Economics

Difference Between Primary Market and Secondary Market

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Main Difference

The main difference between Primary Market and Secondary Market is that Primary Market is such type of market where securities are proposing openly for the very first time, whereas Secondary Market is a type of market where financiers are purchasing shares and selling to others.

Primary Market vs. Secondary Market

The primary market is a type of market place where securities are creating the very first time. In contrast, a secondary market is a market place where these securities are transitioning by depositors. In the primary market, stocks are openly presenting from a firm to financiers, whereas in the secondary market, stockholders are purchasing stocks and trading stocks to one another. The primary market sells bonds to the communal with an initial public offering (IPO), while the secondary market is ultimately a stock market.

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In the primary market, the rates of the freshly launched reserves are generally stable. In contrast, in the secondary market, the values of securities tend to vary as an effect of demand and supply. In the primary market, stakeholders can straightly buy the shares from an individual, whereas in the secondary market, there is no chance to purchase the shares directly until they trade with depositors.

In primary markets, security are selling to the nominees only one time, whereas, in the secondary market, the buyers can buy and sell the stocks as many times as they need. Another name of the primary market is the new issue market (NIM), while another name of the secondary market is to share market or aftermarket. The company gets the profit in the primary market, while investors get the benefit in the secondary market. There is no association set up for the primary market, whereas there is a physical setup and administrative attendance for the secondary market. Underwriters are the mediators in the primary market, while here, the mediators are the brokers in the secondary market.

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Comparison Chart

Primary MarketSecondary Market
It is a plate form that is offering shares the first timeIt is a place where shares are trading
Involve
From a company to investorsBuying and selling shares to one another
Purchasing Type
DirectIndirect
Another Name
New issue market (NIM)Share market, Aftermarket
Intermediary
UnderwriterBroker
Price
FixedRelays on demand and supply
Benefit To
CompanyInvestors
Securities Sales
Only onceMultiple times

What is the Primary Market?

A primary market is a place where securities are generating the first time. These occupations offer a chance for new and running investors to buy securities from the bank, and this is the leading chance that investors have to contribute investment to a corporation through the consumption of its stock. A firm’s impartiality investment is covering of the reserves producing by the sale of stock on the primary market

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The market offers a chance for financiers to purchase securities directly from the distributing corporation. In the primary market, financiers help corporations to raise capital. Therefore, the entire investment that the company has on the balance sheet comprises the effect from the investors in the primary market. A company can dispute the exact shares to the investors at a low price. This way, the company also recompenses the depositor for donating to the company at an early stage. It plays a motivational part in the deployment of investments in the economy.

An initial public offering (IPO) is an illustration of a primary market. Even though an investment bank may fix the securities’ original price and obtain a charge for simplifying sales, most of the subsidy goes to the issuing company. Typically in primary market contracts, three performers are full filling their jobs, first, is the company which is issuing the new securities, the second performer is the investor who procurement securities, and third and final is a bank or supporting firms that manages and simplifies the offers. The bank or financing firm decides the true worth and sale price of the new security.

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What is the Secondary Market?

A secondary market is a place where investors are purchasing shares and selling to others. The secondary market is commonly calling as the stock market. The essential distinction of the secondary market is that stockholders are interchanging among themselves. Investors are trading already issued securities without the association of companies. All the exchanges or stocks are considering under the secondary market.

Secondary markets permit marketing depositors to participate in the securities and produce a profit. Connections that occur in the secondary market are identifying merely secondary because they are one step eliminating from the agreement that was initially creating the securities in demand. The secondary market pushes the price of protection in the way of their actual value. In the secondary market, the benefits of shares have a propensity; they vary according to the effect of demand and supply.

In the secondary market, there is no choice to purchase the shares directly until they trade with investors; there are some shareholders who are buying shares and also trading into stocks from one to another. Agents are in between in this type of trading. In the secondary market, investors are free to buy and sell securities as multiple times, and investors also get the profit in the secondary market. There is also an organized setup is here and an executive presence as well for the secondary market. The secondary market can either call an auction market where trading of securities is running through the stock exchange.

Key Differences

  1. The primary market is offering securities first time, whereas the secondary market is a place where investors are buying and selling securities to others.
  2. The primary market is fixing, and on the other hand, the secondary market has variations.
  3. The primary market is directly purchasing. Conversely secondary market is indirectly buying.
  4. The primary market has fixed prices. On the flip side, the secondary market depends on supply and demand.
  5. Companies get benefit from the primary market; on the other hand, investors get an interest in the secondary market.
  6. The primary market provides finance to the new and old companies for their growth and variation, whereas the secondary market is not involving in any transaction.
  7. Securities are selling only one time in the primary market; conversely, in the secondary market, it sells unlimited times.

Conclusion

Both markets play an essential role in assembling the investments of individuals for the development of the economy. Depositors can acquire proceeds from both markets. Though both the markets come with their in-built possibilities.

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