What are Primary and secondary markets?

The money market is a way for companies to raise short-term funds. The capital market is useful when long-term funding is required. Capital market is composed of both primary and secondary markets.

Let's now look at the primary and second markets and the differences between them.

Primary and secondary markets

A primary market is where securities are first issued to the general public by a company to meet its long-term capital requirements. There are many ways to issue securities: public, offer, sale, rights, bonus, IDR and others.

Secondary market refers to a place where securities such as shares, debentures and bonds, options, commercial paper, treasury bills, and so on, can be traded. Investors can trade these securities. It's a kind of auction market, where securities are traded through an exchange or dealer (OTC).

The features of the Primary market

• A primary market is a place to create long-term capital.
• Primary market: New issue of securities

The features of the secondary market

• Secondary market allows for liquidity and marketability of securities.
• Secondary market guarantees fair and honest transactions to protect the investor's interests.

There is a difference between the primary market and the secondary market

The primary and secondary markets differ mainly due to the nature of financing involved and the organizations involved. These are the main differences between these two types of markets:

• Securities that were previously issued in a stock market are called primary market. However, secondary market stocks can be traded when the company is listed on a recognised stock exchange.
• The primary market is also known by the name "new issue market" and the secondary market as "after issue market". Prices in secondary market differ depending on the supply and demand for securities traded. Prices in the primary market are fixed.
• The primary market offers financing for new and existing companies to expand and diversify, while the secondary market is not involved in transactions and does not offer financing.
• Investors can buy shares from the company directly in primary market. In secondary market, investors are able to purchase and sell securities (shares or bonds) between themselves.
• Investment bankers sell in primary markets. In secondary market, however, the broker acts as an intermediary and trades are done.
• The company will benefit from the sale of security in primary market. Investors will benefit from the securities in secondary market.
• Securities in the primary market cannot be sold more than once. However, securities in secondary market can be sold infinitely many times.
• In the case of secondary markets, the amount received from securities is the capital of the company. However, the income of investors is the same.
• The above points point out that the primary and secondary markets play major roles in mobilizing money for the country's economy. Primary market allows direct interaction between investor and company. Secondary market, on the other hand, is where brokers assist investors in buying and selling stocks to other investors.

It is easy to purchase Equity on the secondary market. This is how to buy or sell shares on the secondary market.

• Depository participant (DP): Open a demat account
• Register for a trading account at a broker.
• You can link your bank account to a demat or trading account.
• The broker sells or buys shares by placing orders via the electronic terminal of the stock exchange.
• The broker issues a contract note detailing the purchase price and his brokerage costs.
• The broker collects shares through settlement (T+1), and pays the investor.
• The final settlement date (T+2) is when the order will be executed.

These details should have clarified any doubts you may have and helped you to understand the concept of primary and secondary markets. You will be more familiar with the primary and secondary markets. However, you may not have heard of the third and fourth markets. The third and fourth markets are transactions between brokers and dealers, and large institutions that use the Over the Counter (OTC), network.

The transactions between broker or dealer and large institutions are handled by the third party, while the transactions between large institutions are handled by the fourth market. These markets have high volumes of transactions.