In the primary market, a company raises money by selling new shares to investors for the first time, usually through an Initial Public Offering (IPO). In the secondary market, those already-issued shares are traded between investors on a stock exchange. The money in a primary sale goes to the company; in a secondary trade it goes to the seller.
What is the primary market?
The primary market is where securities are created and first sold. A company that wants to raise capital offers its shares to the public and receives the money directly.
- The most common example is an IPO, where a company lists on an exchange for the first time. See how to apply for an IPO on Rupeezy.
- For mutual funds, the equivalent is a New Fund Offer (NFO), where a scheme's units are sold for the first time. See what an NFO is.
In a primary issue, the company (or fund) receives the money raised.
What is the secondary market?
Once shares have been issued in the primary market, they trade in the secondary market. The day-to-day buying and selling you do on the NSE and BSE. Here you buy from and sell to other investors, not the company, and the price is set by demand and supply rather than fixed by the issuer.
Almost all the trading you do after an IPO (buying a listed stock, selling shares you hold) happens in the secondary market. See what a stock exchange is.
Primary vs secondary, a quick comparison
| Primary market | Secondary market | |
|---|---|---|
| What's sold | Newly issued shares/units | Already-issued shares |
| You buy from | The company (issuer) | Another investor |
| Money goes to | The company | The selling investor |
| Typical example | IPO / NFO | Buying a listed stock on the exchange |
| Price | Set by the issuer / book-building | Set by demand and supply |
Things to keep in mind
- A share is issued once in the primary market, then can change hands many times in the secondary market.
- Getting IPO shares (primary) isn't guaranteed (they can be allotted partially or not at all) while in the secondary market you buy directly at the market price if a seller is available.
- Both markets are regulated by SEBI and the exchanges.
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