What is the difference between primary and secondary markets?

The distinction between primary and secondary markets is fundamental to understanding how securities are issued and traded. Primary markets are where new securities are created and offered to investors, typically through processes such as initial public offerings (IPOs). This is the stage where companies raise new capital directly from investors by selling their shares or bonds for the first time.

On the other hand, secondary markets involve the trading of existing securities. Once new securities have been introduced in the primary market and sold to initial investors, these securities can be resold in the secondary market. This market provides liquidity, allowing investors to buy or sell securities with relative ease, which is essential for the overall function of financial markets.

In contrast, the other options do not accurately reflect the core functions of these markets. There is no inherent focus on government bonds in primary markets or corporate stocks in secondary markets. Both markets can encompass a wide range of securities, including stocks and bonds from various issuers. Additionally, primary and secondary markets are not differentiated based on the duration of investments; both can involve long-term and short-term trading. Lastly, the assertion that there is no real difference between the two markets is incorrect, as they serve distinct roles within the capital markets system.