Secondary Market

What is Secondary Market?

The market's follow-on public offering is also known as the aftermarket. It's where stock, bonds, options, and futures that were previously issued are sold and bought. It is simply a place where securities from the past can be bought and sold.

Secondary markets facilitate the marketability and liquidity of securities. It is used to manage companies and as a control channel for monitoring and controlling.

• Facilitating value-building control activities and
• Information with market capitalization

Secondary market allows you to instantly value securities based on demand and supply.

The secondary market definition says that it is a second-hand market when securities from the past are sold and bought.

Let's now see what secondary market is for investors. Secondary market is an area that provides an efficient platform to trade securities. To provide liquidity for investments to be converted into cash.

Types of secondary market:

• Market for Over-the-Counter:

  OTC market is the informal trading of securities. That is not listed on any formal exchange.

  This allows securities that don't meet the listing requirements on a standard market to be listed. It is a bilateral agreement, in which two parties are involved. The investor and the dealer.

  OTC markets are mainly for smaller companies that can't meet formal exchange requirements.

• Market traded on the exchange:

  An exchange-traded market, also known as auction marketplace, is where all transactions are routed through an intermediary (exchange).

Market Participant in Secondary market:

• Buyers
• Sellers
• Intermediaries

Products on Secondary Market:

• Equity

  Equity refers to ownership in a company, where all shareholders have equal rights regardless of how many shares they hold. This includes:

  1. Equity shares
  2. Right issue or Right share
  3. Bonus shares

• Preference shareDebenture  

  Also known as preferred stocks, Preferred shares are also called Preferred stock. This is a stock that has a combination of features and is not subject to common stock properties. It is commonly referred to as a Hybrid Stock.

  These securities owners are entitled to a fixed monthly dividend before any dividends can be paid on Equity share. These preference shares can be classified into:

  1. Cumulative preference shares
  2. Participating in preference shares

• Government Securities (G-sec).

  G-sec refers to a bond or debt obligation issued by Reserve Bank of India for Government of India. It is an alternative to the central government's market borrowing program with a promise of repayment at the security maturity date.

  Because they are backed up by the taxing power a government, these are considered low-risk investments.

  These securities come with a fixed coupon, which is paid at specific times on a half-yearly basis.

• Debentures:

  Long-term securities with a fixed interest rate are also known as debtentures. They are issued by companies and are secured against assets. These are typically payable every half year on specific dates, with the principal amount due on maturity.

  There are two types of debtentures:

  1. Non-convertible debentures
  2. Convertible debentures

• Bonds

  A bond is a negotiable instrument that is generally issued by a municipality, government agency or company to show evidence of indebtedness. In bond, an investor lends money to the issuer. The issuer promises to repay the loan by a specific maturity date. Over the term of the loan, the issuer will pay interest on a regular basis. The loan's term can last up to 30 years. There are many types of bonds available:

  1. Zero Coupon Bonds
  2. Convertible bonds
  3. Commercial paper
  4. Treasury Bills

How do you purchase equity in the secondary market?

• Demat account opened and traded with the broker/depository participant
• Connect your bank account to a Demat or Trading account
• It is easier to sell or buy shares with the help of a broker and multiple trading platforms
• The broker sells or buys shares by placing orders via the stock exchange's electronic terminal
• The broker issues a contract note detailing the purchase price and his brokerage costs.
• The broker collects shares through settlement (T+1) and pays investors.
• The final settlement date (T+2) is when the order will be executed.
• Your demat account will credit or debit the shares.