Basic Functions of Secondary Markets: Hello, everyone Today I am going to share some interesting information on the topic of Basic Functions of Secondary Markets.
Basic Functions of Secondary Markets
Table of Contents
The securities that they hold can be sold in different stock exchanges. A secondary market acts as a medium for describing the pricing of assets in a transaction consistent with the demand and supply. The information regarding transactions price is within the public activity that enables an investor to decide accordingly.
The Functions of Secondary Markets are as follows:
1. The Economic Barometer
Secondary Markets is a very believed barometer to measure the economic condition of a country. Every big change in the country and economy is reflecting in the prices of shares. The rise or fall in the share prices is indicating the downfall cycle of the economy. The Secondary Market is also known as a pulse of the economy or economic mirror which reflects the economic conditions of a country.
2. Securities Pricing
The Secondary markets are also helping to worth the securities on the basis of their demand and supply factors. The securities of profitable and growing oriented companies are valued higher as there is more demand for such securities. The valuation of securities is more useful for Investors, Government, and Creditors. The investors can know the worth of their investment, the creditors can value the creditworthy and the government can impose taxes on the worth of securities.
3. Transactions Safety
In the secondary market, only the given securities are business, and stock exchange authorities include the organization’s names in the trade list only after verifying the value of the company. The companies which are listed also have to operate within the strict rules and regulations. This will surely safety of dealing through the stock exchange.
4. The Contribution to Economic Growth
In Secondary Markets, securities of different firms are bought and sold. This process of disinvestment and reinvestment helps to invest in the most productive investment proposal and this comes to capital formation and growth in the economy.
5. The Spreading of Equity Cult
The Secondary Markets are encouraging many people to invest in ownership with the securities by regulating new issues, better business practices, and by educating the individual about the investment.
6. Providing better Scope for Speculation
To ensure the liquidity and demand of supply of securities the secondary markets are permitting the healthy business of securities.
7. Liquidity
The important function of the secondary market is to give a ready market for the sale and purchase of securities. The presence of the secondary market, which gives surety to the investors that their investment can be converted into cash whenever they want. The investors can invest in long-term basis investment projects without any hesitation, as because of the secondary market they can convert a long-term investment into a short-term and also makes it in the medium term.
8. Better Uses of Capital
The shares of making a profit in the companies are quoted at higher prices and are actively doing business, so such companies can easily raise fresh capital from the secondary market. In general, the public is hesitating to invest in the securities of making a loss in companies. So, the secondary market allocating the investor’s fund into a profitable channel.
It is Promotes the Habits of Savings and Investment in the Secondary Market
The Secondary Market also offers attractive opportunities for investment in different securities. These attractive opportunities will encourage people to save more and invest in the securities of the highest corporate sector rather than investing in unproductive valuable things such as Gold, Silver, etc.
Difference between Primary and Secondary Market
| Primary Market | Secondary Market |
| Securities are initially issued in a primary market. After issuance, such securities are listed in stock exchanges for subsequent trading. | Trading of already issued securities takes place in a secondary market. |
| Investors purchase shares directly from the issuer in the primary market. | Investors enter into transactions among themselves to purchase or sell securities. Issuers are thus not involved in such trading. |
| The stock issue price in a primary market remains fixed. | Prices of the traded securities in a secondary market vary according to the demand and supply of the same. |
| Sale of securities in a primary market generates fund for the issuer. | Transactions made in this market generate income for the investors. |
| Issue of security occurs only once and for the first time only. | Here, securities are traded multiple times. |
| Primary markets lack geographical presence; it cannot be attributed to any organisational set-up as such. | A secondary market, on the contrary, has an organisational presence in the form of stock exchanges. |
So, these are the important points on the Secondary Market with its useful functions. Please go through the article and enjoy reading it.
If any Queries or Questions is persisting then, please feel free to comment on your viewpoints.
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