Secondary Markets
What is Secondary Market and why is it important?
Secondary Market refers to the market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity market and debt market. The secondary market, primarily consisting of stock exchange. It provides a forum for buy-sell of already issued securities.
After the listing of securities in the stock exchange, the investor can trade in such securities in the secondary market. For example, Trading on National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Multi-commodity Exchange(MCX) etc.
The Secondary Market is further classified as follows:
- Spot market or Cash Market: The delivery and payment of securities are made immediately without delay.
- Futures Market or Derivatives Market: Securities are bought and sold for some predetermined future date.
Role of Secondary Market
For an investor 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 controlling conduit – by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decision.
Primary vs Secondary Markets
Primary market is a place where securities are offered to the public for subscription for the purpose of raising capital for funding or expansion of the business while Secondary market is the place where securities are traded after they have been issued to the investors.
