Difference Between Primary Markets and Secondary Markets

Primary markets

Primary markets form part of the financial markets where new financial commodities are issued and form the situation where new sources of funds are for prospect borrowers. For example in the case of a firm, the issuing of new shares forms part of the activity of a primary market. The primary market catalyzes saving among the population. Corporations in the primary market activities make various issues, which are Bonus Issue, Rights Issue, and Public Issues among others (Sundaresan, 2009). The issuer is the firm, which gives the Initial Public Offer (IPO). Bonds debentures and shares are further sold to the public through investment banks or underwriters who are registered by the particular stock exchange. Securities are sold once on the primary market while they can be sold countless times on the secondary market. The major markets offer funds to companies while secondary markets offer income to investors where they get back their invested amount, which may be less or more according to the situation of the share in the stock exchange.

Secondary markets

The market forms a place where individuals or firms that have the financial products sell them to the public among other interested parties. Secondary market differs from the primary market in the sense that the stocks or bonds are not purchased from the companies issuing them but from other investors (Burton et al., 2010). The companies, as a result, do not take part in the transactions carried out in the secondary market.  The trading activity of the primary market is lesser than that of the secondary market showing that more investors sell to each other than companies selling to investors directly in primary markets do. Interbank loans cannot be purchased or passed on to other individuals in the secondary market. The secondary markets are mostly stock exchanges in different countries or states like the New York stock exchange, which deals in the trading of stocks and bonds especially after the company issues its shares in the primary market, which further are listed on the stock exchange to be traded. Selling and purchasing of stocks on are done through brokers at the stock exchange. The brokers are usually registered to facilitate sale and purchase of shares on the stock exchange. The prices of securities in the secondary market vary while those of the primary market are fixed.

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