Question
Differentiate between ‘Primary Market’ and ‘Secondary Market’ on any five basis.
| Basis | Primary Market (New Issue Market) | Secondary Market (Stock Exchange) |
| Securities traded | There is sale of securities by new companies or further (new) issues of securities by existing companies to investors. | There is trading of existing securities only. |
| Purpose | Securities are sold by the company to the investor directly (or through an intermediary) | Ownership of existing securities is exchanged between investors. The company is not involved at all. |
| Capital formation | The flow of funds is from savers to investors, i.e. the primary market directly promotes capital formation. | Enhances encashability (liquidity) of securities, i.e. the secondary market indirectly promotes capital formation. |
| Buying/ selling | Only buying of securities takes place in the primary market. Securities cannot be sold by the investors. | Both the buying and the selling of securities can take place on the stock exchange. |
| Price determination |
Prices are determined and decided by the management of the company. | Prices are determined by the forces of demand and supply. |
| Location | There is no fixed geographical location. | Located at specified places. |
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