When it comes to trading, there is a lot to know. Almost all financial markets are huge, and there are many of them around. These are generally divided into primary and secondary markets for securities, though. What are they? Well, in this article, we shall explain exactly what they are.
Primary and secondary markets
The difference between primary and secondary markets is not what one might think. This is not a difference in quality. In the secondary markets, there are stocks that are already available to the market. They also offer bonds and mutual funds here. In the primary market, there are stocks that companies are releasing for the first time, so the money goes to those companies.
For primary markets, companies sell their stocks in an IPO. Secondary markets would be something like the New York Stock Exchange.
So, the securities are first sold in the primary market. Then, traders exchange them with each other in the secondary market.
An investment bank will generally set the price for a stock’s price in the primary market. Or it could be the company itself setting the price. After that though, things are a lot more speculative. The secondary market prices are driven by supply and demand, on what traders want. This mainly follows the performance of a company. The higher their profits, the higher their stock prices will likely go. The same goes in the other direction. The performance of the economy can also affect them though.
Such secondary markets are better for new investors. They can look at the history of a stock and see what the future will likely hold. You usually deal with them through brokers as well.
Primary markets are better for someone with experience. If they spot a good opportunity, the stock price could go much higher once a company receives investment.