Generally speaking, buying and trading stocks using Robinhood are very easy and flexible. And this is the reason why Robinhood is one of the first choices of traders and investors. Even in recent years, Robinhood has attracted thousands of the newest group of retail investors.
And you may know the USP of Robinhood, the Zero commission, No minimum deposit policy. These things are great enough for an investment firm to attract a huge investor crowd.
Besides these attractive policies, a large number of shares are traded on the platform, which has made the business attractive to both new and old investors. Even Robinhood is a beginner-friendly platform, beginners don’t have to think twice before starting trading in the stock market with Robinhood.
Even after providing all this, there is a question in the mind of the investors that why are some stocks not supported on Robinhood?
There are some reasons why Robinhood makes some stocks untradeable on their platform. In this blog, we will throw light on this matter and understand what is going on.
First of all, understand the theory of Untradeable Stocks.
Untradeable stock is an unsupported stock on the trading platform. There are some reasons behind this, let’s have a look at it.
As a trader, you know the basic rating system in brokerage firms such as “buy”, “sell” or “hold”.
When you start trading, you need to buy shares that are opened by a brokerage firm. Whenever a brokerage firm issues a “buy”, a firm such as Robinhood advises clients to buy the stock if they do not already have the stock. After buying a stock of the firm, you will be a partner of that buying percentage in that firm.
The second option is “Sell”. “Sell” means that the brokerage clients are advised to sell them if they currently have stock.
The third option is “Hold”. brokerages such as Robinhood, which means “hold” on stock, advise clients to maintain their security if they are in possession, but who should not buy.
Now, sometimes what happens, the security rating suddenly drops and this affects the equilibrium of “buy” “sell” and “hold”. Whenever the security rating drops suddenly from “buy” to “hold”. A downgrade of the stocks has been issued by the brokerage firm due to which the stock price was adversely affected.
So, the question is why Robinhood downgrades the stock? Well, it is because whenever the brokerage firm believes that the value of such a business may be negative shortly then the brokerage firm opts for a downgrade option.
Whenever the stocks are delisted or cleared from the market, they will be no longer available in the market for trading exchanges and are traded on the counter “OTC”. These types of shares are traded by “market makers”.
The pricing details of these stocks are provided by OTC LLC or OTCBB which is called Over-the-Counter Bulletin Board.
If you are an old trader you might know the main difference between major exchanges such as NYSE and OTC is that most brokerage firms avoid trading in OTC stocks.
And when it comes to Robinhood. They have stopped OTC trading on its platform in 2020.
So when most of the firms have seen that the stocks have been eliminated in both major exchanges along with the OTC market, they have also decided the same.
But always keep in mind that those who have cleared the stock or have delisted stocks in Robinhood can sell their stock but cannot buy it.
Has Unsupported Foreign Security on the Platform?
Brokerage firms support trade in both foreign and domestic securities. And when it comes to Robinhood, they allow traders to trade only in the securities found on US exchanges as it is an American financial services firm.
Robinhood clearly states in its trading policies that it does not support any stock trading on foreign exchanges. But to its exception, it does support some stocks available on the Israeli and Canadian exchanges. Along with this it also supports American Depository Receipts (ADRs).
Due to its stock support policies some stocks might not recognize in the Robinhood app and to invest in those stocks, clients may have to look for alternative brokerage firms.
Security Experiencing Corporate Action
The thing that directly affects the security issued by the company is the corporate action of a publicly-traded company. These actions may be financial matters (liquidation or bankruptcy), name, or trademark changes. There are some other corporate actions too that include spin-offs, dividends, stock splits, mergers, and acquisitions.
The corporate activities include voluntary and mandatory actions. Voluntary action, however, occurs when shareholders choose to take action as a participant. Whereas mandatory action is enforced by that company’s board of directors.
Whenever you face a problem of unsupported stocks on Robinhood and you cannot resolve the issue or do not find any solution, don’t be a worry. Always keep in mind that there are other popular trading platforms available in the market with the same user-friendly policies.
To avoid legal issues, investors should keep themselves away from inexperienced trading and investment brokerages
In January 2021 Robinhood released a list of shares to be eliminated
Some of the alternative trading platforms took this as an opportunity to attract investors by listing the same shares in their brokerage firms.
For clients who are still looking to buy and sell such delisted stocks, find the best alternative to Robinhood.
Whenever you are searching for alternatives always consider the terms and conditions of trading on such platforms. Besides you also need to determine the range of shares offered on the platform.
And you know very well, Robinhood never trades in non-US stocks, so before proceed you must make sure that your new brokerage can offer you overseas securities transaction facilities.
Tip: You should always do a background check before buying a delisted stock on Robinhood to get to know the future of that delisted stock and the reason behind the delisting of that stock.
Don’t worry, if anything in your stock is delisted, you can sell it on the market, but you cannot buy extra shares. Just a simple thing.
There are tons of clients who have delisted stocks on the Robinhood trading platform. Being on the brighter side they can sell in the market, although they can not buy more stock shares. Besides, as the stock delisted in Robinhood, you can notice the market data in the app will stop reflecting the current trading price of that stock.
At that time, traders need to check stock quotes on other different stock platforms that list them, so that you can get the idea of the sale order price if in case you decide to close the position held by you.
The one thing that you should notice is that whenever stock falls on the over-the-counter bulletin board (OTCBB), you can see a sharp fall in investors’ confidence.
The longer the stock is delisted, the more investment analysts will stop researching these stocks, which will completely disappear in the minds of potential investors.
As and when the stock is delisted from a major exchange, shareholders can enjoy their shares legally regardless of their value.
The company needs to maintain a shareholder equity level concerning the ownership positions. All the performance metrics and share management information must be shared with the Securities and Exchange Commission (SEC).
All these formalities have been done to enhance the investors’ confidence in the market and also to improve the transparency in the system.
Always keep in mind that if in case you fail to submit the performance documents with the Securities and Exchange Commission (SEC), the NYSE Company may choose to delist the stock.
Not only the New York Stock Exchange but there are other major stock exchanges including Nasdaq also follow certain rules to avoid future issues of delisting.
I hope you clearly understand all these key steps. These steps help you to make the right decision in trading and also help to avoid investment in delisted stocks.
If you also want to read about How to Remove Pattern Day Trader Status in Robinhood, please go ahead.
Hey Reader, Welcome to MyQuickIdea. I am Nikhil Saini, started MyquickIdea as a passion and now it’s now covering different topics like Blogging, SEO, Marketing, Technology, Finance, Stock Market, Fintech, etc. I always prefer pushing quality content for my readers. I hope you would be liking it.