What are the Primary and Secondary Market difference? Securities market is divided into: financial and capital markets. There is also a division here in a different plane, depending on whether the transaction of value is carried out for the first time or not. If the transaction with a security is performed for the first time, it happens in the primary market. If the transaction with a security is made once again, it happens on the secondary market. Both the capital market and the money market have their markets: primary and secondary. The primary market is the market on which the issuer or his securities broker invest and investors are purchasing them. So cecurity entered the market and it was sold for the first time. Then all happens on secondary market. Investors who first bought the securities, can keep them (until the repurchase – eg bonds), or resell. Sell in order to recoup the cash for new investments in the primary market, if these proved to be better than keeping already purchased shares.
To retrieve the invested sums investor sells a security. He may not resell it to the issuer, as they’ve been issued them for a certain period (in the capital market for a period of more than one year, in case of shares for aye), so not to buy it back from the investor ahead of time. Therefore, the investor can sell the value to another investor, so another transaction with security happens. This is the secondary market already. As you can see the secondary market gives the investor a guarantee of liquefaction (monetization) of asset, which makes his investments financially secure in terms of liquidity. In general, you can always withdraw from them, getting cash back. This warranty of realization is a task of secondary market. It eliminates the risk of “freezing” the cash. Between the primary and secondary market of securities certain dependence refundable exists. The greater is the chance to sell the asset in the primary market (sales of the security in the primary market is an issuance of security), the greater the liquidity of the secondary market (providing opportunities to resell).
Functions of primary and secondary market
On the secondary market shall therefore happen:
1. Widely understood capital mobilization.
Buying and selling securities on the secondary market can be done by entities that do not have access to the primary market, as well as those who have too little capital (many primary market operations required a large capital), in order to appear on the primary market. In other words: the circle of people interested in trading securities is significantly extended.
2. Processing of capital.
Small streams of savings are concentrated and are involved already in the great mass of the business operations. Large capitals adapt to the current market situation.
3 Verification – assessment of the value of equity.
There is a wide circle of buyers and sellers, so demand and supply estimates the real value of equities offered. A large number of market participants allow a relatively accurate assessment.