The 5 Primary Markets You Need to Know

In the primary markets, the securities being offered are original. The securities are unique as they are being sold in the market for the first time. In the secondary market, the former securities from the primary market are traded among investors. The investors are willing to trade the shares they acquired in the primary market for a profit. Primary markets involve direct purchasing of securities. There is the availability of retail outlets that sell securities straight to investors and companies. Secondary markets are concerned with the indirect purchasing of securities. There are many intermediaries in the secondary market that act to connect security issuers and investors. The securities in the primary markets are offered at fixed prices. The prices are determined by the companies and investors and do not change at any circumstances. Security prices in the secondary markets change with time. Secondary markets are affected by fluctuations and forces of demand and supply that account for the change in prices.

Banks play vital roles in both the primary and secondary markets by acting as an intermediary (Singh, 2015). Banks identify firms that are willing to sell securities to either a private place or public offer. The banks are in direct contact with security companies and potential investors, thus identifying their motives in the market is easier. The banks assume the risks when investors do not purchase the securities through underwriting agreement. This relieves the companies from the burden of having to look for potential investors. This also ensures that investors acquire quality securities. The banks help in establishing suitable market prices for available securities through competitive bidding. The best performing financial firms will purchase securities. The banks also contribute to market stabilization. They regulate the number of securities available in the markets and maintain their prices. This ensures a balance between the securities demanded and those supplied.

References

Singh, P. (2015). Role of intermediaries in a securities market. Lawctopus. Retrieved from https://www.lawctopus.com/academike/role-intermediaries-securities-market/.