PRIMARY MARKET VS SECONDARY MARKET | SIMILARITIES AND DIFFERENCES

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The capital market is the marketplace for long term debt and equity instruments. The capital market can be distinguished into two sections: The primary market and the secondary market.

The primary market is a market for newly issued securities. The secondary market is a market where securities that have already been issued in the primary market are traded.

Both markets share some similarities and differences. let's look at some of them

Similarities Between Primary Market And Secondary Market

1. Parts of the capital market: The capital market is divided into two parts: primary and secondary markets. As a result, both markets constitute parts of any economy's capital market.

2. Securities are issued in both markets: In most cases, securities issued in the primary market have ended up being traded in the secondary market

3. Both contribute to capital formation: Capital formation is an increase in the capital goods of an economy.

While the primary market directly contributes to capital formation, the secondary market indirectly contributes to capital formation by providing liquidity for primary market securities.

However, both can be said to contribute to capital formation, although in different ways.

4. Investors is the buyer: In both markets, investors are the buyers of securities in both market.

5. Regulated by the securities and exchange commission(SEC): SEC regulates both the primary and secondary markets (the stock exchange).

Companies must meet the securities and exchange commission's criteria for issuing securities on the primary market.

Similarly, in order to list stock on the secondary market (stock exchange), such companies must meet the securities and exchange commission's requirements.

Differences Between Primary Market And Secondary Market

1. The primary market is a market for new securities whereas the secondary market is a market for second-hand securities.

2. Transactions between corporations and investors take place in the primary market. Transactions between investors take place in the secondary market.

3. In the primary market, securities must be purchased through a sales agent or an underwriter. To buy assets on the secondary market, you'll need to hire a broker.

4. While the price of securities in the secondary market fluctuates on the basis of demand and supply, the price of securities in the primary market is fixed as it is set by the underwriters or issuing entity.

5. Primary market transactions are not subjected to the commission fee. On the other hand, secondary markets transactions are subjected to transaction fees as investors are required to pay a commission fee to brokers who facilitate the trading of the securities

6. The primary market is also known as the new issue market while the secondary market is also known as the aftermarket

7. The proceeds from the sale of securities in the primary market flow directly to the corporation. Money from the sale of securities, on the other hand, goes straight to the selling investor.

Final words

If the primary market is a market for transacting new long term securities, the secondary market is a market for the trading primary market securities

Both primary and secondary markets are critical components of any economy. If a government truly wants to achieve economic growth and development, it must ensure that both markets are functioning properly

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