Difference between primary market and secondary market

If you want your business to expand by acquiring other businesses or by investing in new projects then you need funds. Funds for these requirements can either be arranged from your own source or investors can invest into your company in return of a portion of profit.

To collect funds or money in return of profit, companies use to exchange their shares or stocks in proportions to the amount invested. Both primary market and secondary market helps organization to get funds to business.

Today in this article we will discuss the difference between primary market and secondary market.

Primary market is a place where company issue new securities to general public or investors in exchange of funds. After issuance of these new securities or stock, investors are allowed to exchange their stock holdings by selling them in stock exchange.

Buying or selling of shares or stocks in stock exchange is called a secondary market. In primary market initial issuer or company gets the money where as in secondary market the seller or the investor gets the money.

Difference between primary and secondary marketIPO & FPO are the best example of primary market where investors directly buy shares from the company through a public issue.

After getting listed in stock exchange, investors can use the benefit of stock exchange where they can get out of their investment at any time they want. Stock exchange is a secondary market where investors trade their shares between them.

Example: Shares initially issued by Microsoft is done in primary market in which Microsoft offers to general public through IPO to buy shares . After getting it listed in stock exchange, if any investor wants to trade in Microsoft’s shares or want to sale his ownership to someone else then that activity carried out in secondary market.

Financial Market is also divided into two broad categories:

  1. Money Market – It enable corporations to borrow funds on a short term basis so that they can support their existing operation.
  2. Capital Market – It enable the corporate to get long term funding for there corporate expansion.

IPO: Initial public offerings

FPO: follow on public offerings

Difference between primary market and secondary market is not a new concept. Please let us know you views on the difference between primary market and secondary market.

Editorial Staff at Yourfinancebook is a team of finance professionals. The team has more than a decade experience in taxation and personal finance.