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What is Grey Market Premium?

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The Grey Market term is used by stock market investors for unofficial pricing of shares offered through IPO. For some IPO's, few investors start trading shares among themselves before even the IPO shares get listed on the stock exchange. These are unofficial transactions as the stock market, banks, SEBI etc. are not involved in these transactions.

For example, company XYZ came up with IPO with the price of Rs 100. The issue is expected to list in 15 days. Some people start buying and selling the shares unofficially based on mutually agreed prices. For example, there is a buyer who is ready to buy shares of XYZ company at Rs 125. The Rs 25 is the Grey Market Premium. The deal is made between buyer and sellers through an intermediate person who knows both the parties.

Note:

  • Profits/losses in Grey Market are settled in cash.
  • Grey Market Premium indicates how the shares will list on stock exchanges.
  • Some sub-brokers facilitate these transactions amount their own clients.
  • There is no reliability but in most of the cases the GMP works properly and IPO list around the given price.
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