The term "gray market" refers to the market for the purchase and sale of uncirculated securities that will be offered at a future date. An issuer may execute a customer order prior to the initial public offering of the securities. One benefit of the gray market is that the issuer can gauge demand before the public offering. Then, the seller can use the information gained from the gray market to set the stock price. Once gray market trading is completed, the seller must deliver the number of shares the buyer purchased on the day of the listing. Although the exchange of securities on the gray market is unofficial, it is not illegal.

The term "gray market" also may refer to the unauthorized resale of goods outside of an original producer's intention. While this is not illegal, it does amount to profiteering from the unauthorized resale of products. Exchanges on the gray market are nearly impossible to track because there is no way for an original manufacturer to track goods after the conclusion of a sale.

To learn more, read Markets Demystified.

This question was answered by Richard Wilson.


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