Shadow Market

AAA

DEFINITION of 'Shadow Market'

An unregulated private market in which investors can purchase shares in companies that are not currently publicly traded. Shadow markets in stocks give investors an opportunity to invest in companies prior to their initial public offerings (IPO). However, the SEC requires investors to have a net worth greater than $1 million in order to participate in this nontransparent market. These people are what the SEC refers to as "accredited investors".

INVESTOPEDIA EXPLAINS 'Shadow Market'

The main benefit of using the shadow market to purchase shares is that the accredited investor can get exposure to certain companies much earlier than most other investors. This greatly increases the potential profit for the investor if the stock goes public and demand from average investors drives the stock price up. Some of the downsides of the shadow market include lack of liquidity, lack of disclosure from the company, and a greater degree of uncertainty and risk.

RELATED TERMS
  1. Shadow Inventory

    A term that refers to real estate properties that are either ...
  2. Pre-IPO Placement

    When a portion of an initial public offering (IPO) is placed ...
  3. High Net Worth Individual - HNWI

    A classification used by the financial services industry to denote ...
  4. Prospectus

    A formal legal document, which is required by and filed with ...
  5. Accredited Investor

    A term used by the Securities and Exchange Commission (SEC) under ...
  6. Dog And Pony Show

    A colloquial term that generally refers to a presentation or ...
RELATED FAQS
  1. What kind of assets can be traded on a secondary market?

    Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
  2. Why would a company decide to utilize H-shares over A-shares in its IPO?

    A company would decide to utilize H shares over A shares in its initial public offering (IPO) if that company believes it ... Read Full Answer >>
  3. How do I place a buy limit order if I want to buy a stock during an initial public ...

    During an initial public offering, or IPO, a trader may place a buy limit order by choosing "Buy" and "Limit" in the order ... Read Full Answer >>
  4. How do corporate actions affect floating stock?

    Corporate actions, defined as a company's actions that affect the amount of outstanding company stock shares, can either ... Read Full Answer >>
  5. What are the advantages and disadvantages of listing on the Nasdaq versus other stock ...

    The primary advantages for a company of listing on the Nasdaq exchange are lower listing fees and lower minimum requirements ... Read Full Answer >>
  6. What securities does the primary market deal with?

    The primary market deals with all newly issued securities. When businesses, governments or other groups want to raise capital ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Top 3 ETFs For Investing in China

    Discover the top three China ETFs. Chinese stocks tend to be quite volatile, presenting opportunities for savvy investors, given the country's high growth rate.
  2. Mutual Funds & ETFs

    Hedge Funds' Higher Returns Come At A Price

    Learn how hedge funds win big gains for investors - and why they sometimes lose.
  3. Mutual Funds & ETFs

    Getting To Know Hedge-Like Mutual Funds

    This type of alternative investment mutual fund gives investors the benefits of a hedge fund, without the need for high net worth. See if this strategy is right for you.
  4. Options & Futures

    Hedge Funds Go Retail

    Find out how average investors are breaking into what was once reserved for the ultra rich.
  5. Trading Strategies

    IPO Flippers And The Companies Who Hate Them

    Learn how flipping activity affects an initial public offering.
  6. Stock Analysis

    Will Jet.com Revolutionize Shopping?

    Jet.com has arrived and will look to steal market share from Amazon over the next several years. Will it be successful?
  7. Stock Analysis

    3 Things You Should Know About PayPal's IPO

    Read about what investors should consider before the PayPal IPO, including the company's strong revenue growth, business growth and competition.
  8. Economics

    What Happens in a Carve-Out?

    A carve-out happens when a corporation isolates part of its business and shares those profits with a third party.
  9. Entrepreneurship

    How to Exit Your Small Business with Grace

    Here is a guide for how best to leave your baby — your small business.
  10. Investing

    Which is the Better Bet: Amazon or eBay?

    Amazon and eBay are solid ecommerce companies, but the former is more innovative and diversified. Plus, a third is about to enter the fray.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!