When a person says that “it is black and white,” he refers to something simple to understand. It is clear which is right and wrong. So if we use colors in our logic, does it make sense that grey can convey something? There is a thing called “grey market.” It refers to a market for financial securities which is not official. Hence, our logic makes sense because when we combine white and black, we have grey, and a grey market is somehow somewhere in between.
What is a grey market?
Two scenarios can describe a grey market. One is when stocks get suspended from market trades. It can also be when people buy or sell new securities before the official trading even starts. Hence, grey markets can give issuers and underwriters an idea about the demand for new offerings. How? This market is like a “when-issued” market. And when we say this, we refer to trade securities that will be available soon. Thus, the grey market is somewhere between because it is not illegal, but it is not yet official. It is not black and white.
The grey market can also be about those sales and imports of goods carried out by unauthorized dealers. While this activity is unofficial, it is also not illegal.
Tell me more about the gray market.
This happens during a grey market: there will never be a settlement until the official trading begins, even when the trade is binding. Due to this reason, there may be people who will of revoking the trade. It is the risk that some institutional investors want to avoid, so they also avoid the gray market altogether. Some of the typical institutional investors that we are talking about here includes pension funds and mutual funds.
Now, we mentioned that the grey market is also about sales and imports of goods from unauthorized dealers. This market thrives when a famous and global product has a significant price discrepancy in different countries. Let’s take mobile phones and electric devices as an example. It is now effortless to buy online and ship to any point in the world. There is also a massive gray market in luxury cars, bags, shoes, designer clothes, and many more. Unauthorized sellers buy these grey market items in bulk and add a markup. Today, it is way more accessible because of the internet. When people buy, they can send it to any location. Many people support the grey market even when it is unofficial, and there is a markup because the unauthorized seller’s price for the item is still lower than the local cost.
The dangers of supporting the grey market
Since grey market items are purchased from unauthorized dealers, authorized dealers will most likely not help service the goods if a problem arises. This is the price that grey market customers have to pay if they buy. Service and support after the purchase is an issue that is hard to resolve. The most that the customers can do is make sure that the goods they buy meet local safety and certification standards.
Some customers do not even know that what they are buying is a grey market product. So, as consumers, we should always be vigilant when the price is considerably lower than the local cost. Check the manuals if they are written in a different language or if they are just photocopied. Check the CDs if they are original.