What is the difference between the primary and secondary markets?

• A. New securities and first-time issues are sold on the primary market; once issued they can be traded on the secondary market.
• B. The secondary market issues new securities and the primary market trades existing ones.
• C. The primary market handles derivatives; the secondary market handles cash securities.
• D. There is no difference between the two markets.

Answer: (A)

The main idea is issuance versus trading. In the primary market, new securities are issued and sold for the first time, with the issuer (like a company or government) receiving the proceeds. Investors buy these fresh issues through underwriters or directly from the issuer—this is the capital-raising step.

In the secondary market, those securities that have already been issued are traded among investors. The issuer does not receive any funds from these trades; instead, the market provides liquidity and price discovery as buyers and sellers exchange securities on exchanges or in over-the-counter markets.

So, new securities are sold in the primary market, and once issued, they can be traded in the secondary market. The other options misstate who issues new securities or where trading occurs, or mix up market functions, so they don’t fit the real distinction.