Gray Market

Reviewed by Vineeth | Updated on Aug 27, 2020

Introduction

Gray (or grey) markets are unofficial markets where investors and dealers indulge in trading securities. It occurs when a stock that is suspended from trades is brought to the market and traded even before the official trading begins.

Understanding Gray Market

Though the gray market is unofficial, it is not illegal. The gray market allows issuers and underwriters to understand the demand for the new offering of these stocks.

It can also be seen as the import and sale of goods from unauthorised dealers.

Institutional traders, such as pension funds and mutual funds avoid gray market trading.

Factors to Consider

  1. There are some gray markets where a substantial amount of trading happens.

  2. Gray market trading can spoil the reputation of listed entities.

  3. Trading in gray markets can be risky.