To gain in-depth knowledge about the secondary market, you need to understand its contribution in the stock market. There are markets in which potential investors are buying and selling stocks and bonds, which they own already.
These are nothing but secondary markets. To get secondary market homework answers, you need to have proper study material ready for you.
“It will contain topics covering every aspect on stocks, securities, capitals, primary and secondary market.â€
What does it mean as per secondary market homework answers?
It is a market that involves customers and deals with selling and purchasing of stocks, other than originally offered ones. It is a kind of financial market that deals with transaction against previously issued financial instruments and securities. It can include notes, bonds, and certificate of deposits, exchange bills, and shares which you can sell and buy in it.
You can refer to it as an aftermarket, which provides avenues for resale by reducing investment risks. You can find stock exchanges, commodities and over-the-counter markets that act as secondary markets by maintaining liquidity in our financial system.
Why is it referred as Secondary Market?
We often term the transactions that are taking place in the secondary market as secondary. You’ll get more details on its naming strategies by following secondary market homework answers. The reason is simple, as these are occurring for the second time after going through the initial purchase phase in the primary market.
Take an example of a financial institution that is writing a mortgage for one customer. Hence it has to create a mortgage security for this purpose. On the other hand, you will find investment banks, individual and corporate investors buying and selling securities on the secondary market. Hence, the bank has the authority to sell their securities to entities looking for buying mortgages in the secondary markets at secondary transaction rates.
How does it differ from Primary Market?
You will find few national exchanges that are major secondary markets such as NASDAQ and New York Stock Exchange (NYSE). But then what is the exact point of distinction between these secondary markets with the primary ones?
The primary market is the place where the transaction occurs between the company and the investors for the first time, based on secondary market homework answers. It involves selling of securities, stocks or bonds by the company to the investors directly. Most commonly used publicized transactions occur in the primary market are initial public offerings (IPO). Any further information regarding sock share sales in the primary market goes directly to the stock issuing company, after the settlement of bank’s administrative fees.
If these investors want to sell their company stake, later on, they can do so at the secondary market. The detail proceedings of further transaction go to the investors who are selling their stocks here, and not to the issuing company at primary market.
How is pricing done in the secondary market?
Most of the prices are set beforehand in case of primary markets. However, you can determine it by the demand and supply in secondary markets. If major investors start to buy stocks, believing that its prices will increase, there’ll be an automatic rise in stock’s price, refer to secondary market homework answers for more. Similarly, if any company loses its reputation before investors, or fails to register significant earnings, the prices decline.
How does secondary market work?
- It is a trading market in which investors are exchanging their share certificates regarding Initially, a company releases its share certificate or stocks in the money raising (primary) market, so that investors can buy it from them. Later these investors trade their certificates to other customers in the trading (secondary) market. During this process, the stocks or share certificates goes through multiple trading, while shuffling from one customer to another.
- If you compare theoretically, the primary market doesn’t need a secondary market for its existence. But primary markets can be enhanced and supported by secondary markets in many ways. These are as follows:
- For cashing out on investments without any delay, secondary markets are essential as it provides liquidity to primary markets. If this liquidity is not available to the investors, it will make them invest reluctantly in the primary market. Also, it will increase the cost of raising capital, as explained in secondary market homework answers.
- It provides the feature of price discovery to new investors and customers, looking for secondary stocks and securities in the market. It is a way of adding values to the existing product, as its present value is decided by investors, based on their votes or bets.
- As the shares trade in the secondary market, the companies or share owners are indirectly affected by its values. In case the trading of their shares goes higher, it will allow them to raise additional funds in money raising market. Similarly, in the case of lower trading, fund raising can be quite difficult.
Ways in which investors can get benefit from this?
- It will allow them to buy stocks from existing investors and make a direct entry into the market. They will not have to rely on companies to raise money or share values in the primary market.
- They can make cash at any time out of an investment, instead of waiting for collecting dividend amounts over an indefinite period.
- They can easily shift from an existing company to a new one, which will provide a worthy deal for them. It will also allow them to bargain for the shares price and invest accordingly.
- It will allow them in share trading that they can expect to rise in price. It will also help them to stay away from trading that can fall in price.
Follow secondary market homework answers if you want to have a good understanding of this topic. You will get answers to all your queries regarding capital and the stock market, along with primary and secondary market concepts. You will get full study support which will make your learning experience easy.