When delving into the world of investment, you're likely familiar with the term capital market. The capital market is a place where governments and companies can raise funds from investors by offering securities to the public. The capital market itself can be divided into two categories: the primary market and the secondary market.
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| Understanding the Secondary Market, a Type of Capital Market for Investors to Trade Securities with One Another |
The primary market can be understood as the type of capital market where securities or securities are first traded to the public before being listed on the Stock Exchange. But what about securities that have passed the offering phase on the primary market? The answer is that these securities can be traded on the secondary market directly between investors.
Of course, securities transactions conducted on the secondary market require a specific process that is important for investors to understand. To further understand what the secondary market is, the transaction process, and examples, see the following guide.
Understanding the Secondary Market
As explained briefly earlier, the secondary market is a type of capital market that is a continuation of the primary market. In the secondary market, securities already listed on the Stock Exchange are traded between investors. In other words, through the secondary market, investors can buy and sell securities already listed on the exchange after an Initial Public Offering (IPO) has taken place.
In the secondary market, securities are bought and sold directly by investors. Of course, depending on the level of supply and demand, stock or security prices on the secondary market are constantly changing and fluctuating. If demand is high and supply is low, stock prices will inevitably increase, and vice versa.
Therefore, to achieve promising profits or returns, you as an investor must be able to identify stocks with the potential to increase in value in the future. This way, you can buy shares at a low price and resell them at a high price to achieve capital gains.
To do this successfully, you need to understand the several factors that influence supply and demand in the secondary market. From specific factors to macroeconomic factors, all factors can influence stock price fluctuations in the secondary market.
For example, a specific factor influencing supply and demand is company or industry performance. Examples of macroeconomic factors include interest rates, currency exchange rates, inflation rates, political and social conditions, and others.
Furthermore, understand that every transaction made by investors in the secondary market will incur transaction fees, such as PPE commissions at securities companies. These commissions are subject to VAT of 10 percent of the transaction amount and are charged to the investor. However, for stock sales orders, the tax levied on investors is 0.1 percent.
Transaction Flow in the Secondary Market
Referring to the explanation from the Financial Services Authority (OJK), the following is the procedure or transaction flow in the secondary market.
Transactions in the secondary market take place on the Stock Exchange via an intermediary, a Securities Company, as an exchange member.
Investors who wish to purchase shares on the secondary market must place a purchase order through the Securities Company. This purchase order specifies the shares to be purchased, the purchase amount, in lots, and the purchase price.
If investors wish to sell, they must place a sell order through the Securities Company. This sell order specifies the shares to be sold, the sale amount, in lots, and the sale price.
Every order placed by an investor is displayed on the Stock Exchange's trading system and can be viewed through the Securities Company's trading system.
Examples of Securities Transactions in the Secondary Market
When a buy order placed by an investor matches a sell order in the stock exchange transaction system, the transaction has occurred and gone through a process known as matching. The asset transfer and payment will then be facilitated by KPEI (Indonesian Securities Clearing and Guarantee Corporation) and KSEI (Indonesian Central Securities Depository).
For the purchase process, investors are required to deposit funds in the nominal amount of the purchase, no later than two business days after the transaction. For the sale process, investors will receive payment no later than two business days after the transaction. However, it's important to understand that all capital market activity is suspended during holidays, so transactions may take longer to complete.
Understand How the Secondary Market Works to Stay Confident When Entering the World of Investment
For every investor, understanding how the secondary market works is essential. This will allow you, as an investor, to invest more smoothly in accordance with your plans and goals. Hopefully, the explanation above helps you understand the secondary market and the transaction flow within it when investing.
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