What is primary and secondary market ? How primary and secondary market Works ? what is the difference between Primary and secondary market?

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 [1] PRIMARY MARKET: 

         Primary market in which shares, debentures and other securities are sold for the first time for collecting long term capital. Primary market is concerned with new issues. Therefore, the primary market is also called 'NEW ISSUE MARKET'. 

≻ In this market, the flow of fund is from savers to borrowers (industries), hence it helps directly in the capital formation of the country. 

≻ The money collected from this market is generally used by the companies to modernize the plant, machinery and buildings, for expanding business, and for setting up new business unit. 

 HOW DOES THE PRIMARY MARKET WORK?   




As you know in any market there is always 2 side: Buyer and seller 
In primary market Fund manager(Manage funds of retail investors) or Individual investors are from buyer side to buy securities instead of money. Corporates are the sellers of the stocks of the company. Banks are make contracts for both buyer(Investors) and seller(company). The primary market is only for the new issue of securities. Investors are paying for securities to the company. Company get capital and it can used for various purpose like expanding business, make a new buildings or machinery etc. 

FEATURE OF PRIMARY MARKET: 

        Primary market is Related With New Issues. It Has No Particular Place. It has Various Methods to Float Capital. It comes before Secondary Market.

Here's some of the Following methods of raising capital in the primary market: 

i) Public Issue 

     ≻  Public Issue refers to the issue of shares or securities in the primary market by the promoters of a company to attract new investors for a subscription.

ii) Offer For Sale 

     ≻ An Offer for Sale is process where promoters of public companies can sell their shares and reduce their share holdings in a transparent manner through the bidding platform for the Exchange.

iii) Private Placement 

     ≻ In private placement sale of shares by a company for few pre-selected Investors(Institution, friends or family) to raise a small amount of fund. It is less expensive and faster way of raising fund. 

iv) Right Issue 

     ≻ A rights issue is an issue of rights to buy additional securities (Stocks, Bonds) in a public company made for the company's existing security holders.

v) Electronic-Initial Public Offer (IPO). 

     ≻ The first sale of a company's stock to the general public. 

Ⅵ) Investment bankers 

     ≻ Financial specialists who handle the sales of most corporate and municipal securities. 

Ⅶ) Underwriting 

     ≻ Process of purchasing an issue from a firm or government and then reselling the issue to investors.

FACTOR TO BE CONSIDERED BY INVESTORS BEFORE INVESTING IN PRIMARY MARKET:

✅Project Details. 

✅Product. 

✅Financial data & Risk factors. 

✅Auditors report. 

✅Promoters credibility 

 

[2] SECONDARY MARKET : 

        Secondary market in which the buying and selling of the previously issued securities is done. In India the transactions of the secondary market are generally done through the medium of Stock Exchanges like NSE and BSE. 

≻ The chief purpose of the this market is to create liquidity in securities.

≻ If an individual has bought some security and he now wants to sell it, he can do so through the medium of Stock Exchange with the service of stock broker . 

HOW DOES THE SECONDARY MARKET WORK?




Secondary market is for the buying and selling of the previously issued securities. In secondary market both side buyer & seller are the Investors (Individual, Institution, Fund manager). Investor has a account with stock broker or Investment Banks. Stock Exchanges (i.e. NSE & BSE) are work as the intermediary parties in the secondary market. Buyer buy stocks from Stock exchange and seller sell the stock to stock exchange. Stock exchange work as an intermediary to make a fair deal for both buyer and seller to buy and sell securities. In secondary market only previously issued securities are traded. Here investors and traders buy and sell stocks to each other. The company does not include in this transactions. 

FEATURE OF SECONDARY MARKET:

i) It Creates LIQUIDITY. 

ii) It Comes After Primary MARKET. 

iii) It Has A Particular PLACE. 

iv) It Encourage New INVESTMENTS. 

v) Aids in financing the INDUSTRY. 

vi) Ensures safe & fair DEALING( MEDIA BROADCASTING).  


10 LARGEST STOCK EXCHANGES IN THE WORLD BY MARKETCAP (2021)

  1. New York Stock Exchange(NYSE), US
  2. NASDAQ, United States 
  3. Shanghai Stock Exchange(SSE), China 
  4. Hong Kong Stock Exchange (SEHK), Hong Kong  
  5. Japan Stock Exchange (JPX), Japan
  6. Shenzhen Stock Exchange (SZSE), China 
  7. EURONEXT, Europe 
  8. London Stock Exchange(LSE), UK 
  9. National Stock Exchange(NSE), India 
  10. Toronto Stock Exchange (TSX), Canada  

 

WHAT IS DIFFERENCE BETWEEN PRIMARY AND SECONDARY STOCK MARKET?


Primary market : 
  1. Primary beneficiary is the issuing organization. 
  2. Objective is to raise Fund.
  3. Includes new securities such as Initial public offerings (IPOs).     
  4. Frequency of selling is once. 
  5. The company sell the shares to investors at fixed Prices. 
  6. No organization set up. 
  7. The company issuing the securities goes through a lot of regulations and due diligence.  


Secondary market:
  1. Primary beneficiary is the Investors / Share holders. 
  2. Objective is to capital appreciation. 
  3. Includes the trading of securities already offered to the market. 
  4. Frequency of selling is as many as possible. 
  5. Demand and supply discovers the price. 
  6. Geographical setup and organizational  presence. 
  7. Investors and brokers follow the rules set by Exchange and governing agencies. 



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