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“I have found that when the market’s going down and you buy funds wisely, at some point in the future, you will be happy. You won’t get there by reading. Now is the time to buy.”
Peter Lynch
Are you thinking about entering the Stock market but think you don’t have knowledge about workings, and things to consider to become successful in the market, you are in the right place, we will try to walk you through the things to be considered as well as give some insight about the market for those who are thinking about entering but couldn’t act due to lack of information. First of all, we would like to make it simple so let’s start with the Primary and Secondary market.
Primary Market:-
This is the market everyone in our country understands easily many of you might have applied to the shares of different companies standing in a long line for days. The shares you applied by this process is in the primary market by way of Initial Public Offering(IPO) on which shares normally are issued at face value with exception to some companies who issue with the premium over the face value. In the general sense, people feel comfortable while applying for IPO because of the less risk associated with it, without the knowledge about the companies’ past performance and lack of data. It is, in fact, a good entry point to the capital market with comparatively less risk than in the secondary market with small capital injection(In the context of Nepal). Let me come to the first line about applying for shares standing in a long line, with the introduction of C-ASBA the whole process has been simplified and nowadays people can apply and access IPO from the tip of their finger.
Secondary Market:-
The Secondary market to many in Nepal in their thinking is inaccessible and very risky to average investors this is the point we are addressing in this post today. Let me give you one simple example
“Okay now you wanted to buy that share in IPO worth Rs 50,000 but you were allocated only 50 units worth Rs. 5,000.
You believe this company is good and want to own more shares you have the option to get that share with a premium from the secondary market. Let’s suppose the company is listed for rs 150 per unit if you buy the same share from remaining Nrs 45,000 which you have allocated for this share. You will have 300 more share with an average cost of Rs 142.8(50,000/350) which is equal to Nrs 2,800 profit than Nrs2,500 profit with only 50 shares. In the next scenario, each Rs. 10 increase in share will yield Rs. 3,500 if you have 350 units rather than Nrs 500 if you have 50 units.
This is the beauty of the secondary market as you can sell your profitable share and buy other undervalued share and perform trading or keep holding your share and enjoy bonus and dividend on year to year basis as an investment.”
The secondary market is the market where individual investors with little money are more likely to buy and sell the share purchased in the primary and secondary market, where anyone can trade, even if they only make small transactions. Investors on the secondary market use brokers to make their purchases. Prices and demand fluctuate daily, but the prices paid by investors no longer come directly from the IPO. To put it in simple terms secondary market is the market created for liquidity purpose of the share issued in the IPO to its investors who require money by selling and another investor who gives money by buying the same shares. This process is regulated and regulated body has appointed brokers to handle these transactions with a little charge as broker commission which is fixed for all brokers. Earlier the process to access broker was also cumbersome like standing on line for IPO but it is very easy and they are available at your fingertip, to get started you can follow this.
With this introduction, you should already have some knowledge about what is a secondary market. There are other things that will follow soon to make you easy to understand the secondary market and its role in your overall personal finance. Stay tuned and follow us on social media for regular updates and suggestions.
