A flurry of IPOs has made way in Financial Year 2021. Mr. X is confused. He came across terminologies like primary market and secondary market. “Why do we need two kinds of markets? What really differs between the two?” he wonders.
Mr. X should not worry. The answers are quite simple. A primary market is where fresh shares are issued, be it from a private company or an already listed company. A secondary market is a place where listed shares are traded freely.
What is Primary Market?
A primary market is a place where fresh/new shares are issued to the public by either a Private or Public company. It is also called a New Issue Market.
Private Company: These companies are issuing fresh/new shares to the public for the first time. This process is called an IPO.
Public Company: These companies have already issued their shares to the public before and are again issuing fresh/new shares to the public via follow-on public offer (FPO), private placement, bonus, or rights issue. Learn the difference between IPO & FPO here.
Learn everything about the primary market below:
What is Secondary Market?
A secondary market is a place where securities like stocks, bonds, mutual funds, etc are traded on a day-to-day basis. These products are first issued in the primary market via IPO then moved to the secondary market where it is traded between the public. The secondary market is also known as the After Issue Market.
Read more about the secondary market in the article below:
Primary Market vs Secondary Market
Primary market and secondary market are too different from each other. Let’s dive into the differences:
As a retail investor, you can only buy shares in the primary market. Promoters, institutional investors, and major shareholders are the ones selling their shares.
On the other hand, anyone and everyone can buy or sell shares in the secondary market.
Companies resort to the primary market when they need fresh capital.
A secondary market is a place where you can make unlimited money. Even though you bid for IPOs in the primary market, you eventually make money in the secondary market.
Fixed versus Dynamic Pricing
All new offerings in the primary market come with a fixed issue price or a price band. So far as the secondary market is concerned, the share price of stocks varies every single second depending on the number of buyers and sellers.
Types of Products
IPOs, FPOs, preferential allotment, bonus, and rights shares are some of the products launched in the primary market.
Products like stocks, bonds, commodities, and debentures are traded in the secondary market.
In the Primary Market, an investor has to rely on the issuing company itself to gather information around it. The issuing companies file a detailed prospectus with the market regulator SEBI in which they share everything about the company.
On the other hand, various fundamentals such as PE ratio and debt-to-equity ratio and technical tools such as moving averages are available for investors to pick good stocks in the secondary market. Read more about it here: Fundamental versus Technical Analysis
Underwriters are the intermediaries in the primary market, while brokers play that role in the secondary market.
- Primary market is a place where new shares are issued to the public by a private or public company.
- Secondary market is a place where securities like stocks ,bonds , mutual funds etc. are traded.
- Difference between primary and secondary market : A retail investor can only buy shares in primary investor where as in a secondary market you can buy as well as sell shares.
- Primary market is required while building fresh capital where as secondary market is a place where one can make unlimited money.