Recently, a diverse range of things has changed extremely, especially in the market arena. There are pivotal things to understand if one wants to stand out. If we talk about a company’s Initial Public Offering, which is widely known as an IPO, in simpler terms, it is when a company transitions from private to public ownership.
Moreover, there are various factors to keep in mind as an investor if you really want to make wise decisions such as the IPO allotment status, you can easily check at the BSE or NSE website or even at the official registrar’s website. This is how you ensure that the allotment has been made. In addition, you should be aware of the IPO grey market. In this blog, we will dive deep into what exactly the IPO grey market is and how it works.
About IPO grey market
Generally, the IPO grey market is referred to as an unofficial market. Here, shares or IPO applications are bought and sold before their formal listing on the stock exchange. In other words, before the IPO, shares are officially available for trading in the stock market.
In addition, grey markets are primarily driven by supply and demand. It is not that the grey market is a new thing, but it has been residing in the Indian market for a long time, and it is regarded as legal but unofficial. The stocks in the grey markets are generally supposed to be managed by a small group of individuals and are based on trust and confidence.
How does it work?
As we said above, the grey market isn’t official, but it is considered to be legal. Before the shares are listed in the stock market, it is known that the IPO shares are considered to be exchanged informally in the grey market. One thing you should be aware of is that it is not regulated by SEBI or any prominently known entity. Everything is just based on trust. Moreover, if we talk about the transactions, they are done in cash, and you will find no broker involved in them as most of the sellers are unregistered. Hence, as a wise investor, you should look into all the risks involved in the grey market.
What are the two popular terms used in the grey market?
There are indeed no genuine rules and regulations associated with it. However, as a wise investor, you should be aware of the following two terms, which are quite prominent.
Grey Market Premium
Depending on the demand and supply of the stock, the grey market premium is considered the premium amount in rupees that IPO shares are traded for before they are listed on a stock exchange. It generally tells us about how the stock will behave on the day of its listing.
Kostak
In simpler terms, the Kostak rate is the profit that a seller makes when his IPO application sells. IPO allotment comes with a lot of risks involved; if you want to lessen the risks, Kostak is definitely for you.
Wrapping up
As we wrap things up, we can say that an IPO requires a deep understanding of the market arena as we discussed above in the article and the thorough and deep knowledge regarding the IPO grey market should be prioritized as well if you wish to stand out.
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