There has been a big dilemma on which one is better, from the primary market and the secondary market. Basically, both of them share the same aim, helping companies to get capital funding. But, the major factor that will differentiate both of them is a process used for collecting the funds.
Primary Market –
The primary market is a market where the companies issue new securities with the purpose to attain capital. Firms and government institutions will gather their funds from this market by issuing bond and stock in a new issue market. And they will get equity capital by stock issue and the debt finance via a bond issue. This funds raising happens through Initial Public Offering or IPO. These securities are directly sold out to the investor. He is called the shareholder in such case. In return of these funds that investor contributes, he’s issued the share certificate that will represent interest for the company.
The security price is quite stagnant and on the face value in a primary market. Securities are available just for the short time frame, or issue window that are for some days. Here major preference will be given to the large investors who will buy more securities at one go. But, the common man can invest in IPO as the retail customer.
Secondary Market –
In the secondary market, the securities that have passed already through the primary market and issued will be traded as instruments. The instruments like bonds, stocks, options, and futures are traded over here. When the security is bought in a primary market and investor opts to sell it out, it comes on a secondary market for many other investors to purchase. The price of this security will be quite different from its face value though that is based on the performance of the market security. Thus, market performance and forces of the company decide the share price in the secondary market.
In secondary market the trade is done with the stock exchanges such as Bombay Stock Exchange, National Stock Exchange, Shanghai Stock Exchange and more where value of a share will be affected by an index of this exchange.