Primary Market vs. Secondary Market: Major Differences

We often come across terms like money market, capital market, primary market, secondary market, etc. It is important to understand all these terms well to understand how the finance system of a country, or the world at large, functions. You must understand these terms to know how your money rotates in the market to bring you a return on investment (RoI).

In this write-up, we will discuss the differences between the primary market and secondary market – the two major parts of the capital market. Capital market is the branch of the overall financial system which is concerned with raising capital. The main instruments of the capital market include shares, bonds, and other such long-term investment assets.

Now let us understand the differences between these two parts of the capital market in tabular form.

Differences between Primary Market and Secondary Market

#	Basis of Difference	Primary Market	Secondary Market
1.	Definition	Primary market is the type of market where securities i.e. fungible and tradable financial assets such as equities, debts, derivatives, etc. are created.	The secondary market is the market in which already existing securities are traded by investors.
2.	Function	Companies and corporations use the primary market to sell new stocks and bonds of their company to the general public for the first time. (Read IPO).	A secondary market is used by investors to trade an already existing stock or bond that was introduced in the primary market.
3.	Also called as	Primary markets are also known as New Issue Market (NIM)	Secondary markets are also known as After Issue Market (AIM)
4.	Seller	The seller in the primary market is always the issuer of the security. Nobody, but the company itself can sell its share or debenture through the primary market.	Investors i.e. holders of security are the sellers in the secondary market. Anybody who owns security can sell it in the secondary market.
5.	Type of Purchase	The type of purchase in the primary market is called direct purchase as the securities are directly purchased from the issuer.	The type of purchase in the secondary market is called indirect purchase as the securities are not directly purchased from the issuer.
6.	Capital Generation	It is the primary market where actual capital is generated for a company. The subscription amount from the buyers normally goes to the issuing company as its long-term investment.	Technically, no capital generation occurs in the secondary market as the buying and selling occur between investors; companies are not involved in the transaction. The buy and sell in the secondary market generates profits/losses or ROI for investors.
7.	Involved Intermediaries	Underwriters and investment banks are the main intermediaries that function in the primary market. They enable transactions between the company and investors.	Brokers are the intermediaries of the secondary market. They enable the transaction between buyers and sellers.
8.	Price	Price is fixed at par value after evaluation of the company’s financial and functional position. A whole range of regulatory rules needs to be followed.	Price keeps varying depending on the demand and supply of the securities.
9.	Validity of Securities	Securities created in the primary market are valid for a limited period and are traded just one time. No further trading is allowed in the primary market.	Securities in the secondary market are traded an infinite number of times. They may change hands every day. The sale and purchase of securities is a continuous process.

Hope it is clear to you that when you apply for IPOs and FPOs you deal in primary market and your regular buying and selling of shares happens in the secondary market.

The sentence explains the essence of difference between primary and secondary markets. It also explains the practical meaning these terms. Let us know if you have any doubts or questions.