Securities Market
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The securities market is an organized market for trading bonds, equities, derivatives and other forms of financial instruments. It includes both the primary and secondary markets, wherein the former is a place for the issuance of new securities and the latter for the purchase and sale of old securities. Trade in secondary markets is conducted through licensed stock brokers who buy and sell securities for themselves and on behalf of others.[br]
Companies and governments use a capital or a securities market to raise funds for meeting their day-to-day expenses or fund expansion and other plans. Investors, including individuals, institutional investors and companies, invest in securities in a bid to earn some profits on their investment.
Basics of a Securities Market
Securities are traded in two types of markets: primary markets and secondary markets. In the primary market, securities are issued to investors through Initial Public Offerings (IPOs) or secondary offerings with the help of underwriters and investment banks. However, in the case of secondary markets, securities are traded between various investors.
Issuing securities in the primary market can be done through a public offer or through private placement to a limited number of people. In some cases, a combination of an IPO or private placement is used. Privately placed securities, however, can not be traded publicly and instead exchange hands of only a few qualified investors. So the secondary market for privately placed securities is not as liquid as the securities issued through a public offer and listed on a stock exchange.
The success of the primary market depends on the existence of a good secondary market which provides liquidity for the securities sold in the former. The existence of an active secondary securities market enables investors to sell their investments when they need funds or in order to earn profits. In contrast, the absence of a securities market and thus liquidity for securities discourages investors from investing in IPOs. This will result in reduced funding options for companies and other securities issuers.[br]
The secondary market constitutes organized exchanges, such as the New York Stock Exchange or the Nasdaq and over the counter markets that facilitate trade between various parties over the phone and electronically. Securities markets in various countries are regulated by government agencies such as the Securities & Exchange Commission.
