Primary Market and Secondary Market: Meaning and Differences

Capital Market: Meaning

Capital markets are those market where trading of assets such as bonds, equity and securities take place. Capital markets deal with financial instruments that are having a lock-in period of more than one year.

There are two types of capital markets, namely:

  •       Primary market
  •       Secondary market

Primary Market vs Secondary Market

Primary Market: Meaning

A primary market is a marketplace where corporations imbibe a fresh issue of shares for being contributed by the public for soliciting capital to meet their necessary long-term funds like extending the current trade or buying a unique entity. It plays a motivational part in the mobilisation of savings in the economy.

Multiple types of issues made by the establishment are  – Offer for sale, public issue, issue of Indian Depository Receipt (IDR), bonus Issue, right issue, etc.

Secondary Market: Meaning

A secondary market is a prototype of the capital market where debentures, current shares, options, bonds, treasury bills, commercial papers, etc., of the enterprises are patronised amongst the investors.

The secondary market can be an auction business where the business of bonds is functioned through a dealer market or the stock exchange, usually called over the counter.

You Might Also Like to Read: Money Market vs Capital Market Statement

This article is a ready reckoner for all the students to learn the difference between a primary market and secondary market.

Primary market

Secondary market

 Definition

A primary market is a marketplace where corporations imbibe a fresh issue of shares for being contributed by the public for soliciting capital to meet their necessary long-term funds like extending the current trade or buying a unique entity. A secondary market is a prototype of the capital market where debentures, current shares, options, bonds, treasury bills, commercial papers, etc., of the enterprises are patronised amongst the investors.

 Also known as

New issue market (NIM) Aftermarket

 Purchasing type 

Direct purchase Indirect purchase

 Parties of buying and selling

Buying and selling takes place between the company and the investors. Buying and selling takes place between the investors.

 To whom it provides financing

It provides financing to the existing companies for facilitating growth and expansion. It does not provide any kind of financing.

 Intermediaries involved

Underwriters Brokers

    Price levels

Remain fixed Price level varies with variations in demand and supply

The above-mentioned is the concept that is elucidated in detail about the difference between a primary market and secondary market for the Commerce students. To know more, stay tuned to BYJU’S.

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