Difference Between Primary & Secondary Market

As soon as you start your investing journey in the stock market or share market.

You often come across terms that you are not familiar with one of those terms is the primary and secondary market.

There is a lot of difference between the two and it’s important to understand them before starting to invest.

Through this article, I have touched upon the 14 most important differences.

A Sneak Peak Inside the Article:
What is Primary Market?
What is a Secondary Market
Difference Between Primary & Secondary Market

We hear loads of 2 common words regarding the stock market. 

Primary Market and Secondary Market.  

By the word market, we tend to perceive that it’s an area wherever consumers and sellers artifact in exchange for money. 

This word covers every kind of market. however available market terms, the word market stands for the capital market as a whole.  

At intervals in this capital market, there are 2 broad kinds of markets. 

The first and Secondary Markets. whereas there are uncountable variations between Primary and Secondary markets, there are similarities too. Let’s explore this in detail.

What’s Primary Market?

The first Market is the market where the securities are created. Associate in Nursing initial public offering (IPO) is Associate in Nursing example of a primary market. 

In Primary Market, corporations float shares and bonds for the primary time and investors invest in these securities for the first time.  

Within the primary market, investors have a chance to speculate in shares from the banks that act as underwriters for the issue.

Through the primary market, investors can invest directly in an exceedingly company that problems shares and raises funds for his or their desired goals. 

The equity capital of an organization consists of shares issued through supplying|IPO|initial offering|commerce|commercialism|mercantilism} and different suggestions within the Primary market.

Suppose organization problems 100,000 shares through IPO priced at INR100 per share. 

Following the IPO, the equity capital of the corporate will increase by INR1 large integer that was raised through the first market offer.

Within the Primary market, investors get shares directly from the issuer. 

This can be the essential distinction between the Primary vs Secondary market. individuals trade shares in the Secondary market.

Learn about Unlisted Shares.

Primary offering varieties

Rights offer

Besides IPOs, corporations raise capital through other means as well like offers or the rights issue. The rights issue is the issue of shares to existing stockholders by the company. 

Suppose an organization declares that it’ll issue at 1:2 proportion. 

It implies that it will issue fifty shares to an Associate in a Nursing existing shareholder who already owns a hundred shares of the company.

Discriminatory issue

Another methodology is the issuance of discriminatory shares. discriminatory shares are those shares that the corporate problems on to the popular investors. 

These preferred investors sometimes are the fund homes, banks, hedge funds and so forth. 

Discriminatory share issues don’t seem to be hospitable to the common public.

Personal placement

Corporations could raise capital through personal placements conjointly. 

The company gives personal placements to fund houses and banks by supplying shares at reciprocally united share prices.

Bond issues

the govt also issues bonds at current interest rates at the time of bond issuance. These bonds will be of long-term or short maturity types. 

Bonds are issued at Primary markets solely. 

The institution can directly issue these to investors.

What’s the Secondary Market?

The Secondary market is the market wherever shares are listed and alter hands at the market price. it’s unremarkably spoken because of the stock market.

In India, we’ve got exchanges where shares and different securities are traded. a number of these are NSE, animal disease, MCX, NCDEX, and so forth of these exchanges don’t operate in similar ways because their product varies. Company shares move in NSE and BSE only.

Aside from shares, investors trade bonds, mutual funds, ETFs (Exchange listed Funds), etc in the secondary market.

These trades within the secondary market enable investors to accumulate additional shares at this value (CMP) or sell shares to different investors. These changes of hands of shares allow the market capitalization of the corporate to extend or decrease.

The secondary marketplace may be a public sale enterprise in which the enterprise of bonds functioned thru a supplier marketplace or the inventory exchange, typically referred to as over the counter.

Constitutionally, the first and Secondary markets vary a lot. not unlike the first market, corporations cannot raise capital through the Secondary market.

Check out – Guide on Financial Reporting

Difference  between Primary and Secondary Market

The most variations between the first and Secondary markets are shortlisted below.

  1. Investors purchase shares directly from the corporate in the Primary market.
    However, in the Secondary market, shares are listed among investors and traders. 
  2. By design, the quantity of shares bought by investors (and sold by the company) in the primary market is mounted and is usually terribly tiny compared to the volumes garnered within the secondary market.
  3. corporations raise funds through the Primary market and obtain support but future commerce of shares in the secondary market doesn’t supply any finance to the company. However, high stock costs in the secondary market could facilitate companies in boosting valuations and in raising further capital in the future.
  4. In the Primary market, the underwriters act as intermediaries however brokers are the intermediaries in the Secondary market.
  5. The worth varies of shares remains mounted or unbroken in an exceedingly tight home in the first market but share costs fluctuate tons within the Secondary market.
  6. The primary market creates security. Securities which is created solely gets to list.
  7. The primary market is additionally known as New Issue Market. The secondary market is aftermarket in nature.
  8. there’s a lot of regulative oversight in the primary market, particularly involving the processes. laws are largely operational in nature within the secondary market.
  9. In the primary market, investors deal directly with the institution i.e. an organization or a government. Investors trade securities among themselves in the secondary market.
  10. Issuers get direct financial edges from the first market in the kind of finance.
  11. Costs in the primary market are either mounted or unbroken in an exceedingly slender range. 
  12. capitalist participation within the primary market is limited. The secondary market is wider in terms of investor participation.
  13. The primary market has underwriters acting as intermediaries. Brokers act as intermediaries in the secondary market.
  14. commerce volumes in the primary market are quite less. 

Primary vs secondary market – Wrapping up

Mutually will see, it’s not very a Primary vs Secondary market dialogue, and each constituent complement every other. while not a primary market, there cannot be a secondary market. 

Similarly, the primary market cannot survive while not a lively secondary market. The stock exchanges are a part of the Secondary market wherever share commerce takes place regularly. 

Once shares are noninheritable in the Primary market through IPO or Rights offer.

A capitalist sells the shares to others in the Secondary market. 

Trying back at the article, we are able to see that these 2 markets are reticulate in spite of their differences. 

Hope you have understood the difference between primary and secondary markets with this thorough guide.

If you still have any doubts please comment down below and I will solve them very soon.


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