Question

What new securities are being sold to investment banks in a primary market? And what what type of securities are being exchanged in a secondary market? What does it mean when they say the corporation does not receive any money in a secondary market ?

Answer 1

Answer

• There are two market identified for securities:
  --Primary market
  --Secondary Market
• When the securities of a company are first traded, issued, and are first time subscribed, they are done in primary market.
  For example, when a company offers to issue Common Stock for the first time and investors (usually Investment banks) subscribe to those offer application, it is termed as transaction in Primary market.
• New securities that are being sold to investment banks in a primary market are:
  Common Stock
  preferred Stock
• Securities that are traded in the secondary market are the SAME securities that were first traded in primary market.
  The difference is that the original company (the issuer) plays no part in these transaction.
• Corporations does not receive any money in secondary market because THEY HAVE ALREADY RECEIVED the amount when securities were sold off in primary market. Now the buyer (investment banks) sells these securities in secondary market to other investors.

--Corporations sell securities to original investors/investment banks in the primary market and receive the amount.
--These investors/investment banks then trade these securities through stock exchange for earning gains in the secondary market to general public and small investors and realize the amount of themselves.