Trading stocks on the stock exchange always implies conducting operations in two types of markets - primary and secondary. This article is devoted to the analysis of what is usually meant by the concept of "primary market" and the answer to the basic questions that beginners have in dealing with stock speculation.
So, before entering the market, any securities must be issued, or, in other words, issued and allowed for free sale. Only after the issuer (by this term is taken to mean the person or organization that issued the shares) decides to sell their own securities, they get the opportunity to get on the stock exchange.
Initially, any shares enter the primary securities market, that is, the market where the transaction between the issuer and the investor takes place. After that, all subsequent transactions, regardless of their number, are considered to be completed already in the secondary market. In order to better understand the features inherent in the primary market, its main functions in stock trading should be highlighted.
So, the primary securities market is intended for:
- issue of certain shares or securities by issuing firms;
- initial public offering;
- maintaining a certain balance between supply and demand in the market;
- detailed stock accounting.
In other words, without it, any trading in securities, as well as the search for investors by firms, would be impossible. Obviously, only two types of organizations automatically become the main players in this market: investors purchasing shares and issuers selling them. But often, in addition to these two subjects of economic activity, intermediary firms that purchase securities for subsequent resale, as well as all kinds of investment funds, enter the game in the primary market.
Moreover, trading on the stock market can be conducted in several ways, depending on the issuer's desire. So, it can take place in the form of commercial or investment tenders, conversion, auction, or in the form of a closed or open subscription. As for the last type of trading operations on the exchange, open subscription means the absence in the decision to start selling any securities of any advantages of some potential buyers over others. Accordingly, with a private subscription, such benefits may be negotiated.
The primary securities market also implies a complete lack of control of the issuer over the future fate of its shares. The buyer can both keep them with him in order to accumulate profits, and implement them in order to extract quick speculative income.
It should be noted that the issuer may not necessarily be any commercial firm. Often, shares issued by the state also fall on the primary securities market. Most often, they are put up for sale by large structures (commercial banks, investment funds, and so on), which, in order to find the most convenient and safe profit, part of the securities purchased from the state are sold, and some are left in their own assets.
In turn, it is much more profitable for the state to sell its securities through large funds, since those who are well-versed in the market are able to draw up an attractive emission project guaranteeing maximum profit.
Thus, the conclusion that the primary securities market today is a place of direct interaction between the issuer and the buyer, which is most often played by large stock players with a wide brokerage network for the further sale of shares, becomes obvious.