Explain about the primary and secondary markets.
Primary and secondary markets:
A primary market is a financial market wherein new matters of financial securities (both stocks and bonds) are sold to first buyers. A secondary market is one wherein securities which have been earlier issued are resold. Primary markets facilitate new financing to corporations; however most of the trading of securities takes place within the secondary markets.
Though some commentators have argued about secondary markets are less significant to the economy than primary markets, they gives two significant functions. Primary is, they make financial securities more liquid. The enhancement in liquidity makes securities more attractive to investors and therefore easier for the firm to sell them into the primary market. Second, they establish the price of the securities the firm sells into the primary market. It implies that the price of the securities’ issues onto the primary markets is partly found by the price of similar securities traded into the secondary market. Such two reasons explain why we focus our attention onto secondary markets.