A Short Note On Secondary Market

Aftermarket is another name for secondary markets, in such markets the trading and exchange of securities takes place. Trading securities of various kinds occur through a secondary market. The buying and selling of securities such as bonds, debentures, and shares happen in these markets. The happening and trading of these markets are independent in nature as the issuing entities are not involved in the deals or trades which happen in secondary markets.  

Difference between primary market and secondary market:  

The difference between these markets is simple but could be a little confusing at times. When a particular company or institution is listing stocks or securities for the first time and is selling these directly to the consumers and investors then such a trade comes under the primary markets.  

When such initial investors decide to sell the shares that they acquired originally to another party that is interested they can choose to do so on a secondary market. The result of the transaction between the two parties would go to the original investor and not the institution which originally sold the share to the investor. This is the basic difference between the primary market and the secondary market.  

Types of a secondary market: 

• Over the counter markets:  

Over the counter, markets are one of the very few markets which are decentralized in nature. These markets encourage participants to engage in deals and trades with other participants freely. As there is no regulatory oversight present to monitor all activities of over-the-counter markets there is a higher chance for counterparty risks. The most widely known example of an over-the-counter market would be Forex. In such markets, there is a lot of inherent competition present and hence there are no standard rates for a particular commodity, different rates would be offered by different retailers to a consumer.  

• Stock exchange: 

Stock exchanges are centralized in nature and the trading of various securities takes place in this type of secondary market. All transactions which take place in the stock exchange have regulations imposed on them to ensure the smooth functioning of the market. The counterparty risk in stock exchanges is negligible and the markets are considered to be extremely safe due to their centralized nature.  

 Advantages of a secondary market:  

• The secondary market in its own ways pushes toward the actual value which is later considered a fair evaluation of a particular trade or company.  
• The mobilization of money which is in the form of savings is being done through secondary markets as people can safely invest their savings in the hopes of earning profitable returns in the future or during the trade itself. This function is served by a primary and secondary market.  
• Problems of liquidity are solved by these markets as investors in need of cash can easily trade their securities for real money. A large number of buyers are present in a secondary market which makes it extremely convenient for investors and traders who are looking to sell their assets in order to attain some cash.  
• The price adjustment of a particular stock or security happens quickly and efficiently in a secondary market. Such price adjustment could be a result of new information about the company being released to which the particular stock belongs to.  
• A secondary market or a secondary stock market is subjected to heavy regulations and hence the safety of the investor’s fund is maintained. Such regulations have made a secondary market extremely safe, popular, and liquid.  

 Conclusion

Secondary markets are extremely liquid in nature and investors who require immediate cash often flock to such marketplaces. The independent nature of these markets allows them to sustain their pricing mechanisms and trades are always flourishing in such markets. Therefore, be sure to conduct a thorough research online to avail more information and knowledge about this topic. The financial world is a complex place which requires detailed study to gain complete understanding.