Question

Explain the difference between primary and secondary markets and why secondary markets are so important to businesses that need to raise capital? Give examples from the real world?

Answer 1

Difference between Primary and Secondary Market.

S. No.	Primary Market	Secondary Market
1	New shares are issued in Primary market	Already issued securities will trade in secondary market
2	It is also known as New issue market	It is also known as after market
3	Here investor purchase shares directly from company	Here Investor purchase company's share indirectly
4	It helps in raising fund for the company in case of expansion	It doesnot helps in raising fund
5	In this securities can be sold once	Here securities can be bought and sold multiple times
6	In this company is seller and buyer is investor	here buyer and seller both are investors
7	Company will gain by issuing shares in primary market	Investors will gain by trading shares in secondary market
8	Intermediary involved in primary market are known as underwriters	Intermediary involved in secondary market are known as brokers
9	In primary market, price of shares are fixed	In secondary market, price of shares can fluctuates as demand and supply works
10	There is no physical existence	secondary market physically exists like NASDAQ, BSE, NSE, Nikkei, Hand Seng etc.

Businesses use primary market to raise capital when they need funds. Secondary market is only for providing liquidity options to investors so that they can easily enter to and exit from the company as per thier will. Secondary market also helps in calculation market capitalization of the company. If value of company's shares were traded at high prices then it makes a way for a company to raise new capital as investor trusts the company.