Primary Market Vs Secondary Market

  • Feb 23, 2019 AEDT
  • Team Kalkine
Primary Market Vs Secondary Market

Primary market:

The primary market is a market where a company publicly sells new stocks and bonds for the first time, generally through initial public offerings. The company which issues shares through IPOs in the primary market makes sure to provide the investors with the prospectus highlighting the price and all the relevant details about the securities to be issued. Before issuing prospectus, the company hires an underwriting firm for reviewing the offerings as well as the price and details of the securities to be issued.

The company hires investment bankers who take responsibility for obtaining commitments from the large institutional investors to buy more securities at once when they are offered for the first time. At this point of time, it is difficult for the small investors to purchase securities, because the companies and the investment bankers try to sell the available securities to meet the required volume and do the marketing in the form of ‘road show’ or ‘dog and pony show’. Through these marketing campaigns, these investment bankers and the leaders of the company tries to convince the potential investors regarding the value of the securities being issued. Against the marketing campaign for setting the initial price of the securities and facilitating sales, they receive a fee. However, the significant portion of the funding is being received by the issuer of the securities.

The companies and the government bodies who sells new issues of common and preferred stock, corporate bonds and government bonds, notes and bills through the primary market, aims to generate funds for the purpose for their business improvement and business expansion.

An example of one of the largest IPOs till date is the Facebook IPO. The company was able to raise $16 billion through the primary market in the technology sector.

Secondary market

A secondary market is a market place where the securities of the companies are traded after all the stocks and bonds of the company got sold in the primary market. In Australia, the National Stock exchange of Australia is the secondary market. Here, the investors can buy and sell the securities which they own. On the secondary market, the small investors have a better opportunity of buying and selling their securities even if they have a small amount to invest. These investors are not being excluded as in the case of IPOs due to a small amount investment. In the secondary market, whosoever is willing to pay the price of any particular security can trade.

In most of the cases, the securities are being purchased by the broker on behalf of the investor,s who take commission from the investors for which they take the risk of market fluctuation. The volume of shares traded on the secondary market and the price of the security varies from day to day with respect to the demand in the market. 

  Primary Market Secondary Market
1.         A market place where the securities are traded for the first time, generally through IPOs. The formerly issued shares trade in the secondary market, generally through FPO.
2.         Also known as New Issue Market. Also known as After Market.
3.         Shares are purchased directly. Shares are generally purchased through intermediaries, such as brokers.
4.         It provides funding to the growing enterprises as well as existing companies for funding the business and expansion of the business. Does not provide funding to companies.
5.         Securities are sold only once. Securities are sold for multiple times.
6.         Buyers and sellers could be both investors as well as the company. Buyers and sellers are only investors.
7.         The company gains the amount generated through the sale of the shares. The investors gain the amount generated through the sale of the shares.
8.         Shares have a fixed price. Share price fluctuates with the demand and supply force.
9.         Not necessarily to have a fixed geographical location. Secondary market has a fixed location.



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