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Nov 10 2012

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Difference between Primary and Secondary Market

primary market, secondary market, capital market, stock market, money marketPrimary Market: primary market is not organized stock exchanges like Wall Street or any other capital market. A primary market refers to any market where new shares of stock are sold. The primary market is the entry market for companies and investors, where a company or institution that requires initial or additional capital sells its shares or financial instrument to the investors. For example, Initial Public Offering (IPO), public offer, rights issue and bond issue are done on the primary market. The primary market is also unique that the initial buyer is the only person who can exchange the securities for funds. When companies are willing to go for publicly listed on the stock exchange and wants to collect funds from general investors, they first sell their financial instrument in the primary market. Primary market is the first place for trading financial instruments including stocks and bonds.

Secondary Market: Secondary market plays the complementary role of opening a window of opportunity for investors in primary issues to trade on their primary investments while giving other investors opportunity to buy shares of that company. Secondary markets are used for trading stocks between persons and other entities that may purchase them. It is considered as place of liquidation of financial assets providing no transactions barriers of them. Secondary market is also influenced by demand and supply theory and heavily affected by market forces. primary market, secondary market, capital market, stock market, money marketThe Securities and Exchange Commission (SEC) oversees primary market issues and monitors investors’ interest by making investment friendly rules and regulations. Companies have to abide by regulatory frame work to keep consistent with the Securities and Exchange Commission’s regulatory guidelines.

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