Pre-IPO grey-market stock trading heating up at Forex brokers

It is sometimes hard to differentiate yourself when you’re a Forex broker. Offering EURUSD, Spot Crude or S&P500 trading is about as commoditized a product as one can imagine.

So when opportunities arise, or can be created, it makes sense to offer your clients trading in something which no-one else has.

That seems to be the case with pre-IPO ‘grey market’ shares. The ability to trade a company going public – but before they actually do – wasn’t of much interest to many traders (and therefore to brokers as well), until the IPO market heated up this year. As such, traders seem very interested to trade – or really place a bet on – what the eventual market capitalization will be of a company going public.

For example, we’ve recently seen IG promote its grey market in shares of Saga, a company which serves the over-50 market with insurance and travel products, and is in the midst of a planned IPO on the London Stock Exchange.

While 2012 had the Facebook IPO and 2013 had the Twitter IPO, the overall IPO market wasn’t too interesting. Until this year. MarketWatch reports that in the first four months of this year, there were 77 IPOs priced in the U.S., quoting research by Jay Ritter, a finance professor at the University of Florida who tracks IPOs. Were this pace were to continue for the rest of 2014, Ritter says that this year’s IPO volume would be the highest since 2000 — the year the Internet bubble burst. And Alibaba Group, the giant Chinese eCommerce company, has launched plans for what could be the biggest IPO ever.

Clearly, investors are into IPOs.

What is grey market trading? Generally, a grey market is the trade of a security or commodity through channels which, while legal, are unofficial and unauthorized. In our case, it is the trading in the shares of a private company such as Saga, leading up to the time Saga actually goes public. There are also grey markets set up for trading things which are normally hard to value or dispose of, such as frequent flyer miles.

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