Types of Stock Market
In the Stock market jargon, the term “market” can have many different meanings, but it is often used a common term to denote both the primary market and the secondary market.
Primary market –
This is where companies issue their securities for the first time. It is the place where the securities are created and the Initial Public Offering (IPO) of the company is made available to the people for the first time.
The company has to adhere to the guidelines and procedures laid by the exchange and the Regulatory body, i.e. the Securities Exchange Board of India (SEBI).
The commonly followed procedures are when
- An Underwriting firm is contacted by the company to determine the legal and financial soundness of the public offering.
- The company’s interests and prospects are filed with the proper authorities and a preliminary prospectus also known as the Red Herring is prepared which describes the company’s intent and business ambitions.
- A final prospectus is prepared and issued by the company which is availed to the prospective investors and details the issue’s price, restrictions, and benefits. This is legally binding for the company.
Secondary market –
The is what people usually refer to when they talk about the markets or “Stock Markets”. It is the electronic platform where the buying and selling of shares and other financial instruments takes place.
An important feature of the secondary market is that here the investors trade amongst themselves.
This means that if you are buying 1000 shares of ITC, some other investor is selling 1000 shares of ITC.
The company whose stock is being traded is in no way involved in the transaction.
Watch this video to learn more about Stock Market –
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