How to Sell Your IPO Application in the Grey Market for Extra Profit

Understanding the Grey Market

The grey market operates outside the regulatory framework. It provides a playground for grey trading of shares before they get listed on recognized stock exchanges like NSE or BSE. In this case, investors buy and sell IPO applications in the grey market based on expectations.

The price at which one trades in the grey market is called GMP or Grey Market Premium. It indicates the demand that the IPO will have or probably perform in the future.

 

How the Grey Market Works for IPO Applications

In the grey market, investors who receive IPO allocations are allowed to sell their applications before the stock gets listed to interested parties. Here is how that usually works:

 

1. GMP (Grey Market Premium)

Another important thing that one needs to keep a close eye on before actually selling an IPO application is the grey market premium. GMP essentially gives the difference between the offer price of an IPO and the price at which those shares are trading in the grey market. A high GMP indicates strong demand, and the stock may do well post-listing, increasing the odds of selling an application at a profit.

 

2. Sell the Application

Once you have found an appropriate GMP, you will be able to sell the application to grey market dealers or buyers. These transactions are usually done through brokers or intermediaries, most of whom have relationships with the grey market. The process is off the record, with many transactions done on a cash basis.

 

3. Application Transfer

The buyer, after the sale is agreed upon, will complete the IPO application process. After allotment of the IPO application, shares are transferred to the buyer's demat account. The buyer pays the mutually agreed amount to the seller, which may vary depending on market demand and GMP at the time of sale.

 

Rewards and Risks of Selling IPO Applications

There is a good possibility for the investor to sell the IPO applications at a premium in the grey market. However, there are a few associated risks:

• Reward: Selling your application before the shares are formally distributed helps you earn extra profits.
• Risk: The IPO may not perform as expected post-listing, which could affect the GMP and the final profitability of the transaction.

 

Conclusion

Selling IPO applications in the grey market can be an excellent option for gaining early profits based on demand. However, one must be cautious and mindful of the risks because transactions in the grey market are informal and unregulated. Always deal with trusted intermediaries and closely watch market sentiment and market premium before making a decision.