Tesla's Chinese rival and Alibaba-backed Xpeng Motors is expected to start trading in Hong Kong under the ticker "9868" on July 7.

As is customary for companies listed in Hong Kong, investors will be able to trade Xpeng shares on the grey market from 16:15-18:30 Beijing time on July 6, prior to the start of official trading.

This is very different from the US stock and A-share markets, so what exactly is the grey market?

Gray market trading refers to trading that is not in the open market but only by clients in the internal trading systems of certain large brokerage firms.

Trading hours are generally 16:15-18:30 in the afternoon after the close of business on a working day before the IPO.

There is no difference in operation between trading in the gray market and normal trading of IPOs, except that the volume of trading in the gray market is not as large as that of the official IPO.

The shares traded in the gray market are derived from the shares held by those who received the allotment. Simply put, investors can sell their shares in the gray market one day in advance, and other investors can buy these shares one day in advance.

The gray market reflects the sentiment of investors on that day. If a stock rises in the gray market, it will generally perform well when trading officially begins, and vice versa.

However, the gray market also has its limitations and cannot fully reflect the entire market. Therefore, the price of the gray market is not simply considered to be the price of the next day's official listing.

However, the price of the gray market is generally reflective of the stock price at the time of the official listing and can be used to predict the price the next day.

For investors, they can sell the shares they acquire in the gray market in advance to lock in gains or stop losses.

If one is very bullish on the stock and wants to enter after its IPO, one can also consider buying in the gray market. Of course, the gray market price can also provide a basis for your buying judgment.

For example, if you predict that the stock is supposed to rise sharply after its IPO, but the gray market is sluggish, you have to reconsider whether to give up.

If investors are financing the IPO, they liquidate them in the gray market, which is equivalent to returning the funds to the broker a day earlier to reduce interest costs.

Investors can also arbitrage in the gray market. Some stocks that have a greenshoe mechanism have a greater potential for profit on the official listing date if they are traded down in the gray market and the investor buys low.