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Primary and Secondary Market are the main components of the Capital Market. On the other hand, Primary Market represents the new issue market Secondary Market represents the existing or Second-hand securities.
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Meaning of Primary Market:
The New Issue Market/Primary Market is issued securities for the first time. It directly contributes to capital formation. In the capital market, the company utilizes these funds for investment in buildings, plants, machinery, etc. The primary market issued common securities such as equity shares, debentures, bonds, preference shares, etc.
Sometimes, New securities are offered to the General Public by an intermediary (firms of brokers) who buys a full lot of securities from the company. Firstly, the company issues securities to the intermediary at face value. Then intermediaries issue securities to the general public at a higher price to earn profit which is called Offer for Sale.
Meaning of Secondary Market:
The secondary market is the market where the sale and purchase of previously issued securities take place. In the secondary market, the securities are sold by Existing investors to other investors.
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When the investor is in need of cash and if the other investor wants to buy the shares of the company then both the investors can meet in the secondary market and exchange securities for cash from the broker.
The Chart of difference between Primary Market and Secondary Market
Points of differences | Primary Market | Secondary Market |
| Meaning | The New Issue Market/Primary Market is issued securities for the first time. | The secondary market is the market where the sale and purchase of previously issued securities take place. |
| Type of securities | It deals with New Securities. | It deals with second-hand securities. |
| Capital Formation | Primary Market contributes directly to the formation of capital. | It contributes indirectly to the formation of capital. |
| Entry | For raising the capital all companies enter into the primary market. | Only listed companies can buy or sell in the secondary market. |
| Geographical Location | There is no fixed area, all the institutions, banks constitute the primary market. | Secondary markets are fixed areas and fixed time hours. |
| Price | The management of companies fixes the prices of securities. | Prices of securities are fixed by the demand and supply factors of the stock exchange. |
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Conclusion:
Thus, Primary Market is issued securities for the first time. It directly contributes to capital formation. On the other side, Secondary Market is the market where the sale and purchase of previously issued securities take place. In the secondary market, the securities are sold by Existing investors to other investors.
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