Primary and Secondary Markets

The financial market is a world where new securities are issued to the public regularly. These financial products are bought and sold on the capital market, which is divided into primary market and secondary market.

The primary market is also known as new issues market. Here, the transaction is conducted between the issuer and the buyer. In short, the primary market creates new securities and offers them to the public. Capital or equity can be raised in primary market by any of the following four ways:

1. Public Issue: Means selling securities to public at large
2. Right Issue: If a company needs to raise supplementary equity capital, one option is to offer shares to present shareholders on a pro-rata basis.
3. Private Placement: Selling securities to restricted number of investors like frequent investors, venture capital funds, mutual funds and banks.
4. Preferential Allotment: Issues equity shares to a selected number of investors at a price that may or may not be similar to the market price.

The secondary market is actually formed by another layer of investors who deal with primary market investor to buy and sell financial securities such as bonds, futures and stocks. These dealings happen in the proverbial stock exchange. The secondary market is further divided into two kinds of market:

1. Auction Market: The auction market is a place where buyers and sellers convene at a place and announce the rate at which they are willing to sell or buy securities.
2. Dealer Market: buying and selling of securities happen through electronic networks which are usually fax machines, telephones or custom order-matching machines.

Reference

http://www.financewalk.com/2012/primary-market-secondary-market/

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