grey market premium

Grey Market & Grey Market Premium – Complete Guide

Most of us are not familiar with the term “Grey Market Premium”, or GMP. People hardly talk about GMP, and therefore most people do not have adequate knowledge of GMP and the grey market. 

Therefore, we have decided to share a detailed article on GMP and make our readers smart investors.

Before getting into GMP, let us first understand the three main types of markets.

Types of markets

Here’s an oversimplified meaning of all three types of market:

grey market premium
by Investology| Edelweiss

Now, that you have an overview of all three types of markets, let us learn about the grey market in detail to get a better understanding of GMP IPO.

What is Grey Market?

The Grey Market is an unofficial market where people buy and sell stocks or Ipo before they are officially launched on the stock exchange. It is a parallel or over-the-counter market, but not illegal. 

It is not authorized by any government and is therefore not recommended for trading.

The grey market provides an opportunity for investors and traders like us to buy the shares before they are listed if we are optimistic that the initial public offering of shares will rise in value. 

It offers them a way out if an investor wants to get out of the initial public offering even before it is listed.

It also allows us to purchase IPO shares even though we miss the application deadline or want to purchase more shares than the application could provide. 

Although the grey market is not authorized, investors always keep an eye on this market to bet on profitable and valuable shares.

It shows how the IPO will react on a trading day with an estimated price. The grey market operates before the IPO listing and during the listing days up to the allotment date.

What is Grey Market Premium IPO?

The “grey market premium” is a term that people use in the IPO market to check the estimated price that the IPO could include. 

GMP is the premium amount for which the IPO shares trade on the grey market before listing on the official stock exchange.

It helps investors make an informed decision on whether or not to bid on the initial public offering. Even people who don’t deal in the grey market always keep an eye on the GMP before bidding.

For example, a stock with an IPO price of Rs 100 is trading at a premium of Rs 20. This indicates that there is a chance that the stock will be listed at around Rs 120.

The bottom line:

The grey market is not legal, but it is not illegal either. Based on my concern, you should only enter if you have a high-risk appetite. It is best to enter the market only to check the grey market premium to make a better decision when bidding for an IPO.