The stock exchange (capital market) is divided into two types
These are Primary market and secondary market.
Primary Market
This is also called new issue market (NIM) . it is a capital market where newly issued securities are offered to the public. In a primary market , transaction (buying and seliing of securities) takes place directly between the issuer and buyers or investors for the first time.
The primary market usually raises capital through the following means.
- Public issue
- Right issue
- Private placement
- Preferential allotment
Features of Primary market
- It is market for new , long term capital
- Securities are issued by the company directly to investors.
- The company issue certificates to investors (buyers).
- It is usually used for selling up new business or expanding existing ones
Secondary market
This is a market where investors trade (buy and sell) securities they already own without the involvement of the company that issued the securities in the primary market. It is also called “after market” because it is where the securities issued at the primary market are bought and sold.
There are basically two types of secondary market. These are auction market band dealer market.
- Auction market
- Dealer market
Features of Secondary market
- It creates liquidity (means of converting security to cash)
- It is security market for previously issued securities
- It comes up after primary market
- Securities are not issued directly by company to investors in a secondary market.
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See also