IPO Investment

Primary vs Secondary Market

Know Deeply the Difference between Primary Market and Secondary Market!

The capital market is the financial system, which helps you raise shares, bonds, debentures, and other investments. This financial world is so vast and covers all options to invest in the securities tailoring to the needs of investors. The securities bought & sold originally in the market come in the primary market and already established securities when exchanged in the market, then that is known as the secondary market.

However, for better understanding, it’s important to know about their meaning and do deep analysis before getting the difference between the primary market and secondary market. Have a look at what primary and secondary market means!

What is the Primary Market?

This is the type of market that creates new securities and not trade in already created securities. In this, the issue of securities is done with several instruments, such as:

  • Public Issue
  • Right Issue
  • Issue of IDR
  • Offer for Sale
  • Bonus Issue

The company that offers or brings Initial Public Offer (IPO) is defined as the issuer, and this whole process of issuing is known as a public issue. This process subsumes underwriters, investment banks who are responsible for direct sale of shares, bonds, and debentures to the investors.

What is the Secondary Market?

The secondary market subsumes the major exchanges of the whole world. This market permits the investors to trade in the market in the already established securities. The perfect market instruments are debentures, shares, commercial papers, bonds, options, treasury bills, etc. In this Over the Counter Exchange of India is quite popular, and this is run with auctions in which trading is done via a market dealer or stock exchange.

Difference between Primary and Secondary Market!

There is a lot of difference between the primary and secondary markets. Both run on different notes. Go through all points of the primary market vs. secondary market:

  • Funding to Enterprises

One point to distinguish between the primary market and the secondary market is financing. The primary market helps in supplying funds to existing enterprises and budding enterprises for their diversification and expansion. However, the secondary market doesn’t finance the enterprises.

  • Times of Selling Securities

Under the primary market, the securities can be sold just once in the market. But under the secondary market, the securities can be sold multiple times.

  • Exchange of Securities

Another primary market and the secondary market difference is the exchange of securities in different parties. In the primary market, the exchange takes place between investors and the issuer company. However, buying & selling securities in the secondary market takes place among the investors itself.

  • Intermediaries

The intermediaries in the primary market and the secondary market are different. In the primary market, the underwriters take responsibility to sell the shares in the market and even take a guarantee of it. However, in the secondary market, brokers play the role of intermediaries and take responsibility for the sale & purchase of shares.

  • Prices

Another point of primary and secondary market difference is the price of securities. In the primary market, the prices are fixed. They don’t fluctuate as per market conditions. However, the secondary market securities’ prices fluctuate to a great extent with changing market conditions.

  • Organizational Difference

In the primary market, the organization is not rooted in any geographical location or a specific place. However, the secondary market has a physical existence.

Takeaway!

Primary and secondary markets are the platforms to deal in securities. But the circumstances, pricing policies, and other strategies differ to a large extent from one another. So, an investor needs to know what the primary market and secondary market mean to get a better insight of both