Question

Explain the difference between Primary and secondary markets with real life examples?

Answer 1

In financial market, different types of securities are issued to the public. These financial securities are of varied types and are tailor-made as per the needs of the investors. These products are then sold in the capital market. The capital market can be divided into two, viz-a-viz., Primary Market and Secondary Market.

The market where securities are created is known as the primary Market. In this market, the companies float their shares and securities for the first time. An apt example of a Primary Market is an Initial Public Offer or IPO. When a private company issues its shares for the first time to the general public, then it is termed as IPO. The different types of issues that a company can make are Offer for Sale, Rights Issue, Bonus Issue, etc. On the contrary, a secondary market is referred to commonly as a stock market. It is important to note that the securities are first offered in the Primary Market to the general public for subscription. On an application being made, the company receives money against the subscription made by the public and the public in return get the securities of the company in lieu of the money paid by them. Once this is done, then the securities get traded in the Secondary Market, that is, stock market. In a secondary market, the investors trade among themselves.

While new securities are offered to investors in the primary market, dealings in securities which have already been made by the companies are traded in Secondary Market.

Let us now understand the differences between Primary Market and Secondary Market:-

PARTICULARS	PRIMARY MARKET	SECONDARY MARKET
1. MEANING	The market where new shares are traded is known as Primary Market.	The market where earlier issued shares are traded is known as Secondary Market.
2. Another Name	New Issues Market (NIM)	After Market
3. Manner of Purchasing	Direct	Indirect
4. Financing	Helps in supplying funds to the bidding companies as well as to the existing companies in order to meet their diversification and expansion.	Funding to enterprises is not provided.
5. Number of times the securities can be sold?	Once	Multiple Times.
6. Buyer and Seller	The buying and selling takes place between the Company and the Investor.	The buying and selling takes place between only between the Investors.
7. Intermediary	Underwriters	Brokers