Risk of liquidation of stock pledge_What is the risk of liquidation

What exactly are the risks of liquidation of stock pledge? For those of us who have just come into contact with stocks, the risk of liquidation is a must I am learning, so the editor specially compiled the risk of liquidation of stock pledge. I hope you like it.

Stock pledge liquidation risk

Stock pledge liquidation risk means that when the stock pledger cannot meet the requirements in the pledge contract for some reason, the pledged stocks will be forced to Circumstances of liquidation, selling or liquidation. The risk of liquidation mainly includes the following aspects:

Risk of stock price decline: If the market price of the pledged stock drops significantly, making the value of the stock lower than the pledge line (i.e., the pledge rate), the pledger will be triggered to liquidate the position. risk. In this case, the pledger may face huge losses or even bankruptcy.

Lack of timely additional collateral risk: When the stock price drops and approaches the pledge line, the pledger needs to promptly add additional collateral or pay off part of the loan to maintain the pledge ratio. If the pledger does not have sufficient funds or other suitable collateral, it will be unable to meet the requirements of the loan contract, resulting in a pledge liquidation.

Risk of being unable to dispose of collateral in a timely manner: In the event of severe market fluctuations or insufficient liquidity, the pledger may face the risk of being unable to find a buyer in time or dispose of the collateral at a favorable price. If the pledged party is unable to sell or fully dispose of the collateral within the specified time, a liquidation may also occur.

Default risks of other agreements: The pledge contract may contain other conditions and agreements, such as loan restrictions, scope of use of the pledge, etc. If the pledger violates the contract and fails to perform its obligations in full and on time, it may also face the risk of a pledge liquidation.

To reduce the risk of pledge liquidation, investors should fully understand the terms and details of the pledge contract and ensure adequate risk control measures. In addition, properly assessing the value of pledged stocks, paying attention to market dynamics, and properly managing risks are important strategies. In terms of specific operations, risks can be appropriately diversified, avoid over-reliance on leveraged financing and closely monitor changes in pledge rates.

What are the consequences of equity pledge liquidation? If the equity pledge ratio is too high, it is very easy to cause liquidation. Liquidation will cause the shareholders' equity to be sold by the pledge institution to ensure the interests of the pledge institution. It is extremely easy to cause losses to shareholders' interests, seriously affect the equity value of the entire company, and may lead to the company's bankruptcy or reorganization.

Is short-term trading by retail investors illegal?

Normal short-term trading by retail investors is not illegal. Generally speaking, short-term trading can be divided into ultra-short-term and short-term. Ultra-short-term is 1-3 days, short-term is 1 week, mid-term trading is generally 3-6 months, and long-term trading is generally more than 1 year. The difference between these is mainly the difference in holding time.

Retail investors' short-term trading mainly wants to obtain relatively high returns in a short period of time. In the eyes of many retail investors, short-term trading means fast in and fast out. If you buy a stock today, if the stock rises tomorrow, as long as you make a profit Just redeem it at any time. If the stock loses money, you will hold it for a few days to see the situation, and then decide. If it makes a profit, you will redeem it. After making money, you will leave and buy another stock.

Then let the funds realize the compound interest model while making continuous profits. In addition, it should be noted that when retail investors are trading stocks, they should not buy stocks in full, but should diversify their investments, which can reduce the risk to a certain extent. It's risky. If you make a profit, you'll stop taking profits. If you make a loss, you'll wait and see what happens next.

What will happen if a major shareholder pledges to liquidate his position?

If a listed company's stock is pledged to liquidate its position, then there is a high probability that the stock price will experience a significant drop. For major shareholders, there will not be much loss if the major shareholders successfully cash out due to stock pledge liquidation. The institution has corresponding bonds and corresponding interest. However, small and medium-sized investors holding the stock will bear the risk of losses and "take over" the blame for the listed company.

Therefore, if investors see that a listed company’s trading suspension announcement is caused by news about equity pledges, investors need to pay more attention, as it may be a precursor to a listed company’s stock pledge liquidation. This This may lead to a continuous decline in stock prices with a high probability. If there is a large-scale pledge liquidation of listed companies in the market, it will have a greater impact on the A-share market and become the fuse of systemic risks in the market.

Under normal circumstances, the listed companies with most of the equity pledged will be smaller in scale and have financial difficulties. Investors should pay more attention and try to avoid these risks. In the market, if a listed company has a high proportion of equity pledged, investors need to pay attention to the risk of pledge liquidation. Investors need to be cautious and avoid risks when trading.

Under what circumstances will a stock liquidate?

Liquidation will only occur in margin trading, mainly futures. In the stock market, money is paid one hand and delivered the other hand. You can transfer money online and get the money there. If there is no margin, there will be no liquidation. What's more, there are national policies in place, and there are domestic price limits and price limits, so liquidation rarely occurs.

If the loss is close to the liquidation line during the session, the futures company will notify you to cover the position. If you do not cover the position, you will be forced to close the position. If you have an order in your hand that is about to be liquidated, and if you jump away from it the next day, your position may be liquidated in an instant. If the account balance is insufficient and there is insufficient cash, the account equity may be negative.

When the number is negative, investors need to make up the shortfall, otherwise they will face legal recourse.

Under what circumstances will a position be liquidated?

1. The position is forcibly closed due to failure to fulfill the obligation to replenish margin.

2 Violations

3 Temporary changes in policies or trading rules

What does stock liquidation mean

Stock liquidation occurs within a certain period It is easy to obtain under certain conditions. Stock liquidation means that the total funds in the financing account are equal to or less than the forced liquidation amount. When the position is liquidated, the funds in the financing account will be directly returned to the system, and the stocks in the financing account will be directly added to the unified account of the system. When the market conditions undergo major changes and the trading direction is opposite to the market trend, it is easy for a liquidation to occur due to the leverage effect of margin trading.

When stock investors encounter a liquidation, they can either choose to cover their positions or choose to raise the stock price to increase the value of their margins, or they can choose to force the position to be liquidated due to the continued decline of the stock price. It should be noted that in actual operations, there are liquidations caused by individual investors borrowing money to speculate in stocks, and liquidations caused by a sharp drop in stock prices after companies pledged a high proportion of their equity for financing.