• Primary Market and Secondary Market

    There are mainly two types of capital markets, Primary market and Secondary market.

    Primary market

    Primary market mainly deals with the initial public offerings of the shares. Companies use primary market to launch IPO and FPOs to raise money from the investors.

    Characteristics of Primary market

    • It enables the companies to raise money from the investors through Initial Public Offering or Follow-on public offering.
    • It should provide all the technical and financial mechanism necessary for IPO and FPO.
    • It helps to create shares from the equity capital of a company.
    • It runs the book building process for the IPO and FPO.

    Secondary Market

    Secondary market is where normal buy-sell transactions or trading are taken place after the company gets listed on the stock exchanges. It acts as a medium between the sellers and buyers to facilitate the trading process.

    Characteristics of Secondary market

    • It enables the trading of bonds, shares, options, futures etc.
    • It acts as the organized exchange and enables the trading between the buyers and sellers.
    • It provides the adequate liquidity and keeps the bid-ask spread lower which are required for proper trading.
    • It acts as intermediate buyer and seller to facilitate trading process when the actual buyer and seller numbers are less.
    • It provides the price accuracy and time accuracy to make the trading error free.
    • It supports all the trading with proper financial and technical system which should not have any trade related errors.
    • It enables the money transactions after the trading takes place. For stock sellers it credits the money to their accounts and for stock buyers it debits the money from their accounts.
    • It acts with the central depository limited to transfer the share for each investors after the trading.
    • It helps to conduct different types of trading like margin trading, short selling etc.
    • It provides all the trading transaction details after the trading takes place.

    Secondary market is the main way to trade on common shares after the shares get listed in the market.

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