If you are associated with trading, then you must have heard the term grey market. In simple words, The grey market also called dark market is non-official market where the investor can trade for shares or securities before the listing in stocks exchange. Third party firms The Stock Exchange or SEBI do not support transactions on the grey market. Though the age of the grey market dates back a long time ago, many people are not clear about the actual frameworks, or benefits of this market.
Below the article provides a glance of various substances that attribute the grey market. Let’s start!
Meaning
Grey market is a market where trades are sold or bought by investors before they get listed for IPO (Initial Public Offering). The trading is done in an unofficial manner, & only can be settled as authorized before competent official trade commerce. It usually rises when the trade incurs risks, suspension or shares get issued before IPO in the regular market. In Spite of this, this cannot be characterized as illegal as it enables users to trade securities and underwrites gauge demand before being launched in the new offering.
It gives the chance to buy securities at a discounted price before the standard value is insured. It can also include other common examples of consumer assets like luxury cars, shoes, cosmetics, high-end apparel, handbags, etc. However, the tip-off of this market is huge risk tolerance and safety issues. As any third-party firm, such as SEBI or Stock Exchange, does not regulate it the assets may have no warranty claim and fraudulent practices in it. Thus, assessing the safety standards and certification standards is compulsory before investing in the grey market.
Types
- Grey Market Stock: – Before the company stocks are bid before the trader officially through IPO, grey market stocks are issued. These deals are usually based on mutual understanding and run by a very small set of individuals, who are associated with these stocks.
- Grey Market Premium:- IPO shares are sometimes bought or sold as grey market premium outside the stock market. This also hugely impacts the listing day of the IPO in the general market. The sellers can risk its shares in the grey market to avoid risks ensuing from the stock market listing.
Benefits
Though there are a lot of risks associated with the Grey market stocks, there are also some benefits of it. They are:-
- Customers get the advantage of buying products at a competitively lower price to gain profit.
- Customers are able to buy securities of different countries, which otherwise is not available in the Indian market.
- Although it occurred in an unofficial manner, it gives the customer credibility to know various risks associated with it, and then invest.
Bottom Line
Grey market selects financial securities of different types and sells them unofficially. Although the securities are licensed, the consumers should look upon various credibility factors, before taking the leap of investing in the grey market. So, always try to get the implication of the stocks through research, analysis, comparison and other potential factors.
