In my previous posts, I have already discussed what is a share market or stock market. I have also discussed how to make money from the stock market. In this article we will discuss different types of markets. We will mainly discuss what is primary market and secondary market.
The stock market is divided into two parts. One is the primary market and the another is the secondary market. But what is the difference between primary market and secondary market? The primary market is a market where companies bring their issue or initial public offering (IPO). So in primary market stocks are created. On the other hand, if you want to purchase a share that you have not purchased in the IPO, you can do so in the secondary market. You can find a seller and buy the share. You can also sell the shares that you have purchased in the IPO by going to the secondary market. So in the secondary market, the stocks are traded.
So when a company decides to go public by raising an IPO, it is done in the primary market. Here a company sells its shares directly to the investors. Here, investors buy shares directly from the company. So, here a person, say his name is Vinod can directly buy shares from a company, say RELIANCE INDUSTRIES.
After the shares are bought for the first time in the primary market, traders buy and sell those shares among themselves in the secondary market. So in the secondary market, the share-issuing company is not involved directly in any transactions. So here, Vinod can buy or sell shares to another person, say Nikhil.
In the secondary market, there are various participants like foreign or domestic institutions, banks, companies, high net worth investors, small traders etc. Everyone here is either purchasing something or selling something. So this is like a full-fledged market.
Some major differences between the primary market and secondary market is in the primary market a share can be sold only once, but in the secondary market, the share can be bought or sold multiple times. Another difference is that in the primary market the price is fixed but in the secondary market, the price varies depending on the demand and supply of the company’s share. Also, a primary market has no physical location, but secondary market has come physical location, like the National Stock Exchange or Bombay Stock Exchange are the markets where the shares are traded in India.