Primary Markets and Secondary Markets | Stock Market Basics | Free Quantra Course

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Welcome to this video on primary and secondary markets. In this video, you will learn about Primary markets. Various functions performed in primary markets and secondary markets.
Let’s start with primary markets. As you learnt in the previous units, financial markets are markets, where financial instruments such as stocks, and bonds are bought and sold. These markets are primarily made of two segments:
Primary markets and Secondary markets.
A primary market is a market, where stocks are offered for the first time to the public by the issuing corporations. A primary market is also known as the New Issue Market (NIM). The process by which shares are issued to the public is known as Initial Public Offering(IPO). You will learn the IPO process in detail in the upcoming units.
To buy stocks in the primary market, the general public has to subscribe to the stocks that the company is offering. When a company offers its stock they can be directly purchased by investors in the primary market. Hence, the transaction happens between the company and investors. In other words, this market directly supplies fund to companies. The stock price would be fixed by the issuing company in the primary market. Investors can buy stocks at the specified price only.
By nature, the company can issue its stock only once and hence, the transaction in the primary market happens only once for a particular stock. You cannot transact more than once in the primary market. In addition to public issuance of shares, other events that take place in primary markets can be:
Offer for Sale, a mechanism where promoters in a listed company sell their shares directly to the public.
Rights Issue, where a listed company offers shares to its existing shareholders in proportion to
their holding of old shares.
Bonus Issue, where a listed company offers free additional shares to its existing shareholders.
Now, let’s understand what secondary markets are. The secondary market is a type of market where, listed shares and other financial instruments are traded amongst investors. In other words, the shares you buy or sell on a stock exchange are transacted in the secondary market.
For example, if you go to buy the stock of Microsoft on NASDAQ, you are dealing with another investor who owns shares of Microsoft company. Any major stock exchange can be regarded as the secondary market.
Unlike the primary market, the secondary market does not provide funding to corporations. It enables fund flows between investors. You can perform multiple transactions in the secondary markets.
Now that you’ve been introduced to primary and secondary markets, it’s time for you to get the overall picture. First, financial instruments such as stocks and bonds are offered in the primary market by the issuing corporations. Next, general public subscribes to those financial instruments and money flow from the investors to the corporation.
Then, they are listed on the stock exchanges for the purpose of trading. After that, exchanges work as a secondary market where investors trade amongst themselves.
That’s all for this video. In this video, you have learnt about primary and secondary markets.

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