Markets

[Predrag V 0]

What is the difference between primary and secondary markets?

[Tarik 0]

Hi Predrag, thanks for coming here. 

The basic market concepts are the primary and secondary markets. The former term refers to a market where the securities are first being issued. On the contrary, the latter is where the majority of stock market trading is taking place. In the secondary markets, investors are trading securities that they already own. 

In the stock market, the primary markets are mainly used by companies to sell their stocks for the first time. This can be done through the initial public offering (IPO), private placement or preferential allotment. 

In primary markets, securities are always purchased directly from the issuer. On the contrary, the owner of security can then trade it on a secondary market after purchasing it in the primary market. Therefore, transactions in the secondary markets are of a more trading purpose. 

The most popular secondary markets are exchanges e.g. NASDAQ, NYSE, London Stock Exchange etc.

One of the key differences between these two is that in the primary markets prices are created by the issuer of a security. On the other hand, the market forces (buyers and sellers) are creating supply and demand in the secondary market, hence the prices are made by the market itself.