What distinguishes primary markets from secondary markets?

The primary markets are distinct from secondary markets primarily because they deal with new securities. In the primary market, companies and governments issue new stocks and bonds to raise capital. Investors purchase these securities directly at the initial sale, which is often facilitated by investment banks. This is crucial for the company or government as it provides necessary funds to support operations or projects.

In contrast, secondary markets involve the trading of existing securities that have already been issued. Here, investors buy and sell securities among themselves, and the issuing companies do not receive any additional capital from these transactions. Understanding this difference is essential as it highlights the role of primary markets in capital formation and the ongoing liquidity provided by secondary markets.

While the secondary markets do include various types of securities, such as government bonds, the defining aspect is not limited to specific types of securities or currencies, which differentiates it from the primary market's focus on new issues.