WHAT IS PRIMARY MARKET?
What is Primary Market has turned to viral question asking in Nigeria and here is the perfect and correct answer for the question. Primary Market Can be referred to as where new issue of securities are been created and available for sale.
The market for new issue in all government securities is the issue office, central bank of Nigeria.
In another word Primary Market is where new stick and bonds are sold to the public for the first time.
Primary Market is used by companies and government entities sell new issue of common and preferred stock, corporate bonds, government bonds, notes and bills are also used to fund business improvement or to expand operation.
Types Of Primary Market
- Right issue
- Initial public offering
- Private placement
- Preferential allotment
Right issue is an offer to the company current stockholder to buy additional new shares.
Private placement is an issue of stock shares to an individual person, corporate entities or a small group of investor.
Initial public offering is when a company issue shares of stock to the public for the start.
Preferred allotment is shares offered to a particular group at a special or discounted price, which is different from the publicly traded.
Benefits Of Primary Market
- It promote partnership firm into public limited company or merger of companies. When new venture started operating, a management may wish to have a control on the ownership and for this purpose, they would like to enter into arrangement.
- It promote opportunity for new investors to start new enterprises. It resort to promote new venture which are profit oriented.
- Existing companies will be in a position to expand their activities. When the existing companies find their products obsolete, they would like to venture into new areas of production for which they require additional capital.
Functions Of Primary Market
- New issue offer – This is new issue which had not been traded on any other exchange earlier due to this reason. it is also called a new issue market.
- Distribution of new issue – This invites the public at Large to buy a new issue and provides detailed information on the company issue and involved under writers
- Under writing service – This is an essential aspect while offering a new issue. An under writer’s role in a primary market place include purchasing unsold shares if it cannot manage to sell the required number of shares to the public.
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WHAT IS SECONDARY MARKET?
What is the secondary market is another question Myfinanceng is looking into. Secondary Market which is also called the after Market and follow on public offering is the financial market in which previously issued financial instruments such as stocks, bonds options and futures are bought and sold. It consists of both equity as well as debt markets.
Functions Of Secondary Market
- Investors find a proper platform such as an organised exchange to liquidate the holdings.
- Transaction can be entered into it at anytime and the market allow for active trading so that there can be immediate purchase in price among different transaction.
- A stock exchange provides a platform to investors to enter into a trading transaction of bonds, shares, debenture and such other financial instruments.
- A secondary market acts as a medium of determine the pricing of determining the pricing of assets in a transaction consists with the demand and supply.
Types Of Secondary Market
They are two type of markets which are stock exchange and over the counter market.
Stock exchange are centralized platforms where securities trading take place sans any contact between the buyer and the seller.
Over the counter (OTC) market are decentralized, comprising participate engaging in trading among themselves. In an OTC market, there exists tremendous competition in acquiring higher volume. Due to this factor, the securities price differs from one sellers to another.
Benefits Of Secondary Market
- It offers investors to make good gains Ina shorter period.
- The stock price in this market helps in evaluating a
- For an investors, the ease of selling and buying in these market ensure liquidity.
- Secondary Market helps in analyzing the economic health of a company.
Disadvantage of secondary market
- Brokerage fees are high as every time an investors sell it buy shares, he/she needs to pay a brokerage commission.
- Trading through secondary market can be very time consuming as investors are required to complete some formalities.
- Sometimes, government policies can also act as a hindrance in Secondary market.
Primary market vs Secondary market in Nigeria
- The primary market is called new issue market while the secondary market is an after market
- The Primary market provides finance to the companies who want expansion and growth while secondary market doesn’t provide financing to the companies.
- The prices in primary market for not fluctuate, on the other hand the secondary market price fluctuate a lot because of the demand and supply.
- The purchase process happens directly in the primary market while the company issuing the share do not involved in the purchasing process.
- The primary market is not organized while the secondary has an organized setup.