Primary vs secondary market

Primary vs secondary market

• Primary market: the company sells shares and receives the money. An IPO is this door. IPO means the first time the public can buy those shares in that offer.
• Secondary market: two people trade shares that already exist, on the NSE or the BSE. The buyer pays the seller. The company receives nothing. This is the door a beginner uses on a normal day.

The idea, with the arithmetic

A company issues 1,000 new shares at ₹200.
1000 × 200 = 200000

• 1000 is the number of new shares.
• 200 is the price per share in rupees.
• 200000 is the bill, ₹2,00,000.
  The money goes to the company.

The next day one person buys 100 of those shares from another person at ₹210.
100 × 210 = 21000

• 100 is the number of shares traded.
• 210 is the price per share in rupees.
• 21000 is ₹21,000.
  That money moves between the two people. The company gets none of it.

Transaction	Shares	Price (₹)	Result (₹)
Company issue	1000	200	200000
Person‑to‑person	100	210	21000

Made‑up example, not a live quote.

One harder point: in an offer for sale, a shareholder sells in that same offer and that shareholder receives the money, not the company. It is still the primary door, because it is the offer, not a later trade on the exchange.

If you already know the basics

People often think the primary market is only about new shares. In reality, the primary market also includes any offer where a shareholder sells shares directly to the public. The money still goes to the selling shareholder, not the company. The secondary market is only about trades after the shares exist. The company never touches the money in those trades.

Exercise

Write down a small example. Pick a number of shares, a price, and calculate the total. Then pick another price for a trade between two people and calculate that total. Write the two sums on separate lines.

Failure mode

Readers sometimes mix up who gets the money. They think the company always gets money when shares are traded. Remember: only in the primary market does the company receive money. In the secondary market the money stays between the buyer and the seller.

-------------|--------|-----------|------------| | Company issue | 1,000 | 200 | 200,000 | | Person‑to‑person | 100 | 210 | 21,000 |

One harder point: in an offer for sale, a shareholder sells in that same offer and that shareholder receives the money, not the company. It is still the primary door, because it is the offer, not a later trade on the exchange.

What is a primary market?

• Primary market is where a company first sells its shares to the public.
• The company gets the money and the new shares are created.
• The most common way a company enters the primary market is through an Initial Public Offering (IPO).
• In an IPO the company works with banks and regulators to set a price, decide how many shares to sell, and then offers those shares to investors for the first time.
• After the IPO, the shares can be traded on the stock exchange, but the company no longer receives any of that money.

Why do companies do an IPO?

• Raise capital: The money can be used to grow the business, pay debts, or invest in new projects.
• Increase visibility: Being listed on a major exchange gives the company more credibility.
• Provide liquidity: Existing shareholders can sell some of their shares to the public.

How does an IPO work in simple steps?

1. Choose a price: The company and its bankers decide how much each share will cost.
2. Set the number of shares: They decide how many shares to sell.
3. Offer to the public: The shares are sold to anyone who wants to buy them at the set price.
4. Listing: Once the shares are sold, they are listed on an exchange like NSE or BSE.
5. Trading starts: After listing, anyone can buy or sell those shares on the exchange.

What is a secondary market?

• Secondary market is where people trade shares that already exist.
• The company that originally issued the shares does not get any money from these trades.
• The money goes only between the buyer and the seller.
• The stock exchange (NSE, BSE, etc.) provides the platform where these trades happen.

Buying on the exchange

• Step 1: Open a trading account with a broker.
• Step 2: Deposit money into your account.
• Step 3: Place an order to buy a certain number of shares at a specific price.
• Step 4: If someone sells at that price, the trade is executed.
• Step 5: The shares appear in your portfolio, and the money is transferred to the seller’s account.

Primary vs. secondary in everyday terms

Feature	Primary Market	Secondary Market
Who sells?	Company or a shareholder	Existing shareholders
Who buys?	Public investors	Public investors
Does the company get money?	Yes	No
Where does the trade happen?	IPO process, before listing	Stock exchange (NSE/BSE)
Example	Company issues 1,000 shares at ₹200	Person A sells 100 shares to Person B at ₹210

Key points to remember

• Primary market = first sale of shares, company gets money.
• Secondary market = resale of shares, company does not get money.
• IPO is the most common way a company enters the primary market.
• Buying on the exchange is how you participate in the secondary market.
• The money flow in a primary sale goes to the company or the selling shareholder, not to the buyer.
• In a secondary sale, the money stays between the buyer and the seller.

Checklist

• Identify the two doors: primary and secondary.
• Write the sum for a company issue and explain each part.
• Write the sum for a person‑to‑person trade and explain each part.
• Use a chart that shows the two results side by side.
• Note the difference in who receives the money.

Educational only. Not investment advice or SEBI‑registered research.