Both the primary market and secondary market are two types of capital market depending on the issuance of securities.
Primary Market - Definition:
The primary markets deal with the trading of newly issued securities. The corporations, governments and companies issue securities like stocks and bonds when they need to raise capital. The investors can purchase the stocks or bonds issued by the companies.
Money thus earned from the selling of securities goes directly to the issuing company. The primary markets are also called New Issue Market (NIM). Initial Public Offering is a typical method of issuing security in the primary market. The functioning of the primary market is crucial for both the capital market and economy as it is the place where the capital formation takes place.
What are the functions of the Secondary Market?
* Household Savings
* Global Investments
* Sale of Government Securities
* Primary Market Participants
* Marker Risk
Secondary Market - Definition:
The secondary market is that part of the capital market that deals with the securities that are already issued in the primary market.
The investors who purchase the newly issued securities in the primary market sell them in the secondary market. The secondary market needs to be transparent and highly liquid in nature as it deals with the already issued securities. In the secondary market, the value of a particular stock also varies from that of the face value. The resale value of the securities in the secondary market is dependent on the fluctuating interest rates.
What is the role of the Secondary Market?
For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduit—by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information...