AN ELABORATION OF MARKETS
Although markets are a common term when it comes to trading, a deep comprehension and familiarization of its types is crucial to comprehend how stocks are exchanged. Basically, the overall terminology covers several types. Below is an explanation of how they work and their connections to investors.
Primary market This is where securities are created & stocks are initially sold In short, this is the venue for IPOs, and fund raisings conducted by institutions through bond offerings. The purchase of bonds here are a direct process from the issuing company.
Secondary market It is what we normally know as the stock market, wherein investors swap formerly issued securities in the absence of a company involvement. For instance if you want to buy Microsoft's stocks, the accord will occur with another investor who has shares in the business, without the firm joining the accord.
- Auction: Firms and participants wanting to swap securities gather in one area and publicly declare costs with which they are willing to purchase and sell, called the bid and ask prices. This will end in a mutual agreement regarding the money sum. A common example of this is the NYSE.
- Dealer: With this, individuals do not have to converge in a single point. Instead, they are linked using electronic networks. The dealers will mainly issue a securities inventory and prepare to buy or sell with other participants. Their profit comes from the difference between the purchase and sell prices. An illustration of this is the Nasdaq.
OTCs Over-the-counter markets are not organized and trading does not occur in physical places but through dealer networks. It was initiated during the 1920s, when exchange was done outside the Wall Street and in stock shops, qualifying them as unlisted. In the years that followed however, processes began to changed within this system as many NASD opted to bring liquidity to companies who are under this procedure.
Presently, OTC are stocks that are not swapped within a bourse, but through over-the-counter bulletin board or pink sheets. The former is an electronic service that provides the latest quotes, sales costs, and volume details for securities. The latter, meanwhile, are daily publications containing bid & ask prices and market makers. These two generally have fewer rules to comply compared to a typical bourse.
Third and fourth markets These kinds do not deal with single investors since include massive volumes of shares to be negotiated. Instead, they cater to agreements among broker dealers and big institutions, through OTC networks. Their main role is to prevent placing orders using the main exchange, which would highly impact the price of a security. Since access here are limited, they usually do not have much effect on a regular investor.
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