Share Market

The term market has many meanings to it. It is sometime even used to denote both primary and secondary markets when both of them are entirely different. Primary market is a market where securities are created. Whereas, the secondary market is one in which these securities are traded among the investors.

Primary market is the market where the forms sell new stocks and bonds to the public for the first time ver. It can be called synonymous with an IPO (initial public offering). In such a market securities are directly purchased from an issuing company. IPO are very complicated and are ruled by some rules and regulations. The procedure starts with a company contacting an underwriting firm to determine the legal and financial details of the public offering. Then a preliminary registration statement detailing the company’s interests and prospects is filed with the authorities. This is then approved by the governing bodies. This statement has the issue’s price, restrictions, benefits and more which becomes a legally binding copy for the company.

When people talk of stock markets they are referring to the Secondary market. It includes the New York Stock Exchange, NASDAQ, and other major exchanges of the world. Here the investors trade among themselves. They trade the previously issued securities without the involvement of the issuing companies. They can be further divided into auction market and dealer market.

The auction market is where all individuals and institutions who want to trade securities come together and quote prices that they are willing to buy and sell in. These prices are called bid and ask prices. It works on the idea that the prices should be made public and should be given according to the budget.

The dealers hold an inventory of the security in which they make a market. The dealers stand ready to buy or sell with market participants. They earn profits through the spread between the prices at which they buy and sell securities. The basic theory behind this market is that the competition between the dealers will provide the most optimum price for investors. Thus the primary and secondary markets are totally different from each other with different uses attached to them.