Primary and Secondary Market
Primary markets are linked to the issuance of new securities that are apportioned and issues by the companies to people, who have subscribed to the issue. The securities in the primary market are issued to the public via initial public offerings (IPOs) by the public limited firms. The IOPs can be shares or the debentures. The IPOs are associated with the issuance of securities made by the company, which is limited to public on direct basis. On the other hand, in relation to bonds investors buy them directly from the firm. The shares or debentures are issued at the formation stage or to make an expansion of business. With respect to two types of primary markets like general public distribution and private placement, the securities are issues to general public as described earlier, who submit applications to purchase them whereas in private placement shares are purchased by an investment bank. The investment bank identifies an institutional investor from the issuing firm. At the second stage, the shares are sold on the stock exchange (Saunders and Cornett 24).
Bonds as part of securities’ issuance in the primary market are associated with two methods, such as auction and syndication. For example, the U.S. Treasury and the Bank of England on the behalf of their governments issue bonds through auction. The securities are sold to the highest bidders in auctions. Syndication is linked to the formation of consortium by lead manager. Consortium is made with the member of banks, who signs an agreement to take ownership of percentage of issue and work together in promoting the distribution of bond to investors (Simmons 24). The method of issuing securities like IPOs is suitable for the large issues and in this method cost of raising capital is high. The placement method as an indirect method is suitable for the small issues of capital. Another method of issuing securities in primary market is right issue. In this method, securities are issued to existing shareholders of the company. The investors decide the price of the issue, who use book building method (Khan and Jain 17).
Secondary market is known as stock market, which is a platform for trading existing securities. Shares and debentures are traded on regular basis at stock market with the focus on transparency and security. The trading is influenced by the knowledge of the past and future, ventures of the company. Prices of the securities are determined by the demand and supply of the market forces in secondary market (Khan and Jain 17).An Over the Counter market of securities is not listed on exchange and the participants are involved in trading over telephone or facsimile machines. At exchange market, buyers and sellers of securities or their agents meet to conduct trading physically or electronically (Omar, Abduh and Sukmana 14).
Performance Tracking
There are various ways an investor can use to track the performance of investment he or she made. For example, the investors can follow the changes in share prices or evaluate the net asset value (NAV). It will provide an insight whether investment is meeting the goals or not. As increase in investment’s NAV means increase in value. Yield is also calculated to measure the amount of income an investment offers as percentage of its NAV. Moreover, total returns can also be calculated to ascertain the performance of investments (Morris and Morris 122). According to Morris and Morris (122) investors can evaluate their portfolios’ performance by comparing with a benchmark to track the performance. In addition, review of statements on daily, weekly and monthly and annual basis are the effective ways to track performance of the investments. Furthermore, the reports of key financial institutions about the trading securities are key sources of keep tracking of the investments.
Work Cited
Khan, M. Y., and P. K. Jain. Financial Management. Text, Problems and cases Fourth Edition. India: Tata McGraw Hill, 2006.
Morris, Kenneth M., and Virginia B. Morris. The Wall Street journal guide to understanding money & investing. USA: Simon and Schuster, 2004.
Omar, Azmi, Muhamad Abduh, and Raditya Sukmana. Fundamentals of Islamic money and capital markets. USA: John Wiley & Sons, 2013.
Saunders, Anthony, and Marcia Millon Cornett. Financial institutions management. USA: McGraw-Hill Education, 2014.
Simmons, Michael. Securities operations: a guide to trade and position management. USA: John Wiley & Sons, 2003.
