Primary and Secondary Markets

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What is Primary Market?

Have you ever bought anything from a wholesale market or your town’s APMC market? 

What is the specialty of buying from a wholesale market?

  • The fresh stock of fruits, vegetables, spices etc. first arrives at this market 
  • It can be cheaper to buy from there
  • You need to buy in bulk 

The same can apply to the primary market for stocks.

  • The primary market is like the APMC for stocks
  • A stock, before being available for exchange, comes into the primary market
  • This initial entry of a company’s stock into the market is called an IPO

What is an IPO?

What is an IPO?

An IPO or Initial Public Offering is like the launch of shares of a company.

It is similar to making a pre-order for a mobile phone.

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    There are a limited number of stocks at any given point in time.

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    To be eligible to buy stocks in a company that is about to launch its shares, you need to subscribe to an IPO.

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    The price per share is available in the form of a range (for example, ₹100 to ₹125 per share). This range is called the price band.

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    • Whether you will have to pay the higher or the lower price from the band depends on the demand for the IPO
    • This demand can be measured by the number of people who have subscribed to the IPO
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    A subscription is placed in terms of lots. A lot is the minimum number of shares you need to subscribe for in an IPO.

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    • There are many investors who apply for the ‘lots’ of shares of a company, but the shares available for pre-order are very limited
    • Therefore, the investors who get a ‘lot’ allotted can depend on the proportion of their application or random selection
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    You will get the shares in your Demat account once they are listed on the stock exchange or the secondary market.

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    The price of the stock once listed can be higher or lower than the offer price band

What is a Secondary Market?

What is a Secondary Market?

  • The secondary market is like the marketplace for the buying and selling of shares
  • It is also known as the ‘stock market’ or the ‘share bazaar
  • You can do both, buying and selling stocks in the stock market
  • When a share is added to the list of companies traded (stock of companies bought and sold) in the stock exchange, it is called a ‘listed’ company

Points to remember

Points to remember

Let us recall what you have learned so far.

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    A stock, before being available for exchange, comes into the primary market

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    An IPO or Initial Public Offering is like the launch of shares of a company.

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    The secondary market is like the marketplace for buying and selling shares. It is also known as the ‘stock market’ or the ‘share bazaar.’

Let's learn more about Stock Market in the next section

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