Primary market also know as new issue market is the market for issuing new securities. Majority of the companies opt for issuing new share in the primary market to raise the capital for expansion of business or finance its operations depends upon company strategy. The companies sell their securities through IPO – Initial public offering which means the securities are first time issued in the primary market. Primary market is the market for first hand securities, it can also bought from the other shareholders but in that case it is called the secondary market transaction.
Securities are issued on exchange basis in the primary market, investors pay money for the number of securities purchased from the company. Underwriters play an important role in issuing the securities to the public, they are the intermediaries between company and investors.[linkunit] They administrate the securities issuing process which involves handing over issued securities certificates to the investors on exchange of cash. The cash is paid to the company by the bank after deducting their commission on issued securities. The collected amount generated from the issued shares are used to finance company operations or for expansion of the company.
Shareholders can sell out the shares to other investors in the secondary market. Secondary market is the market for second hand shares or already issued shares. Once the shares are issued in the primary market in IPO after that further trading transaction will occur in the secondary market.