Difference Between Primary and Secondary Market

Difference Between Primary and Secondary Market

The main difference is that the primary market introduces new securities to the public, while the secondary market allows for their subsequent trading. In the primary market, securities are issued and sold to investors for the first time. Following this initial sale, these securities are traded between investors on the secondary market. 


What is Primary Market?

The primary market is like a shop where governments or companies sell brand-new shares or bonds to raise funds. When investors buy these, they deal directly with the ones issuing the securities, putting their money right into these issuers’ operations or growth. This market sees the release of these new securities through IPOs or FPOs. Investment banks have a big job here, as they’re the ones who back up the deals. Plus, they help set the price of the securities, together with those issuing them.

Learn everything about the primary market here, What is Primary Market? Best Way to Double Money Quickly??

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What is Secondary Market?

A secondary market is a place where investors sell and buy securities, such as shares or bonds, among themselves. It’s like a hub where assets change hands, providing liquidity and enabling price discovery. The great thing is that the company that originally issued the securities isn’t directly involved. 

The prices of these securities fluctuate based on supply and demand, similar to how prices work in a regular marketplace. These markets include stock exchanges like the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

Read more about the secondary market by clicking this link, What is Secondary Market? – Financial Instrument Market Place

Primary Market And Secondary Market Difference

The main difference between the primary market and the secondary market is that on the primary market, investors buy and sell new securities for the first time. On the secondary market, investors buy and sell securities that have already been issued. 

ParameterPrimary MarketSecondary Market
Nature of the marketWhen newly issued securities are offered for the first time to the public through methods like IPOs (Initial Public Offerings) or private placements.Where previously issued securities are bought and sold among investors.
Issuer’s InvolvementThe issuer, whether a company or a government, sells securities to investors to raise capital for business expansion or government projects.There is no direct connection to the issuer. Securities are traded between investors.
Capital GenerationTransactions provide the issuer with capital as investors purchase newly issued securities.Transactions don’t produce capital directly for the issuer, as investors buy and sell existing securities.
Price DeterminationThe issuer sets the price of the securities using techniques like fixed pricing or book-building procedures.The market’s supply and demand forces determine how much securities cost. 
RegulationPrimary market transactions are subject to regulatory requirements and scrutiny to protect investors’ interests.Secondary market transactions are regulated but typically have less stringent requirements than the primary market.
VolumeTypically has lower trading volume compared to the secondary market due to the limited availability of newly issued securities.Typically has higher trading volume as investors can buy and sell existing securities freely.
PurposeThe primary market helps companies or governments raise funds to finance their activities and projects.The secondary market provides liquidity to investors by allowing them to buy or sell securities, providing an exit or entry point to their investments.

Difference Between Primary Market And Secondary Market – Quick Summary

  • The primary market is where companies conduct initial public offerings and the public subscribes for their shares. whereas the secondary market is where the shares are traded between investors.
  • The primary market involves the issuance of new securities directly by the company to investors, with funds raised going to the company for business purposes.
  • The secondary market involves the trading of existing securities between investors without the issuing company’s direct involvement.
  • In the primary market, the issuer and underwriters set the price of securities, while in the secondary market, prices are determined by supply and demand.
  • The primary market directly contributes to a company’s capital, while the secondary market offers a platform for existing investors to exit or enter into new investments.
  • Start investing in both markets with the user-friendly and low brokerage platform of Aliceblue.

Distinguish Between Primary And Secondary Market – FAQs

1. What is the difference between the primary market and secondary market?

A: On the primary market, investors buy and sell new securities for the first time. On the secondary market, investors buy and sell securities that have already been sold.

2. What are the functions of the primary market and secondary market?

A: The primary market makes it easier for companies to sell new securities and raise money. A secondary market is a place where existing securities can be bought and sold. It provides liquidity and lets prices be found.

3. What is the primary and secondary market in India?

A: In India, the primary market is where new securities are issued and sold. This is done through IPOs, FPOs, and rights issues. On the secondary market, securities that have already been listed on stock exchanges are bought and sold. 

4. Is an IPO an example of the secondary market?

A: No, an IPO is an example of the primary market because it is the first time shares are given to the public and sold to them.

5. Who buys in the primary market?

A: In the primary market, investors buy newly issued securities directly from the company that made them. This includes institutional investors, retail investors, and people with a lot of money.

6. What are the four primary markets?

A: The four primary markets include the following

  • Initial Public Offering (IPO) market
  • Follow-on Public Offering (FPO) market
  • Rights Issue market, and 
  • Private Placement market.

7. What are the four secondary markets?

A: The four secondary markets are the Stock Market (Equity Market), Bond Market, Derivatives Market, and Foreign Exchange Market.

We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know:

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