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Difference Between Primary Market and Secondary Market – Primary Vs Secondary Market | Financial Markets

Difference Between Primary Market and Secondary Market

Primary Market is the marketplace where companies issue securities for the first time. On the other hand, Secondary Market is the marketplace where the second-hand securities are traded so that the public can buy and sell the securities. With the help of the issuance of these securities, the companies raise capital.  Difference between the primary market and the secondary market is explained below:

Any company that wants to issue the securities in the primary market must follow the Company Act where the process of issuing the prospectus has been specified. This is the legal document that contains the various information related to finance, corporate, and business helping the investors in making the investment decisions that are profitable. In many cases, the responsibility to manage the issuance of securities is entrusted to the securities dealers and the investment banks.

Securities that are traded in the primary market for the first time are referred to as Initial Public Offering (IPO) which raises capital for their firm.  Acting trading in the secondary market does enhance the value of financial assets because capital gain comes from the rise in the market price. The price of the securities are finalized between the securities buyers and sellers through an organized exchange market.

Primary Vs Secondary Market

S.No.Primary Market Secondary Market
1. Primary Market is also called New Issue Market (NIM).Secondary Market is also called After Issue Market.
2.Primary Market is the marketplace where the company issue securities for the first time also called Initial Public Offering IPO.Secondary Market is the marketplace where the investors trade their second-hand securities or we can say different investors buy and sell their securities.
3.In the primary market, the securities are directly issued by the companies directly to the investors.In the secondary market, the securities are sold by or transferred from one investor(Speculator) to another which allows the investors to buy securities.
4.The prices in the primary market are fixed and issued at par value.The prices in the secondary market vary depending on the demand and supply of the securities traded.
5.The intermediaries in the primary market are investment bankers or Underwriters who are involved in selling the securities.The intermediaries in the secondary market are brokers who are involved in trading of the securities in the secondary market.
6.Primary Market provides financing to the new companies for their expansion and diversification.Since the secondary market is not involved in the transaction they do not provide financing to the companies.
7. In the primary market, the amount received from the securities is the income of the companies.But, in the secondary market, the amount received from the securities(stocks and bonds) is the income of the investors.
8. In the case of the primary market, there is no specific physical existence or location.But in the case of the secondary market, there is some physical existence.
9. The primary market does not help to maintain liquidity.Secondary Market helps to maintain liquidity.

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