What is the 'Grey Market'

The grey market, also referred to as the parallel market, is a market where a product is bought and sold outside of the manufacturer's authorized trading channels. The grey market is where the unofficial trading of a company's shares, usually before they are issued in an initial public offering (IPO), happens. The distribution channels involved in the grey market are legal but are not provided by the original owner.

BREAKING DOWN 'Grey Market'

For example, if a store owner is an unauthorized dealer of a certain high-end electronics brand, the product is considered to be sold in the grey market. If the product is illegal, it would be selling on the "black market." The grey market is an over-the-counter market where dealers may execute orders for preferred customers as well as provide support for a new issue before it is actually issued. This activity allows underwriters and the issuer to determine demand and price the securities accordingly before the IPO.

Typical grey markets are small businesses built by individuals who are not authorized retailers of the goods being sold. These products are usually important goods that are expensive or not available in the country to which they are being sent to. This typically happens when the price of the good produced in one country is significantly higher compared to another country. For example, an entrepreneur would purchase a product where it could be bought cheaply, whether he buys it at retail or at wholesale. After purchasing the product, he would legally import it to another country at a price high enough to yield profit.

Grey Markets VS Black Markets

Grey markets should not be confused with black markets since they have a very distinct difference. Grey markets are imported goods sold purchased at a less expensive price and sold for a higher price. The importation of prohibited and illegal goods like firearms and drugs do not fall under the grey markets. These items are considered to be part of the black market. Goods under the black market are typically products that are smuggled into particular countries to avoid import matters.

Samples of Grey Market Products

Some common goods that fall under the grey market include computer games, automobiles, arcade games, pharmaceuticals, electronic gadgets, stock market securities and textbooks.

A real-world sample of a grey market is evident in the stock market. Investors can purchase securities that are not listed or quoted on a U.S. stock exchange or in any over-the-counter market through the grey market. The grey market does not have market makers placing prices on stocks. Since the securities are not quoted on a regulated system, the bid and offer prices of investors are not collected and transparency of stock prices is removed. This makes it difficult to execute transactions.

RELATED TERMS
  1. Grey Wave

    An investment or company thought to be profitable in the long-term ...
  2. Grey Swan

    An event that can be anticipated to a certain degree, but is ...
  3. Market

    A medium allowing buyers and sellers of a specific good or service ...
  4. Gray Market

    An unofficial market where securities are traded. Gray (or “grey”) ...
  5. Challenger Job-Cut Report

    A report, released monthly, that provides information on the ...
  6. Black Market

    Economic activity that takes place outside government-sanctioned ...
Related Articles
  1. Investing

    The Origins of the Chinese Stock Market Collapse

    Learn about some of the reasons for the volatility in the Chinese stock market, including expansion of margin lending and governmental support.
  2. Insights

    The Mechanics Of The Black Market

    Black markets will continue to exist as long as we have regulations and taxes. Discover how they work.
  3. Investing

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  4. Investing

    Tips For Creating Profitable Stock Charts

    Find out how to create well-designed charts that will enhance your market analysis.
  5. Investing

    What's a Marketable Security?

    Marketable securities are financial instruments that can be readily bought and sold in a public market. The key feature is the ease with which it can be sold and converted into cash. Usually, ...
  6. Investing

    Forget Green Stocks, "Green" Will Do

    More and more companies are "going green", but that term, in itself, can be subjective.
  7. Investing

    Explaining the Equity Market

    Equity market is a general term referring to a place were corporate stocks are sold.
  8. Investing

    What Is The Difference Between The Bond Market And The Stock Market?

    The differences between the two markets involve how each product is traded and the risks they present.
  9. Investing

    What is a Market?

    Market is a broad term with varied definitions, but essentially, it’s a physical or virtual location where goods and services are bought and sold.
  10. Investing

    Where Does the Term "Black Friday" Come From?

    The term Black Friday can be used in a couple of different contexts; one positive and one negative.
RELATED FAQS
  1. Who trades in primary and secondary capital markets?

    Understand how primary and secondary markets function in the trade of financial securities between investors, and learn how ... Read Answer >>
  2. How is the stock market affected by Thanksgiving and Black Friday?

    See why Thanksgiving and Black Friday sales numbers are considered to be important indicators for stock market activity throughout ... Read Answer >>
  3. What does it mean when financial news reports say that more issues were sold than ...

    This simply means that in a market, more stocks (issues) traded down for the day compared to the number of companies that ... Read Answer >>
  4. When you buy a stock in a company, does it necessarily mean that one of the shareholders ...

    There are two main markets where securities are transacted: primary and secondary. When stocks are first issued and sold ... Read Answer >>
  5. What's the difference between a capital market and the stock market?

    Learn about the differences between stock market and capital market. Identify several important stock markets and understand ... Read Answer >>
  6. What are some examples of financial markets and their roles?

    Learn about the three largest financial markets and their roles. Understand what constitutes a capital market versus a money ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center