1. Secondary market:
The secondary market is also known as the stock market or Stock exchange. It is a market for the purchase and sale of existing securities. It also provides liquidity and marketability to existing securities
2. Functions of a Stock Exchange:
a. Providing Liquidity and Marketability to Existing Securities:
Stock Exchange provides a ready and continuous market for the sale and purchase of securities.
b. Pricing of Securities:
A stock exchange is a mechanism of constant valuation through which the prices of securities are determined. It is based on the forces of demand and supply.
c. Safety of Transaction:
Stock exchange has its own well defined rules and regulations. This ensures safety and fair dealings to investors.
d. Contributes to Economic Growth:
Stock exchange provides a platform by which savings are channelised into the most productive investment proposals, which leads to capital formation and economic growth.
e. Providing Scope for Speculation:
Stock exchange provides scope within the provisions of Law for speculation in a restricted and controlled manner.
f. Economic barometer:
A stock exchange serves as a barometer of a country’s economic condition. Price trends in stock exchange indicate whether economy is going through boom or depression.
3. Differences between Primary Market and Secondary Market:
| Primary Market |
Secondary Market |
| 1. It deals with new securities. |
1. It deals with existing securities. |
| 2. It promotes capital formation directly. |
2. It promotes capital formation indirectly. |
| 3. Investors can only buy securities. |
3. Investors can buy and sell the securities. |
| 4. Prices of the securities are determined by the management of the company. |
4. Prices are determined by the demand and supply of securities. |
| 5. Companies sell securities directly |
5. Prices are determined by the demand and supply of securities. |
