Question

Distinguish between: Primary Market and Secondary Market

Hint:

Think of it like buying a car. The {Primary Market} is the car showroom where you buy a brand-new car directly from the company. The {Secondary Market} is the used car market where you buy a second-hand car from another owner.

Answer 1

The primary market is the place where new securities are issued for the first time by companies to raise capital. The secondary market is where existing, previously issued securities are traded among investors.

Basis of Distinction	Primary Market	Secondary Market
Meaning	The market where securities are created and issued for the first time directly from the company.	The market where already issued securities are bought and sold among investors.
Also Known As	New Issue Market (NIM).	Aftermarket or Stock Market.
Parties Involved	The transaction is between the issuing company and the investor.	The transaction is between two investors (a buyer and a seller). The company is not involved.
Purpose	To raise fresh capital for the company for expansion, projects, etc.	To provide liquidity and marketability to existing securities. The company does not receive any funds from these trades.
Price Determination	The price is fixed by the company's management (fixed price issue) or through a book-building process.	The price is determined by the market forces of demand and supply on the stock exchange.
Intermediary	Merchant bankers and underwriters are the main intermediaries.	Stockbrokers are the main intermediaries.