Share Market

Liquidating a stock is the process of selling shares to another buyer or shareholder for the current market value. The simplest and most common way to go about this process is by simply contacting a broker, who will handle the entire procedure for you. However, a broker’s fee can often be hefty, so if the desired amount of shares to liquidate is small, it may not Knowledge of stock liquidation provides a key concept for market investors. Liquidating stock includes investment planning and also may create federal tax consequences for the investor. Several considerations must be examined when exploring liquidation options.

1. Individual Voluntary Liquidation

Stock investors work with a brokerage house or operate independently online as their own stock advisor. Stock investors set perimeters for price margin limits, which mark a specific price to trigger selling the stocks. When the price of a stock falls to that mark, investors can signal automatic liquidation of identified stocks to prevent personal losses. Investors may also telephone or use online trading to trigger liquidation of the stocks.

2. Individual Forced Liquidation

Investors relying on brokerage houses to recommend stock purchases and sales may enter into a forced liquidation when the brokerage house determines that the stock is dangerously close to major losses. The brokerage firm will then force liquidation of personal investment accounts that become delinquent as a result of the market loss. This forced liquidation protects the investment firm’s interests. Investors have the option of adding money to the investment account to retain the stock in this situation.

3. Time Stop & Liquidation

A “time stop” trigger liquidates stock based on the investor’s defined perimeters. If the stock fails to reach a particular place on the market by a set amount of time, an automatic trigger liquidates the stock. Jack D. Schwager, in his book “Stock Market Wizards: Interviews with America’s Top Stock Traders,” cites the importance of using time stops to liquidate under- or non-performing investment stocks to increase investment dollars.

4. Corporate Stock Liquidation

The book value of a company refers to the amount received if the company liquidated, or sold, all stock assets. Bankrupt corporations holding public stock may liquidate the stock without approval of investors. General Motors Corporation, traded as GM stock, underwent formal forced liquidation as Motors Liquidation Co., traded as MTLQQ. If the company debts and liabilities total less than the liquidation value, stock investors receive a return on the liquidation. When the company has extreme debt and the liquidation fails to cover the debt owed, stock investors receive nothing from the liquidation process.

4. Partial Stock Liquidation

Corporations may also order a partial voluntary or forced stock liquidation. This process happens when corporations order a specific amount of stock to be liquidated. Investors in the corporation receive cash distributions based on the amount of liquidation.