Securities market can be defined as the market, whereby financial instruments, obligations, and claims are available for sale. It is classified into two interdependent segments, i.e. Primary Market and Secondary Market. Market. The former is a market where securities are offered for the first time for receiving public subscription while the latter is a place where pre-issued securities are dealt between the investors.
While primary market offers avenues for selling new securities to the investors, the secondary market is the market dealing in securities that are already issued by the company. Before investing your hard-earned money in financial assets like shares, debenture, commodities etc, one should know the difference between primary market and secondary market, to have better utilization of savings.
Content: Primary Market Vs Secondary Market
|Basis for Comparison||Primary Market||Secondary Market|
|Meaning||The market place for new shares is called primary market.||The place where formerly issued securities are traded is known as Secondary Market.|
|Another name||New Issue Market (NIM)||After Market|
|Type of Purchasing||Direct||Indirect|
|Financing||It supplies funds to budding enterprises and also to existing companies for expansion and diversification.||It does not provide funding to companies.|
|How many times a security can be sold?||Only once||Multiple times|
|Buying and Selling between||Company and Investors||Investors|
|Who will gain the amount on the sale of shares?||Company||Investors|
|Price||Fixed price||Fluctuates, depends on the demand and supply force|
|Organizational difference||Not rooted to any specific spot or geographical location.||It has physical existence.|
Definition of Primary Market
A primary market is a place where companies bring a new issue of shares for being subscribed by the general public for raising funds to fulfil their long-term capital requirement like expanding the existing business or purchasing new entity. It plays a catalytic role in the mobilisation of savings in the economy.
Various types of an issue made by the corporation are a Public issue, Offer for Sale, Right Issue, Bonus Issue, Issue of IDR, etc.
The company who brings the IPO is known as the issuer, and the process is regarded as a public issue. The process includes many merchant bankers (investment banks) and underwriters through which the shares, debentures, and bonds can directly be sold to the investors. These investment banks and underwriters need to be registered with SEBI (Securities Exchange Board of India).
The public issue is of two types, they are:
- Initial Public Offer (IPO): Public issue made by an unlisted company for the very first time, which after making issue lists its shares on the securities exchange is known as the Initial Public Offer.
- Further Public Offer (FPO): Public issue made by a listed company, for one more time is known as a follow-on offer.
Definition of Secondary Market
The secondary market is a type of capital market where existing shares, debentures, bonds, options, commercial papers, treasury bills, etc. of the corporates are traded amongst investors. The secondary market can either be an auction market where trading of securities is done through the stock exchange or a dealer market, popularly known as Over The Counter where trading is done without using the platform of the stock exchange.
The securities are firstly offered in the primary market to the general public for a subscription where the company receives the money from the investors and the investors get the securities; thereafter they are listed on the stock exchange for the purpose of trading. These stock exchanges are the secondary market where maximum trading of the company is done. The top two stock exchanges of India are Bombay Stock Exchange and National Stock Exchange.
An investor can trade in securities through the stock exchange with the help of brokers who provide assistance to their client for purchasing and selling. The brokers are the registered members of the recognised stock exchange in which the investor is trading his / her securities. The brokers are allowed to trade on the advanced trading system. The SEBI issues a certificate of registration to the member brokers through which an investor can identify whether a broker is registered or not.
Key Differences Between Primary Market and Secondary Market
The points given below are noteworthy, as far as the difference between primary market and secondary market is concerned:
- The securities are formerly issued in a market known as Primary Market, which is then listed on a recognised stock exchange for trading, which is known as a secondary market.
- The prices in the primary market are fixed while the prices vary in the secondary market depending upon the demand and supply of the securities traded.
- Primary market provides financing to new companies and also to old companies for their expansion and diversification. On the contrary, secondary market does not provide financing to companies, as they are not involved in the transaction.
- At the primary market, the investor can purchase shares directly from the company. Unlike Secondary Market, when investors buy and sell the stocks and bonds among themselves.
- Investment bankers do the selling of securities in case of Primary Market. Conversely, brokers act as intermediaries while trading is done in the secondary market.
- In the primary market, security can be sold only once, whereas it can be done an infinite number of times in case of a secondary market.
- The amount received from the securities are income of the company, but same is the income of investors when it is the case of a secondary market.
- The primary market is rooted in a particular place and has no geographical presence, as it has no organisational setup. Conversely, Secondary market is present physically, as stock exchnage, which is situated in a particular geographical area.
The two financial markets play a major role in the mobilisation of money in the country’s economy. Primary Market encourages direct interaction between the company and the investor while the secondary market is opposite where brokers help out the investors to buy and sell the stocks among other investors. In the primary market bulk purchasing of securities is not done while secondary market promotes bulk buying.