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Primary Market and Secondary Market

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Primary Market and Secondary Market

Primary Market

Primary Market and Secondary Market. Primary market is a security market where new securities are being sold for the first time. It is a market where new issues of common stock, preferred stock or bonds are sold by government or firms to acquire new capital. A primary market is one in which a borrower issues new securities in exchange for cash from an investor. When securities are initially offered to the public, they are said to be to be sold in the primary market. Primary markets are those in which the sellers of the securities are also the issuers of the securities i.e. the issuing firms are the sellers of the securities. If the existing corporations issue additional shares, these would be sold in what is called the primary market. A primary issue occurs when the issuer gets the proceeds from an initial public offering (IPO) of stocks or bonds. An intermediary that finds out the buyers for IPOs is termed as investment banker.Primary Market and Secondary Market.
New treasury bills, stocks, or bonds all take place in the primary markets. The issuers of these securities receive cash from the buyers of these new securities, who in turn receive financial claims that previously did not exist.

Secondary Markets

Primary Market and Secondary Market. Primary issues of securities occur relatively infrequently. When an investor buys a security, the seller is another investor. Such trade occurs in what are called secondary markets. When investment bankers underwrite IPOs in the primary markets, the issuers receive the cash proceeds. In the secondary markets one investor sell securities to another investor and the issuing firm is not involved. The secondary market is an effective mechanism existing for the resale of the new issues. The secondary market gives investors the means to trade existing securities. The securities continue to trade between investors in a market called secondary market. In secondary markets issuer no longer receive any cash proceeds.

 

The secondary markets perform a wide variety of activities like:

◘ A secondary market brings the investors together so that transaction can be made immediately at a price that varies little from transaction to transaction.
◘ A secondary market gives investors he means to trade existing securities.
◘ A secondary market continues to maintain the marketability of the tradable assets.
◘ Market fixes the price of the security by the transaction that flow from the investors’ demand and supply preferences.
◘ A secondary market makes the transaction price public which helps investors making better decisions.
◘ A secondary market stimulates new financing encouraging the investors to invest in IPOs.
◘ Being a self-regulatory organization, a secondary market regulate and monitor the activities of members, employees, listed firms. A secondary market also exists for trading of common stock, preferred stock, bonds, debentures, warrants, options, and futures contracts.

Primary Market and Secondary Market

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