What is IPO Grey Market Premium, Kostak Rate & Subject To Sauda

We will understand that, after all, this is a GMP(grey market premium). Many people also doubt that this grey word is coming inside the grey market; if does not indicate illegality, then we will discuss it as well as this grey market with premium and more. Two terms connect us. One is the kostak rate, and one is SS, whose full form is subject to sauda. We will also know about them and what they are doing related to the grey market premium. We will talk about them and grey market premium. If we come to know about any IPO, then we will How to use it properly. All these things are going to happen in detail in this blog.

What is Grey Market

To understand Grey market premium, we know Its first part, which is the Grey market one side white market, which means that it is a complete legal market, and for example, if we buy and sell the share on the stock exchange, that is legally allowed in a white market. On the other side, there is a black market, which is illegal is not allowed according to lock. For example, we just looked back. That a lot of medicine injections were being sell in the black market at these legally ten times the higher rate so that too black market now some areas in the middle which are grey areas, i.e., they are not even illegal. Still, maybe for their regulation is not made, then one such example is the IPO grey market in which the trading of shares takes place, from them and why they are not there.

But SEBI regulations apply when an IPO gets listed, i.e., in listed companies. Still, there is no regulation when an IPO is not listing until then, i.e., on regulated occasions. That is why we say that the IPO is grey market from the grey market, in which period it operates. See Whenever an issue comes, that is, an IPO; first of all, its issue price gets declared, and this is 10/12 days till its listing. Trading starts within this period, i.e., IPO application is also bought and sold, or if someone gets allotted, then shares are also bought in advance.

Why do you people trade in Grey Market?

See, if an IPO come for zomato is take based on very famous IPO, people feel that is very popular. It may be that the list will be around 50-60{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a} or we will be able to earn a premium; then many people will say that if someone’s share of Assume thousand rupees is coming. Why should I block it before anyone else by paying Rs.300 extra of 20{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a}, and if it is the list in 60{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a}, then the rest of my money which will be an extra 30{c9b5b02a3c2acdfae35e582ef39ab8f9f3834dee230a627f506d4bc1f3ae166a} I will earn.

Because of this, many people deal in the gray market, but it is the unofficial market. These contracts are not returns; in this way, the markets operate within certain cities—the main job of the dealer. And dealer in one is that they mix buyer and sellers and make sure that buyer and seller own their transactions, then understand how the gray market of IQ works.

What is Grey Market Premium

Now we understand that if this gray market premium How works, then let us take an example. Suppose there is an IPO whose issue price has been keeping at 1000 rs, and its minimum is one lot. Fifteen shares of our minimum investment become 15000 rs.

Now let’s say there is a guy who gets ready to sell. Inside this IPO, a buyer comes to him who approaches that I am ready to pay you the premium of the share at Rs 300 today because this time probably somewhere it seems that there is going to be a lot of premium inside it. It probably thinks that it will be on the list for Rs 1600, then I give it to him for Rs 300, and it is a buyer. See, it is generally dealing in bulk. Not that can only be buy from this seller. Many people in the IPO have raised many goods because they feel that if so many returns can be in 10 days, this risk can be take, then the risk that has transfer in this case is from the seller to buyer. The transfer is happening.


In this case, what is the loss for the seller if he is getting a fixed profit of Rs 300, but if we multiply it by 15, he will get a profit of Rs 4500; after that, he is the seller transfers 15 shares. Have to do Whenever this buyer is call a buyer or he will have to sell it and whatever will be the net profit or net loss will be transferr to the buyer, this is the whole deal. There is a dealer in the middle because the sellers do not know the buyer among themselves. The buyer does not know the seller; here, to own the payment transactions, some mediator is needed, then he makes the dealer or executes the whole deal, and in every case, the seller will get the profit fixed, i.e., 4500 rs.

There is no special big deal for this, but if the seller also feels that its price should be higher. It may be say that you give me 500 rupees, but if I am ready to sell the shares to you, then this demand-supply comes. This payment will go to a gray market premium of 500 rupees, so in this case, the premium he is paying This is what we call gray market premium before the buyer is the list on the seller.

Profit and Loss

Look, now how will the profit and loss be make inside it?

  1. We understand that once, let’s assume case 1, which is listed on the listing price of Rs 1700, then, in that case, the issue price will be Rs 1000 minus Rs 300. Market premium is give to the seller, and if we minus 1000 and 300 out of 1700, then the total profit of shares will be Rs.400 on profit. So he will have a profit of 6 thousand rupees, and in this way, if he has booked this deal with multiple people, it can be of great benefit. within ten days
  2. Similarly, if we look at case 2, suppose the listing price has blank 1100. Now look above 1000 rupees. It is not that these IPOs continue to harm. If this seller sells, there could have been a profit of 100 rs per share inside the market, but we would have made a profit of 300 X 15, i.e., 4500, if it had profit, then it would have been empty 100 rs per share and on the other hand if we talk about the buyer. So it will be a loss. In this case, the issue price is Rs. 1000, the gray market premium of Rs. 300, if we take out 1000 and 300 out of 1100, it becomes its loss, i.e., 200 per share will be total. Its loss will be 3000 rs

Like we said earlier, the risk has transferred, or it is ready to take the buy risk from the pay seller to the buyer. For this reason, if it benefits, there can be a lot of profit; if there is a loss, it can also cause a lot of loss.

What is Kostak Rate

In this case, the buyer says that I am ready to buy your application, even now that allotment has not happened, nothing has happened, etc. Whether you have an allotment or not, you take 500 rupees from me; you will get 500 rupees, then this buyer can book many applications in this way, so her probability game is on.

If I have booked 20 applications, then maybe five people will come out, so even if five applications are install here, its benefit can be very much. If the provider makes a profit, the listing there is at a good price; in this case, if the IPO is allotte to the seller, he will transfer 15 shares or so to this buyer in his demat account. Whenever he says then or whatever the net profit loss is, he will transfer it to the buyer, and here the dealer will make sure that the profit is this seller will pass it to the buyer and if there is a loss on the other side, then the dealer will make sure. That he loses, wear Bayer.

The buyer will have to transfer extra money to the seller if the listing falls below Rs 1000. kostak rate is on its lot. That is, on top of these 15 shares, this guy is ready to give 500 rupees. for this application

What is Subject To Sauda

There comes another version of kostak rate, which is subject to a deal in which kostak rate was see in the case of its application, whether its application is accepte or not, it got 500 rupees. Still, in this case, it says the buyer wants to be sure that if your allotment comes, I will give you 1500 rupees. For your complete application, i.e., for 15 shares, this pay seller is Rs 1500, then get the fix.

Risk of Grey Market

We also understand its risk factors, which are very important to know;

  • the first and biggest risk factor in this is that this market is also unregulated, i.e., there are no written agreements here. All are oral agreements, so if the buyer and seller refuse to do their transaction owner, then no one can do anything to each other. Now you cannot go to SEBI or even go to any court.
  • The second is the price of the gray market premium. It has no reliability, i.e., whatever dealer is porting; you have to believe it.
  • Suppose this live trading is not happening anywhere. In that case, this information is not only reliable.
  • If we can not reliability of the dealer’s information, then if this format comes in any website, how can we reliability it too, and that’s it.
  • There is very large region due to which we do not talk about the gray market because we do not know. Whatever the price given on any website, how much reliability can be done to it