Everything You Should Know About IPO Grey Market

What is IPO?

IPO is Initial Public Offering. It is the step by which a private company offers the sale of stock to the public for the very first time, and by doing so, they become a public company. Therefore, IPO is also referred to as “going public,” because after this step a private company becomes a public company.

What is IPO Grey Market?

IPO grey market is a market where shares are bought and sold without any supervising authorities. All the activities of IPO grey market are unofficial, and hence there are no rules and regulations regarding trading these transactions of shares.

Grey market operates among those people who have trust on each other, as there is no authority to supervise it is of prime importance that traders must have trust on each other with transactions and proceedings of the market.

Two most important terms used in a grey market is “Grey market premium” and “kostak.”

  • Grey market premium is the said to be the amount at which shares are traded in the market. This value can be either positive or negative; it completely depends on the supply and demand of stocks in the market.
  • Kostak is said to be the amount at which applications are sold and bought in the grey market. People who do not want to take a risk with IPO allotment and list gains are the ones who use this kostak

A grey market is not black market; many people take it in a wrong way. A black market deals with stolen or illegal items, and this is just the opposite in case of the grey market. Grey market is a place where items which are dealt with are completely legal, and it is just that they are being sold by people who are not directly controlled by any official supervision and supervisors.

In a grey market, there are two prices for the same item; the first is the price at which seller is willing to sell shares and the second is the price at which the buyer is willing to but those shares. It is a direct transaction and does not involve any middlemen. As there are no official interferences, there is no surety other than the faith that sellers and buyers have on each other. In a grey market, if you get fooled once, there is hardly any way in which you can get back your investments or recover from that particular loss.

IPO grey market has its own advantage and disadvantages.

  • Advantages
  • You can get shares quickly
  • You might get shares at a lower price than the normal price
  • You do not have to follow any rules and regulations as this is completely unofficial trading market of shares
  • Disadvantages
  • You might end up paying more than normal price to buy shares as it mostly depends on whom you are purchasing shares from and what are the grey market conditions at the time when you are purchasing those shares.
  • Due to the absence of official bodies, it becomes easy to trick and fool people who do not have complete information of IPO grey market.

You must have complete information of IPO market before you decide to start trading in it.