- There is a lot of information needed when planning to get involved in the stock market, but one of the most important things you'll need to understand is the difference between the primary market and secondary market.
- Primary markets are basically where stocks and bonds are created, whereas a secondary market is where stocks and bonds are traded by investors, also known as the stock market.
- Identifying the market, knowing the true deals, and selling what you know are all important factors when it comes to buying and selling stocks, bonds and other securities.
Secondary markets are increasingly becoming big businesses via cyberstores and an ever-expanding array of possibilities. Many aspiring entrepreneurs are seeking a sound way to further their profits from goods or services that did not find customers through the traditional means of primary markets.
You might have overlooked this growing sector, but profit margins can be large and reliable in the secondary market, aka the world of overstock reselling.
What is a secondary market?
A secondary market can be any market where instruments such as stocks, bonds, products, or services can be resold or used. In the car industry, the term aftermarket is commonly used to describe parts and accessories sold by secondary retailers. For many goods, a product cycle exists:
- The manufacturer sells the product to a wholesaler or retailer.
- If the product is not sold by the retailer, the retailer then has access inventory that, in many cases, is returned to the vendor or sold to a wholesaler or liquidator
- The wholesaler or liquidator then redistributes the goods to a variety of discount stores, different wholesale companies and online vendors. These vendors can then sell the products to customers at a discounted rate.
In essence, it's a second chance for the product to find a customer and for secondary market entrepreneurs to gain a profit from the resell since they only paid pennies on the dollar for a salvaged high-quality product, many times in bulk.
Differences between secondary and primary market
When you are attempting to understand how stocks, bonds and other securities trade, it is essential that you know how primary and secondary markets work. Without understanding how primary and secondary markets work, the capital markets would be extremely difficult to navigate as well as be significantly less profitable.
- Primary market: When a company chooses to issue its shares for the first time to investors, it is known as a primary market. The company typically makes an initial public offer (IPO) when it initially starts to sell stocks to the public. The primary market is where securities, such as bonds and stocks, are created for the first time for the sole purpose of issuance. There are usually two types of public issuance, initial public offering and follow-on public offer. While an IPO is where an unlisted company issues shares to the public for the first time, follow-on public offer (FPO) happens when an already listed public company issues further shares to an investing public.
- Secondary market: Should investors go on to trade their obtained securities among themselves, it is known as a secondary market. The secondary market is commonly known as the stock market, which includes the New York Stock Exchange, Nasdaq and the other major stock exchanges around the world. The primary characteristic of the secondary market is that the investors trade among themselves as opposed to a primary market where the stocks are originally made available by the company in which the stock is associated with. Secondary markets are broken down into two categories: the auction market and dealer market. In the auction market, individuals and institutions that want to trade stocks and bonds congregate in one area and announce the price in which they are willing to buy and sell securities. On the other hand, a dealer market doesn’t require those buying and selling to gather in a central location, instead interested participates buy and sell through electronic networks.
3 Tips for identifying and utilizing your market
1. Where's the deal?
You might have merchandise within your venture that is ready to redistribute in the secondary market; items that are falling short in sales or are not "cutting edge" anymore. However, you might also check out other wholesale possibilities such as electronics, appliances, clothes, sporting goods or craft items.
Even if merchandise didn't fly off the shelf, certain customers still seek those deals on necessary or vintage items. Think about those older computer or appliance parts that owners still need. Anything can be a viable market as long as you can buy low.
The margin of profit is typically high compared to primary market products. In most cases, the initial retailer will already account for a loss on surplus inventory and expect a low recovery cost. This provides you the opportunity to buy name brand items at affordable prices. You can pass this savings on to your customer and still achieve a serious profit.
2. Sell what you know
In most cases, this will be your stepping stone into a secondary market. You have a product or service that needs a different outlet to succeed. Even when branching out, try to initially choose products and markets that you know.
This familiarity helps in finding reliable markets, leads on affordable merchandise and an initial customer base. In addition, you know the product, which allows you to determine a reasonable purchase price and a decent, but profitable, selling price. Your prior knowledge of the product also helps if your purchased merchandise has any defects or needed repairs.
3. Create an intelligent and practical plan
As with any new venture, your success is directly correlated to a sound and detailed plan. Finding great deals and suitable outlets for secondary market products takes time, focus and research.
A critical step to planning is creating or finding viable outlets for your purchased products. How or to whom are you going to sell them? Internet marketplaces are a reasonably affordable platform to redistribute your merchandise. Secondary market outlets like Burlington Coat Factory, TJ Maxx, and Big Lots have found success in establishing virtual and concrete stores
After achieving initial success in selling a product that you know, you should begin to diversify your inventory. Just as a solid investment portfolio contains a wide array of options and possible risks, a sound secondary market entrepreneur should work to build a reliable and needed inventory that contains variety.
Secondary markets provide a great opportunity for success. By obtaining low-cost, closeout merchandise from wholesalers or retail stores, you have the potential for large profits. By creating a plan that includes market analysis and steps for diversification, you can continue to grow in a rewarding arena.