In financial terms, what does "primary market" refer to?

The term "primary market" refers to the market where securities are issued and sold for the first time. This is the initial source of capital for issuers, including corporations and governments, that need to raise funds. In the primary market, investors purchase securities directly from issuers, which can include stocks or bonds. The issuance process often involves underwriting by investment banks, which help determine the pricing and facilitate the sale of these new securities to the public or institutional investors.

This market is distinct from subsequent trading in the secondary market, where investors buy and sell existing securities among themselves. Understanding the role of the primary market is essential for comprehending how new investments enter the financial system and how companies acquire the funds necessary for growth and operations. This foundational knowledge is crucial for anyone engaged in finance, as it highlights the mechanisms of capital formation and the flow of funds in the economy.