Gray Market
Candlefocus EditorThe gray market for financial securities usually involves transactions in securities that have been suspended from official trading or which have not yet begun official trading on an exchange. Although it is not illegal to trade in the gray market, it is considered to be higher risk than traditional exchanges. This is due to the fact that the securities in the gray market may not have the same liquidity and price transparency as official exchanges and can be more easily manipulated by aggressive traders.
For example, investors in the U.S. may purchase securities which are not available on their official exchanges through a broker who specializes in trading in the gray market in the U.S. Other investors outside of the U.S. – who may not have access to the U.S. exchanges – may buy these securities in the same manner.
The gray market also refers to products, often imports, that are sold through alternative retail channels. This can include purchases from online marketplaces, though Alibaba, as well as through third-party stores such as B-Stock, offering a variety of new, used, and fully tested products not typically available through official retail channels.
Gray market imports include items that are produced for the U.S. market and then sold abroad for a lower, unauthorized price, or imports that are produced unstamped for another market and then brought in to the U.S. Unscrupulous businesses buy from such sources and resell them as if they come from the manufacturer of the product. This will often present a problem for both the manufacturer, who has no control over the quality or product support, and the consumers, who often receive a lower quality product or service.
Overall, the gray market represents a risky but attractive alternative to the traditional exchanges. However, since the gray market is unofficial, investors should ensure they understand the risks and carefully consider whether or not this avenue is appropriate for their investment strategy and desired portfolio goals.