Difference Between Primary Market and Secondary Market

What is a Primary Market?

A Primary Market is defined as a platform where securities or tradable financial instruments are introduced to the public for the first time. The governments, corporations, and other parties raise capital from investors by issuing equity or debt instruments in the primary market. The investors purchase these securities from the primary market and then trade them in the secondary market. All of this trading takes place in the stock market. As corporations or government agencies raise money from this market, there are underwriters or investment banks to facilitate this process. They determine a price range for a given security or financial instrument and then coordinate with the investors to sell the security. Once an initial selling of security is completed, the entire trading business shifts to the secondary market....

How does the Primary Market Work?

1. The primary market works under the transactions system and for this process, three parties are involved: corporations or issuers, investors, and an underwriter....

Functions of Primary Market

A primary market performs three main functions: offering, underwriting, and distribution....

Types of Primary Market Issues

The primary market issues can be of different types, each having different purposes and fulfilling different needs. Some of the issues in the primary market are as follows,...

Examples of Primary Stock Market Selling

1. One of the well-known examples of primary stock market selling is Facebook, the giant social media company. Their initial public offering (IPO) was a remarkable one. In 2012, Facebook opened an IPO and they could raise around $16 billion. This was one of the largest IPOs in the technology industry. Their turnover increased by nearly 100% due to this IPO. There was a huge demand for the shares and hence the underwriters fixed $38 as the rate for each share in the primary market. Ultimately, the valuation of the company increased to $104 billion (among the highest newly formed public companies)....

Advantages of Primary Market

One of the major advantages of the primary market is that here the corporations can raise money directly from the investors. This enables them to pay off debts, fund their operations, and expand their business. A few other advantages are,...

Disadvantages of Primary Market

The following are some of the disadvantages that a primary market can possess,...

Difference Between Primary Market and Secondary Market

One of the major differences between the primary and secondary markets is that in the primary market, securities are issued directly from companies to investors while in the secondary market, securities are traded among the investors. The below table shows some other differences;...