What are the Primary Market and Secondary Market?

What are the Primary Market and Secondary Market?

The Capital market, where companies or governments directly issue securities (debt-based or equity-based) to raise funds, is called Primary Market. In the primary market, the issuer sells securities at predetermined prices. The buyers in the market can be financial institutions, corporates, mutual funds, and individuals.

The secondary market is the capital market, where securities are traded among investors. Trading can happen between Financial institutions, individual investors, or both. The issuer doesn't participate in trading. The price of the securities in the Secondary Market is dependent on current demand and supply.

Key Takeaways 
  1. In the primary market, new stocks and bonds are sold to the public for the first time.
  2. In a primary market, investorcan purchase securities directly from the issuer.
  3. Types of primary market issues include an initial public offering (IPO), a private placement, a rights issue, and a preferred allotment. Secondary Market Key Takeaways (Recommendation to add)
  4. The secondary market provides investors and traders with a place to trade securities after they are put up for sale on the primary market.
  5. The secondary market provides liquidity to the financial system and allows smaller traders to participate.

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