A:

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.

RELATED FAQS
  1. Are 'gray' credit card charges legal?

    Read the fine print and all credit card statements carefully to avoid misleading charges that often go unnoticed on credit ... Read Answer >>
  2. What are some examples of sneaky credit card charges to watch out for?

    Review the most common sneaky credit card charges and learn how to protect yourself from unwanted charges from creditors ... Read Answer >>
  3. Who facilitates buying and selling on the primary market?

    Learn more about the primary marketplace -- home of initial public offerings -- and the major players that make buying and ... Read Answer >>
Related Articles
  1. Tech

    4 Ways to Check Credit Card Accounts for Trouble

    Credit cards do offer some protection against fraud, but here are 4 reasons to be vigilant and protect your credit score against scammers and mistakes.
  2. Personal Finance

    Where Will You Live After a Grey Divorce?

    Couples who divorce later in life can use a home equity conversion mortgage to cover housing costs.
  3. Investing

    What's the Primary Market?

    The primary markets are where investors can get first crack at a new security issuance.
  4. Insights

    How Does this Bull Market Stack Up?

    If you haven't heard, the current bull market turned seven years old today, which is downright gray in market years.
  5. Small Business

    8 Ethical Guidelines For Brokers

    We examine the less obvious ethical dangers faced by a broker, and help you avoid trouble in ethical gray zones.
  6. 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, ...
  7. Investing

    Understanding Redemption

    In the investing world, redemption refers to cashing out the value of bonds or mutual funds.
  8. Investing

    What is a Public Company?

    A public company has sold stock to the public through an initial public offering (IPO) and that stock is currently traded on a public stock exchange.
  9. Investing

    Your Best Bet In The Medical Space

    With so many Americans entering their golden years there will be plenty of profit in medical device stocks. Here are a few names to watch.
RELATED TERMS
  1. Gray Market

    An unofficial market where securities are traded. Gray (or “grey”) ...
  2. Gray Charges

    Fees consumers pay via credit card or debit card for unwanted ...
  3. Gray Knight

    A second, unsolicited bidder in a corporate takeover. A gray ...
  4. Fair Credit Billing Act - FCBA

    The Fair Credit Billing Act (FCBA) is a 1974 federal law designed ...
  5. Retirement of Securities

    1. The cancellation of stocks or bonds because the issuer has ...
  6. SEC Form F-7

    A filing with the Securities and Exchange Commission (SEC) that ...
Hot Definitions
  1. Salvage Value

    The estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting ...
  2. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  3. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
  4. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Absolute Advantage

    The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost ...
Trading Center