but those who don’t should desist from buying.
When a security rating suddenly drops from “Buy” to “Hold”, the brokerage may be issuing a downgrade at this time which could negatively impact the price of such stock.
Why would Robinhood downgrade a stock? Well, a downgrade often occurs when a brokerage believes there is a downward value of such a business in the near future.
Major exchanges and trades available in the OTC market have delisted the stock
When stocks get delisted, they are no longer available on exchanges they used to trade and traded over the counter “OTC”. Pricing details here are either provided by OTC LLC or OTCBB (Over-the-Counter Bulletin Board). These types of stocks are traded via the “market makers”.
The significant difference between a major exchange such as NYSE and an OTC is that most brokerage firms would rather not trade an OTC stock.
Robinhood, which is a leading brokerage firm as of May 28, 2020, stopped OTC trading on its platform.
So when you have a situation when the stock has been delisted both in the OTC market as well as major exchanges, then most brokerage firms may also do the same.
This means those who own delisted stocks on Robinhood can sell their stocks but can’t purchase any.
Has foreign security that is not supported on the platform
Some brokerage firms trade both foreign and local security, Robinhood is an American Financial services company that trades only security found in the US exchanges.
Robinhood has clearly stated they do not support any stock trading on foreign exchanges but gives support to a few stocks available on Israeli and Canadian exchanges as well as American Depository Receipts (ADRs).
This could be a reason why a stock is untradeable on the Robinhood app and customers may have to look for alternative brokerage firms for these stocks.
The security could be experiencing a corporate action
A corporate action by a publicly traded firm implies a process initiated that could directly affect issued security by that firm. These actions could be financial matters (liquidation or bankruptcy), name or trading symbol change.
Other examples of corporate actions include spinoffs, dividends, stock splits, mergers, and acquisitions.
The two types of corporate actions are voluntary and mandatory actions; while a voluntary action occurs when shareholders choose to be participants in the action, the mandatory action is executed by the board of directors of that company.
What to do when stock is not supported on Robinhood?
When you encounter untradeable stocks on Robinhood and cannot seem to find a solution, always remember there are other notable trading platforms that can replace the Robinhood app.
Investors must be wary of some inexperienced trading and investment brokerage out there to avoid further legal issues in the future.
Robinhood recently issued a statement on January 28, 2021, concerning a list of delisted stocks;
“In light of current market volatility, we are restricting transactions for certain securities to position closing only, including $AMC and $GME.
The other delisted stocks include Nokia and Naked Brand Group, Ltd.
Some other trading platforms have seized this opportunity to lure investors to their brokerage firm by enlisting these stocks.
One of these brokerages, Bittrex Global, who until recently enlisted some of the delisted stocks on Robinhood is worth the mention and customers might need to check them out to help manage their stocks.
Some of the newly enlisted stocks on Bittrex Global include; GameStop (GME), Blackberry (BB), AMC Entertainment (AMC), Nokia Corporation (NOK), and iShares Silver Trust (SLV).
For customers who still wish to buy and sell such delisted stocks, then ensure to find the best alternatives to Robinhood.
When searching for alternatives, find out about the terms and conditions for trading on such a platform. Additionally, it is imperative that you confirm the scope of the stocks offered on the platform.
Ordinarily, Robinhood does not trade non-American stocks, so be sure your new brokerage can offer you foreign security trades and more.
Also, you should make a background check on the future of these stocks, there must have been a reason for Robinhood and other brokerages to delist them.
What is the future of my stock? You need to ask yourself this, get accurate information from the best stock trade analysts to help you decide on your next move.
You don’t want to end up holding on to a stock that losses its total value, that may be a loss too hard to recover from, so make decisions on this basis.
What happens if I own a stock that’s delisted?
If a stock that you own gets delisted, you’ll be able to sell it in the market, but you won’t be able to purchase additional shares.
Customers that own delisted stocks on the Robinhood trading platform can sell in the market, the only hindrance here is the inability to purchase more of that stock shares. Additionally, as soon as a stock gets delisted on Robinhood, the in-app market data stops reflecting the current trading price of that stock.
Traders might have to check stock quotes on other platforms that have them listed to have an idea of what the selling order price will trade at should you decide to close the position.
You should also keep in mind that when stocks drop down to Over-the-Counter Bulletin Board (OTCBB), there is a sharp decline in investor confidence.
The longer this stock stays delisted, investment analysts tend to cease research on these stocks thereby forcing a total extinction in the minds of possible investors.
The moment a stock gets delisted from a major exchange, the shareholders are still legally entitled to their shares, regardless of their value.
Listed stocks must satisfy certain regulations; must open at a required share price minimum,
all performance and operational information must be documented with the Securities and Exchange Commission (SEC), must also maintain a level of shareholder equity as against company-owned positions, stocks must be sold to a certain threshold of shareholders.
These requirements are put in place to boost investors’ confidence and improve transparency in the market.
A major exchange like the New York Stock Exchange stipulates that companies must maintain a minimum of 1.1 million publicly-traded shares outstanding and must be worth at least $100 million.
NYSE may choose to delist a company’s stock if it fails to produce performance documents with the Securities and Exchange Commission.
Asides from the New York Stock Exchange, there are other major exchanges such as Nasdaq, all having certain regulations to follow to avoid future disappointments.
You should know what exchanges your stocks are in (NYSE, Nasdaq, etc), closely monitor the company, and the growth of your security.
These major steps help to make the right decision in trading, to avoid investing in stocks that could get delisted on brokerage firms such as TD Ameritrade and Robinhood in the near future.