Today there exist several options where one can invest. People who invest are known as investors and their investments depend on their terms and conditions. There are several options for investment that are available.
These options include physical gold, real estate, public provident funds, cryptocurrency, stocks etc. The stock market helps in providing capital. Various companies can use this capital to fund and also to grow their company.
This market is also profitable for investors. Various investors can sell their stocks for a profit, and they can also by buying stocks. They can gain profit when the price of the stock is increased than its purchase price.
However, when it comes to investing money in the stock market, there are two types of markets, namely 1. Primary market, and 2. Secondary market.
Key Takeaways
- The primary market is where securities are first issued and sold to investors, while the secondary market is where securities are bought and sold among investors.
- In the primary market, the issuer receives the proceeds from the sale of securities, while in the secondary market, the seller receives the proceeds from the sale.
- The issuer sets prices in the primary market, while prices in the secondary market are determined by supply and demand.
Primary vs Secondary Market
The difference between the primary and the secondary market is that the market where various investors create the securities is known as the primary market, on the other hand, the market where various investors trade the securities created in the primary market is known as the secondary market.
The market where the securities are created by various investors is known as the primary market. The primary market is a medium through which various companies can raise capital through bond issues.
Along with that, through the sale of new stocks, various corporations can raise their capital as well. Investment banks or finance syndicates of securities dealers are the medium through which this can be done.
The market where the securities created in the primary market are traded by various investors is known as the secondary market. The secondary market is considered a stock market by the majority of the people.
The national exchanges are the stock markets or the secondary markets. These national exchanges include New York Stock Exchange (NYSE), NASDAQ etc. The most common trade that takes place in the secondary market is of stocks.
Comparison Table
| Parameters Of Comparison | Primary Market | Secondary Market |
|---|---|---|
| Meaning | The market where the securities are created by various investors is known as the primary market. | The market where the securities created in the primary market are traded by various investors is known as the secondary market. |
| Procedures | Creation of securities by various investors. | Trading of various securities that are created by the investors in the primary market. |
| Intermediaries | Various investment banks | Various brokers |
| Also known as | The New Issue Market | The After Issue Market |
| Shares | The prices of the shares are fixed and are at par value. | The prices of shares fluctuate and are dependent on their supply and demand. |
What is Primary Market?
The market where the securities are created by various investors is known as the primary market. The creation of securities by various investors is done in the primary market.
The primary market is a medium through which various companies can raise capital through bond issues. Along with that, through the sale of new stocks, various corporations can raise their capital as well.
Investment banks or finance syndicates of securities dealers are the medium through which this can be done. The major role of the primary market is that it is a platform where the issuance of stocks for the first time is done.
The new shares are issued by initial public offering (IPO). The primary market plays an important role in forming capital within the economy.
There are three ways through which various corporations can raise funds from the primary market. These three ways include public issues, rights issues, and preferential allotment. Other than that, various companies also raise capital and use the primary market profoundly.
New securities are issued to the investors after the company receives the money, as the issuance of the securities is directly done by the companies to the investors.
During rights issues or rights offerings, various companies are permitted to raise additional equity. Private placement permits various companies to sell directly to investors without making the funds publicly available.
The shares are offered to selected investors at a price that is unavailable to the public in the preferential allotment.
What is Secondary Market?
The market where the securities created in the primary market are traded by various investors is known as the secondary market. The secondary market is considered a stock market by the majority of the people.
The national exchanges are the stock markets or the secondary markets. These national exchanges include New York Stock Exchange (NYSE), NASDAQ etc.
The most common trading that is done in the secondary market is stock trading. Other than that, various equities are bought, and that is one of the reasons why it is referred to as the stock market. All the major exchanges from all parts of the world are also referred to as secondary markets.
The secondary market is also known as the After Issue Market. It is further broken down into various markets.
The market where all the institutions and individuals that are interested in trading securities gather together and announce the price at which they want to buy and sell is known as the auction market. These are also called the bid and ask prices.
The market in which the investors are not gathered in a single place, and on the other hand, they are connected electronically through networks is known as the dealer market.
Sometimes the dealer market is also referred to as the OTC market or the over-the-counter market. A prominent example of the dealer market is the NASDAQ.
Main Differences Between Primary and Secondary Market
- In the primary market, the sale of securities is directly done by various companies to the various investors, on the other hand, in the secondary market, the sale of securities is done between investors and traders. The securities are sold and bought by various traders and investors.
- The primary market is also known as the New Issue Market, on the other hand, the secondary market is also known as the stock market or the After Issue Market.
- The market where various investors create the securities is known as the primary market, on the other hand, the market where various investors trade the securities created in the primary market is known as the secondary market.
- The prices of the shares are fixed and at the par value in the primary market, on the other hand, the prices of the shares are fluctuating and are dependent on their supply and demand in the secondary market.
- In the primary market, various investment banks are the intermediaries, on the other hand, in the secondary market, various brokers are the intermediaries.
Last Updated : 23 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
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