A Gray Market, also known as a "grey" market, is an unofficial market for financial securities. Gray (or “grey”) market trading generally occurs when a stock that has been suspended from trades off the market, or when new securities are bought and sold before official trading begins. The purpose of this type of trading is to make money by taking advantage of price discrepancies between the gray and official markets.There are two types of gray markets: over-the-counter (OTC) and exchange-traded. OTC markets involve stocks that are not listed on any formal exchanges, while exchange-traded markets involve stocks that are listed on formal exchanges but traded in an informal manner outside of the regulated system. In both cases, prices can be significantly different from those found on the official exchanges due to lack of regulation in the gray market and/or information asymmetry between buyers and sellers.The existence of a gray market can be beneficial for investors because it allows them to buy or sell securities before they become officially available to trade. This can provide some liquidity in times when there is little activity in the regular markets or when there is news about a company that could impact its stock price. However, it's important to note that investing in securities through a gray market comes with additional risks since these transactions typically occur outside of traditional regulatory frameworks.
