In the Primary Market, securities generate for the first time for investors to buy. New securities arise through the stock exchange in this market, allowing businesses as well as governments to raise funds.
There are three entities associate in the transactions that take place in this market. This includes companies, investors, and underwriters. Underwriters also facilitate and monitor the provision of new issues. Investors buy newly issued securities in the primary market. Securities and Exchange Commission of India (SEBI) controls such markets.
Now that you know what a primary market means, its features, let’s take a look at some of its benefits.
- A cost-effective way to raise capital
- Companies can fund their businesses seamlessly and cost-effectively in the primary markets. In addition, securities offered in the primary market can be sold almost instantly in the secondary market, providing high liquidity.
- There is little possibility of price fixing
- Improves transparency and operations. Providing diversification
- Limited information available to investors.
- In many cases, the information available to investors before investing in an IPO may be limited. This is because unlisted companies are outside the scope of SEBI regulations.
- There is no past transaction data
- Since the shares are issued for the first time, there is no historical data available to analyze the IPO shares. This can make your investment a bit more difficult.
The secondary market is the market in which securities issued in the primary market are traded by market participants. It provides investors with an exit route where they can sell securities in the secondary markets they previously purchased. In addition, many securities also trades on “over-the-counter” platforms.
- It provides investors with good profits in a short period of time.
- Stock prices in these markets help to effectively value a company.
- For investors, the ease of buying and selling in these markets guarantees liquidity.
- Trading in the secondary market does not require a large amount of money, which makes it easier for small investors to invest.
- The secondary market is useful for analyzing the financial health of a company.
- Firstly, prices are very volatile in the secondary market and can lead to sudden losses.
- Secondly, Trading in the secondary market can be very time consuming as investors have to complete several procedures.
- At times, government policy can be an obstacle to the secondary market.
- Further more investors have to pay a brokerage fee each time they buy or sell stock, which results in higher brokerage fees.