Economy / Stock Market / Primary Market and Secondary Market
Primary Market and Secondary Market
Primary Market: Overview
- Definition:
- The primary market is a segment of the capital markets primarily focused on the issuance of new shares directly by a company to investors. This process occurs through an Initial Public Offering (IPO).
- Types of Offerings:
- a. IPO (Initial Public Offering):
- Companies issue new shares to the public for the first time.
- b. FPO (Follow on Public Offer):
- Companies, having previously issued shares, return to the market for a new offering.
- Rights Issue:
- In a rights issue, a listed company aims to raise funds by offering additional shares to its existing shareholders. Shareholders have the option to subscribe to these new shares.
Secondary Market: Overview
- Definition:
- The secondary market constitutes the financial market where already-issued securities, previously offered in an IPO, are traded. Companies listed on stock exchanges enable investors and speculators to buy and sell these securities.
- Trading Dynamics:
- Investors and speculators engage in buying and selling activities on the stock exchange. The existence of both buyers and sellers facilitates transactions in the secondary market.
The primary market is the entry point for companies to raise capital by issuing new shares, while the secondary market provides a platform for ongoing trading of previously issued securities. Both markets are integral components of the broader financial landscape.
