Primary vs Secondary Market: Difference and Comparison

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

  1. 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.
  2. 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.
  3. 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.

Primary vs 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 ComparisonPrimary MarketSecondary Market
MeaningThe 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.
ProceduresCreation of securities by various investors.Trading of various securities that are created by the investors in the primary market.
IntermediariesVarious investment banksVarious brokers
Also known as The New Issue MarketThe After Issue Market
SharesThe 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.

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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.

primary market

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.

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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.

secondary market

Main Differences Between Primary and Secondary Market

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. In the primary market, various investment banks are the intermediaries, on the other hand, in the secondary market, various brokers are the intermediaries.
References
  1. https://www.tandfonline.com/doi/abs/10.1080/1351847032000143422
  2. https://www.jstor.org/stable/116848

Last Updated : 23 July, 2023

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23 thoughts on “Primary vs Secondary Market: Difference and Comparison”

  1. The comprehensive comparison between the primary and secondary markets is very helpful in understanding the differences in procedures, intermediaries, and the pricing of shares. This article provides invaluable knowledge for prospective investors.

    Reply
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  5. The comprehensive comparison table provides a clear understanding of the differences between the primary and secondary markets, particularly in terms of procedures, intermediaries, and share pricing. This article is an invaluable resource for individuals considering investments.

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  6. The article does an excellent job at explaining the various options for investment available to people, such as physical gold, real estate, public provident funds, cryptocurrency, stocks, and the stock market. It also provides clear distinctions between the primary and secondary markets, and the procedures and intermediaries involved in each. The article does a great job at simplifying complex topics.

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  8. The article’s explanation of the primary and secondary markets and the ways corporations can raise funds from the primary market is very insightful. The sections on public issues, rights issues, and preferential allotment offer valuable information for prospective investors.

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  9. The article provides a comprehensive understanding of the primary market and its role in raising capital through bond issues and sale of new stocks. It also clearly explains the procedures involved in raising funds from the primary market through public issues, rights issues, and preferential allotment. The article is very informative and helpful for investors.

    Reply
    • The section on new shares being issued by initial public offering (IPO) and the role of the primary market in forming capital within the economy is very insightful. This article is a valuable resource for those interested in investment.

      Reply
  10. The article’s explanation of the primary market’s role in raising capital for companies and the detailed overview of how various corporations can raise funds from the primary market are very informative. The section on new securities being issued to investors after the company receives the money is particularly enlightening.

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