Primary vs. Secondary Market

This article will give us an insight of the various financial aspects of the capital market trading. Both primary and secondary markets are types of Capital Market depending on the issuance of securities.

Primary Market – deals with the trading of newly issued securities. The government, corporations, and companies issue securities like stocks and bonds when they are need of capital. The investors purchase stocks and bonds issued by such companies and in turn help them in raising capital. Money earned from selling of securities directly to the issuing company.  Another name for this market is ‘New Issue Market’ (NIM). IPO (Initial Public Offering) is a usual method of issuing securities in the primary market. The functioning of primary market is essential for both the economy and capital market as this is the place where the capital formation takes place. Other types of issues made by the corporation are a Public issue, Offer for sale, Right Issue, Bonus Issue, Issue of IDR etc…

Secondary Market – is that part of the capital market that deals with securities already issued primary market. Investors who purchased the newly issued securities in the primary market sell them in the secondary market. The nature of the secondary market is liquid and transparent. The value of stocks varies from that of the face value. The resale value of the securities depends upon the fluctuating interest rates.

Conclusion

The two financial markets play a major role in the mobilization of money in a country’s economy. Primary Market encourages direct interaction between the company and the investor while the secondary market is opposite where brokers help the investors to buy and sell the stocks among other investors. There are many brokers in the capital market for spread betting the best in this trade which provide their investors with satisfactory profits.

The main difference between two markets is – who benefits from the sale or purchase of a company’s stock. When new stocks are issued the co. benefits from the sale and the cash flow of the new stock is used to invest in the company’s operations. When investors buy or sell stock, the company does not benefit from the sale or purchase because money changes hands only between the two investors.