What is Secondary Market in Capital Market? |Definition, Types, Functions & its features
As in our previous blog of “primary market” we seen that when a new company want to enter in the capital market then they need to issue their new securities to the public so that they can borrow funds from investors & investor can do buy and sell. So now let’s see what is Secondary Market?.
Secondary Market
In a secondary market, existing companies which are listed in the stock exchange after IPO, the investors can easily perform their activities of buying and selling securities anytime, The process of buying and selling of securities can be done under the stock exchange where the companies are not participating in this market, this is because in the primary market they already sold their securities to the public but in this market stock exchange are included where it is used as intermediary among the investor so that investors can sell their securities to other investor .That’s why this market is also known as “After Market”.
In this market bonds, equities, debentures etc. things are traded.
Definition Of Secondary Market
Secondary market is a market where the new issued shares are traded among the investor. It is known as “Secondary Market”.
Types of Secondary Market
There are basically two types of secondary market:
- Stock Exchange
- OTC Market
Stock Exchange
Stock exchange plays an very important role in this market where it provides a platform to the investors so that they can easily performing the buying and selling activities without any issue. A stock exchange work as an intermediaries between the investor. In India there are two exchanges are there: 1)BSE(Bombay Stock Exchange) and 2) NSE(National Stock Exchange) & these two exchanges were regulated by SEBI (Securities and Exchange Board of India).
In a stock exchange Equities, Derivatives, Mutual funds, Commodities, Debt & Fixed income securities etc. and much more.
OTC Market
OTC market is “Over the Counter Market” and is also known for “Off Exchange Trading”. As the name suggest “Off Exchange” that means there is no exchange between the investors or no broker between the investors to trade. In this market the two parties are directly connected each other and make trade. The trade between two parties are unlisted because in this market there is no exchange between the parties that’s why this market is also known as “Decentralized Market”. This market is basically known as “OTC Market”
In a Over the counter market bonds, derivatives, equities, and currencies like things were traded.
Functions of Secondary Market
- Liquidity of Funds: In this market there is a lot of liquidity for investor so that if any investor want to sell their securities then he/she can able to sell and convert it into the cash whenever they needed.
- It provides the safety of transactions: In a secondary market the prices of securities are fluctuating so that it makes confusion to the investor that which price they have to buy or not. So this market helps to provide the safety of transaction whenever investor want to buy any share at his according price then the market gives the shares to his selective price.
- Price Determination: After the companies listed on the stock exchange then the price are determined by the demand and supply. In simple words, the price of the shares are fluctuate by the demand and supply in the economy.
- Investors can buy and sell their securities anytime: In this market the stock exchange helps investor to buy and sell their securities at anytime (But in the market opening time).
- It contribute to the economic growth: When the investor can invest their money in the company securities so that the companies make growth and it’ll contribute to our economy.
Features of Secondary Market
- Secondary market deals with the issued securities.
- This market provides the transparency to the investor so that they can easily acquire history of their trades & check all the details of their trades.
- In this market stock exchange work as an intermediaries between the investors so that they can trade easily without getting any difficulties.
- The prices of the security decides accordingly with the demands and supply.
- Liquidity is enough in this market so that investors can easily convert their securities into cash.
