The capital market is a financial structure in which businesses can raise funds by issuing stocks, bonds, and debentures, among other things. The primary market is the first place where securities are produced. The secondary market, on the other hand, deals in securities that have already been issued. As a result, the financial markets include both primary and secondary markets.
What is the definition of a primary market?
The primary market allows the government, businesses, and other institutions to raise funds for the first time by issuing debt and equity-related instruments in the market. The corporations require additional funds to develop their existing business, purchase a new factory, establish a new entity, and many other things. The public is offered additional shares and bonds through an Initial Public Offering (IPO). There are, however, other forms of issue securities, such as –
- Public issue
- Rights issue
- Publication of an IDR
- Offer for Sale
- Bonus issue
The corporation that initiates the IPO is known as the issuer, and the process is known as the public issue. Underwriters, investment banks responsible for the direct sale of shares, bonds, and debentures to investors, are involved in the entire process.
The characteristics of the primary market are as follows.
- To meet its long-term capital needs, the corporation raises funds in the main market. As a result, the main market is capable of meeting long-term capital requirements.
- The major markets are where new securities are issued. As a result, every stock, bond, or debenture must first be listed on the primary market.
- Before going to the secondary market, a security is floated on the primary market. As a result, it comes before the secondary market.
What is the definition of a secondary market?
A secondary market is a place where investors can trade existing shares, debentures, bonds, commercial papers, treasury bills, and other securities. This market is where investors buy and sell securities. An auction market or a dealer market can be used as a secondary market. The stock exchange is where securities are traded in the auction market. Over The Counter (OTC) is another name for the dealer market. This is where trades take place outside of the stock exchange’s platform.
The securities are first made available for subscription to the general public on the main market. Following that, the securities are listed on a stock exchange for market trading. The secondary market, or stock exchanges, is where the majority of trading takes place. The Bombay Stock Exchange and the National Stock Exchange are India’s two stock exchanges.
What is the difference between primary and secondary market?
The primary and secondary markets differ principally in terms of the type of financing and the organizations participating. The following are the key distinctions between the two types of markets:
|Basis||Primary market||Secondary Market|
|Meaning||Primary market securities are the first issued in the market.||-Stocks are traded in the secondary market when the company is listed on a recognized stock exchange.|
|Another Name||-The new issue market is another name for the primary market.||The secondary market is also known as the after-issue market.|
|The cost of security||-the primary market price of the security is fixed.||-Secondary market securities prices fluctuate depending on the demand and supply of the securities.|
|Financing for the company||The primary market provides funding to both new and existing businesses for the purposes of expansion and diversification.||Because there are no transactions, the secondary market does not provide finance to businesses.|
|Exchange of securities||Investors can purchase shares directly from the company in the primary market.||-in the secondary market, which is where investors buy and sell securities (such as stocks and bonds).|
|Parties involved||Investment bankers are in charge of selling securities in the primary market.||When dealing in the secondary market, the stockbroker acts as an intermediary.|
|Beneficiary||The corporation will profit from the sale of securities as a direct issuer in the primary market.||The investor makes a profit or a loss on the secondary market by selling securities.|
|Frequency of selling of securities||Security can only be sold once in the primary market.||Security can be bought and sold an endless number of times on the secondary market.|
|Amount received from the securities||The money earned from the main market securities is used to pay the company’s bills.||In the event of the secondary market, however, the income for investors is the same.|
|Presence||The organization does not have a distinct geographical location, a specified location, or any organizational setup in the primary market.||Because the stock exchange is located in a certain geographic area, the secondary market has a physical presence.|
|Regulations and Rules||In the main market, the corporation issuing securities is subjected to a great deal of regulation and due diligence.||Investors and brokers must adhere to the exchange’s and governing body’s guidelines.|
Both the primary and secondary markets play an important role in mobilizing people’s savings for the economy’s growth. Both markets can benefit from an investment. Both markets, though, have their own set of hazards. As a result, an investor must be aware of the distinction between the primary and secondary markets.