Capital market is a financial system where companies list their company to raise money by issuing shares, bonds, debentures etc. Primary market is the market where the securities are created for the first time. Secondary market is the market where the market is dealing with the securities which are already issued. Both Primary and Secondary Markets are part of financial markets.
In this article, we will make you understand and explain you the difference between primary market and secondary market.
What is Primary Market?
Primary market provides feasibility to government, companies and more to raise money from public by issuing debt and equity securities in the market for the first time. The companies which requires more capital for expanding their business and others. Primary market helps a companies or an institution to issue shares and bonds to be offered to public through Initial Public Offering(IPO).
There are different types of issue securities.
- Public issue
- Rights issue
- Issue of IDR
- Offer for sale
- Bonus issue
Issuer is the company which brings the company to IPO and this process is called as public issue. The whole process of IPO includes underwriters and investment banks are responsible for sale of shares, bonds and debentures to the public investors.
Features of Primary Market
- Company raises money through primary market for long term capital requirements.
- Primary markets deal with the fresh issue of the securities.
- Securities are first listed on primary market before being listed on secondary market.
What is Secondary Market?
Secondary market is the market place where all the existing shares, debentures, bonds etc are traded between investors. Investors will be able to buy and sell Securities in secondary market. Secondary market can be an auction market or dealer market. In auction market, trading of securities are happening between the investors through an stock exchange. Dealer market is also called as over the counter(OTC), where the transactions are being placed without using stock exchange.
Initially, the issuer securities are listed on primary market to the general public for subscription and later are being listed on stock exchange for trading in the market. Stock exchanges are the secondary market where majority of the trading happens. There are two stock exchanges in India where the trading happens which are Bombay Stock Exchange and National Stock Exchange.
Features of Secondary Market?
- Secondary Market provides liquidity to investors, which enables investors to buy and sell stocks anytime.
- The transaction cost in the secondary market is low due to high transaction volumes.
- Secondary market attracts new investors for investments.
Difference Between Primary market and Secondary Market
Difference between primary and secondary market majorly indicate the nature of financing and organisations involved.
Below is the basic difference between primary and secondary market
- Securities issued by the issuer for the first time in the market is referred as primary market.
- When the company gets listed on stock exchange and then the stocks are traded in the secondary market.
- Primary market is also know as new issue market.
- Secondary market is know as after issue market.
Pricing of Security
- Prices of the securities vary in the secondary market depending on demand and supply of securities.
- Prices of securities in the primary market is fixed.
Financing to company
- Primary market provides financing to new and existing companies for companies expansion and diversification.
- Secondary market does not provide financing to companies as there are no transactions.
Exchange of securities
- In primary market investors can buy the shares directly from the company
- In secondary market buying and selling of shares are happened between investors.
- In Primary Market selling of securities is taken care by investment bankers.
- In secondary market, stock broker is used as an intermediary for trading.