Comparison Between Primary And Secondary Market

Abstract:

Comparison between primary and secondary markets are discussed below. While the primary markets offer issues,which are directly made available to the investors, the secondary markets deal with issues, which are already existing.

The comparison between primary and secondary market lies in the process in which funds are raised from the capital market. Primary markets are those where securities are offered to the public in the form of subscription with the intention of raising money. On the other hand, secondary market refers to the market where trading of already existing securities take place. The secondary market is often referred to as dealer market or an auction market. Examples of an auction market is the stock exchange whereas an OTC or over the counter exemplifies a dealer market.

In a primary market, the securities, stocks or bonds are bought directly from the company issuing all of the above. These are usually bought at a "par value". In the secondary market, the existing securities, bonds or stocks are traded again.

For instance, if an individual had purchased bonds or any other investment instruments from the primary market a year back and the individual now wants to avail of the principal amount the bonds may be sold off in secondary market. In the event when the price of the bonds rise, the individual intending to dispose off the bonds needs to do it at a discounted rate. On the other hand, if the price of bonds increase, the individual selling the shares will be benefited and may sell it at a premium rate.

There are times when small investors have questioned the security of investments in the primary markets. This has been true especially after there has been a debacle pertaining to the demat accounts lately. A big investor disguising as a small investor had "cornered" several thousand shares, which were actually meant for allotment to the small investors. Small investors may also invest in the primary market through mutual funds. Several categories of mutual funds like the IPOs or initial public offerings as well as the FPOs or the Follow Up Public Offers have hit the capital markets lately.