If you want to invest in the stock market, you must first understand the difference between primary and secondary markets.
Stock market experts generally use terms like primary and secondary markets. Surely, you too must have heard about the primary and secondary markets often. Do you know what they mean and what is the difference between them? Actually, there are two types of stock markets – primary market and secondary market. Do you know how they are different from each other?
New securities such as new shares and bonds are issued in the primary market. In the primary market, companies sell shares to investors and raise money. Transactions take place directly between the company and the investors in the primary market. There are many different ways through which a company can raise capital in the primary market. These include public issue (IPO), private placement, and rights issue. When a company raises money from investors for the first time by selling some of its stake through the stock exchange, then it has to launch an IPO for that. To invest in the primary market, you need to have a demat account which can be opened with brokerages or banks. One such platfrom is 5paisa where a demat account can be opened. Through this process, the company is listed on the stock exchange. The main objective of the company to enter the primary market is to raise money. In the primary market, investors can only buy shares and not sell them. To sell the purchased shares, they have to go to the secondary market.
Stock exchanges like the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) – are secondary markets, where you can sell shares that were bought during an IPO. In this market, shares of a listed company are bought and sold. When we buy and sell shares on the stock exchange, we are actually trading in the secondary market. In the secondary market, money and shares are exchanged between investors (buyers and sellers). The company is not involved in the transactions taking place in the secondary market. The secondary market is also called as “after market” because the shares that have already been issued are traded here.
Difference between primary market and secondary market
– In the primary market, new shares and bonds are issued, whereas, in the secondary market, there is a sale and purchase of already issued shares and bonds.
– In the primary market, transactions happen between the company and the investor, while in the secondary market, transactions happen between the investors. The company is not involved in this.
– The money goes directly to the company through transactions done in the primary market. At the same time, in the secondary market, transactions take place between investors.
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