What are primary and secondary markets?

The primary market is where new securities, such as stocks or bonds, are issued for the first time and sold directly by the company to investors. Companies use this market to raise capital for business expansion, projects, or debt repayment, often through mechanisms like Initial Public Offerings (IPOs). Once these securities are issued, they move to the secondary market, where investors trade them among themselves without the issuing company’s involvement. The stock exchange is a well-known example of a secondary market, providing liquidity and price discovery. While the primary market raises funds for issuers, the secondary market offers investors the opportunity to buy and sell easily, making investments more attractive. Together, these markets form the backbone of the financial system, ensuring capital flow and investor confidence.