March 13, 2024
To: Scott Wickliffe – Adjunct Instructor
From: Manoj Messa
Reference: Homework Discussion Question 2-5
Question:
Describe the difference between the primary market and the secondary market.
Answer:
In the complex financial markets structure, there are the primary and secondary markets which
are the pillars supporting the issuance and trading of securities. These markets are different from
each other in their function and features as well as they are important elements of the capital
market framework. The primary and the secondary markets have distinctive properties observed
in the trading methods. In the primary market, securities are first provided by companies to
investors via an institution set price that is previously determined during the issue process. On
the contrary, in the secondary market, the prices tend to be volatile and fluctuate depending on
the market supply and demand, which implies the investors' perception about the real value of
the securities overtime. Such a difference designates the primary market to be a venue for
businesses to set the first-time prices for their securities while the secondary market is a place
where prices are being determined by the market activities, providing a venue for liquidity and
price discovery. In addition to that primary market and secondary markets differ in specific
issues such as the location and organizational structure. While the primary market does not have
a physical presence as it is primarily the process of companies issuing securities without being
geographically located, the secondary market is principally found in actual geographic locations
such as the stock exchanges. The former is the process, and the latter is where the stock
exchange’s contingency platform for trading securities are present, serving as the nucleus and
space for all market operations.