Primary and Secondary Markets

Once launched, a financial security lives a life of its own. It traces its life from
one investor to another, and it serves as support system for other transactions. The instrument itself evolves, but the terms of the contract under which it was issued do not.
The life cycle of a financial security is very closely connected with the fact that it can be bought or sold at any moment.To cite an example, shares issued or created when a company is founded can later be diverted to a stock exchange, just like long-term bonds or shares may be used by speculators for short-term strategies.
The new issues market is termed as the primary market. Following transactions involving these securities takes place on the secondary market. Both the markets, like any other market, are defined by two basic elements: the
product and the price .
From the point of view of the company, the difference between the primary
and secondary markets is very fundamental. The primary market is the market for ‘‘new’’ financial products, from equity issues to bond issues and everything that lies in-between. It is the market for newly produced financial securities.
on the other hand, the secondary market is the market for ‘‘used’’ financial products.
Securities bought and sold on this market have already been created earlier and are now simply changing hands, without any new securities being created.
The primary market enables companies, financial institutions, governments
and local authorities to obtain financial resources by issuing securities. These
securities are then listed and traded on secondary markets. The job of the secondary market is to ensure that securities are properly priced and traded.

This is the essence of liquidity: facilitating the purchase or sale of a security.
The distinction between primary and secondary markets is conceptual only.

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