Business Studies Part I
Business Studies Part II

Secondary Market

The secondary market is also known as the stock market or stock exchange. It is a market for the purchase and sale of existing securities. It helps existing investors to disinvest and fresh investors to enter the market. It also provides liquidity and marketability to existing securities. It also contributes to economic growth by channelizing funds towards the most productive investments through the process of disinvestment and reinvestment. Securities are traded, cleared and settled within the regulatory framework prescribed by SEBI. Advances in information technology have made trading through stock exchanges accessible from anywhere in the country through trading terminals. Along with the growth of the primary market in the country, the secondary market has also grown significantly during the last ten years. The distinction between Capital Market and Money Market Both the money market and the capital market are the centers which arrange for the transfer of funds from the suppliers of funds to the users of funds. They differ, however, in regard to the maturity periods of the financial assets created and dealt with for affecting the transfer of funds. As explained earlier, the money market arranges for the short term and the capital market provides for medium to long-term funds. The time length in respect of short-term funds is less than and up to one year.

  1. The two different types of capital market being referred to are-
    • Primary Market:“Arsh urged Ajay to invest in the forthcoming IPO of a blue chip companies.”
    • Secondary Market:“Ajay was inclined to buy existing securities of the other companies to build his investment portfolio.”

2. Differences between Primary Market and Secondary Market:

 

BASIS

PRIMARY MARKET

SECONDARY MARKET

1.

Meaning

It is the new issue market.

It is the market for old securities.

2.

Aspects

Only buying of securities takes place.

Both buying and selling of securities takes place.

3.

Price

Prices of the securities are determined by the company.

Prices of the securities are determined by the forces of demand and supply.

4.

Parties
involved

It involves dealings between the company and investors

It involves dealings between the two investors.