Hello readers, these days the share market is booming up and becoming trendy. People invest in the share market for their side income and some of them are earning for living too. Today, in this article we will help you understand the difference between primary market and secondary market
In Nepal, the share market is catching all the attention towards it. High return, higher liquidity ratio is attracting people towards the share market. The Nepal share market has broken its record and its index has touched the 2850 point just recently. It has also gained an all-time high turnover that is 13.175 billion.
Share Market in Nepal
Basically, the share market is a place where people buy and sell shares. It is full of both risks and opportunities. Read more…
Primary Share Market
Primary market or IPO (Initial Public Offering) issues or offers shares for the first time to the public, or local people, or employees by a company for raising a company’s capital. You need a Demat account, before investing in a share market.
The secondary market is the market in which people buy and sell the shares offered in the primary market. Here, people trade or invest in the shares for long and short periods for earning profit. Moreover, you need a broker account to invest in the secondary market. Nepal Stock Exchange Ltd. is the secondary share market of Nepal.
Difference Between Primary and Secondary Market
|BASIS FOR COMPARISON||PRIMARY MARKET||SECONDARY MARKET|
|Definition||The Primary market is the market where a company issues the shares for the first time.||The Secondary Market is the place where people trade the securities they own.|
|Also known as||We also know the primary market as New Issue Market (NIM) or Initial Public offerings.||We also know the secondary market as after Market or share market.|
|Purchase method||The primary market uses a direct purchase method for purchasing shares.||The secondary market uses an indirect purchase method for purchasing shares.|
|How often can we sell a stock?||The companies can sell stock only once in the primary market.||We can sell stock multiple times in the secondary market|
|Trade between||Company and investors buy and sell shares in the primary market.||Investors sell and buy shares in the secondary market.|
|Who will receive the selling amount?||The company will receive the amount on the sales.||Investors will receive the amount on the sales.|
|Rules||The issuer company sets the rule in the primary market.||Here governing agency or Stock Exchange Board sets the rules and regulations.|
|Intermediaries||Underwriters play the role of issuing share in the primary market||Brokers are intermediaries in the secondary market.|
|Price||The company fixes the price of a share in the primary market.||The price of a share is changeable and depends on the demand and supply of shares.|
|Organizational presence||It doesn’t have any physical existence, such as buildings or offices, or organizations.||It has a physical or organizational presence.|
Things to Know Before Investing in Primary Share Market
Primary market investment is less risky as compared to the primary market. Normally, the shares bought at the primary market are traded at a higher price than that of the Paid-up value. However, in some rare cases, the primary market share price may go lower than that of the paid-up value.
We can take recent examples of shares listed on the Nepal Stock Exchange, shares of some Hydropower companies, and some other companies that went down lower than that of their paid-up value. So, before investing in a primary market, we have to remember some points.
Before investing in the primary market, research the industry in which the company is operating. You should study the industry’s profile, history, or potential growth over the year. Industry analysis will help you know about the profit and drawbacks of the industry.
You should also analyze a company before you invest in it. You should research its profile, management, board of Directors, goal, competitors, vision, and mission of the company.
Company Financial Analysis
Another important analysis you need to do is the company’s financial reports analysis. You should analyze and compare financial reports of different fiscal years. You can analyze financial ratios, balance sheets, cash flows, or an income statement. From this financial analysis, you can know the company is progressive or not.
Things to Know Before Investing in Secondary Market
Investing in a secondary share market is full of risk. Nevertheless, “Higher risk Higher profit” is the slogan of the secondary share market. Before investing or trading in a secondary market, you need to be very careful and invest your money.
There are two types of strategies to invest in the secondary share market. In the secondary market, if shares are bought and sold in a gap of short time, it is called trading. While, in investing, shares are bought and sold in a gap of a long period. So, you need to decide you are a trader or an investor before keeping your money in the secondary share market.
If you are an investor you need to focus on the fundamental analysis of a company and also should know basic technical analysis. And if you are a trader, you need to focus mainly on technical analysis and also should know the basic fundamental analysis techniques.
Fundamental analysis is of two types that is the qualitative analysis and quantitative analysis.
Qualitative analysis means analyzing the information that is not in numbers such as economy of the country, industrial analysis, situational analysis, company analysis.
Quantitative analysis means analyzing information that is in numbers that are financial report analysis of the company. You should also analyze the Company’s financial reports before investing your money. Click here to read more…
Another analysis that you need to do before in the secondary share market is technical analysis. Technical analysis means analyzing historical price charts and statistics for interpreting future prices of the share.
A technical analyst looks at the candlestick patterns at the charts of the company and uses different indicators and tools to forecast price movements. A good technical analysis can help you find the best entry and exit point. That will maximize your profit and minimize your loss. Click here to read more…
So these were the difference between primary and secondary market.
On the End Note…
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