Financial world is full of products and services. There are different products to suit various needs of individuals.
Such products are bought and sold on primary market and secondary market.
In this post, we will see what is primary market and secondary market and primary market vs secondary market.
What is primary market and secondary market
What is Primary Market?
The primary market is also known as new issues market.
Here, the transaction is between the issuer and the buyer.
Equity can be raised in primary market by any of the following four ways.
1. Public Issue
As the name suggests public issue means selling securities to public at large. It is the most vital method to sell securities.
2. Rights Issue
Whenever a company needs to raise supplementary equity capital, the shares have to be offered to present shareholders on a pro-rata basis, this is called as Rights issue.
3. Private Placement
Selling securities to restricted number of classy investors like FIs, venture capital funds, mutual funds, banks etc. comes under private placement.
4. Preferential Allotment
When a listed company issues equity shares to a selected number of investors at a price that may or may not be pertaining to the market price is known as Preferential Allotment.
What is Secondary Market?
In secondary market, you can buy a share directly from a seller and the stock exchange/broker act as an intermediary in this case.
Secondary markets are important for—price discovery.
Secondary market operations are carried out on stock exchanges.
So now you know the importance of both primary and secondary markets.
Any queries on primary and secondary market or how is the primary market different from the secondary market?