Gray Market

Definition of 'Gray Market'


An unofficial market where securities are traded. Gray (or “grey”) market trading generally occurs when a stock that has been suspended trades off-market, or when new securities are bought and sold before official trading begins. The gray market enables the issuer and underwriters to gauge demand for a new offering because it is a “when issued” market, i.e. it trades securities that will be offered in the very near future. The grey market is an unofficial one, but is not illegal.

The term “gray market” also refers to the import and sale of goods by unauthorized dealers; in this instance as well, such activity is unofficial but not illegal.  

Investopedia explains 'Gray Market'


In gray market trading, while the trade is binding, it cannot be settled until official trading begins. This may cause an unscrupulous party to renege on the trade. Due to this risk, some institutional investors like pension funds and mutual funds may refrain from gray market trading.

The gray market for goods thrives when there is a significant price discrepancy for a popular product in different nations. In many nations, there is a substantial gray market for consumer electronics and cameras, because these can be easily purchased online and shipped to any location. Unauthorized dealers may import such items in bulk and despite adding a healthy mark-up, sell them at a price still well below the local cost.

Customers who buy such products for the discount price may face problems in future, and should ensure that they meet local safety and certification standards. Post-sale service and support is another key issue, as authorized dealers may be unwilling to service goods bought in the gray market. Consumers may also occasionally unwittingly buy a gray market product. Some indications that a product is likely to be a gray market one are a price that is considerably lower than that offered by other local retailers, user manuals in a different language and photocopied manuals or duplicated software CDs.



comments powered by Disqus
Hot Definitions
  1. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  2. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  3. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  4. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  5. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
  6. Family Limited Partnership - FLP

    A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
Trading Center