Primary Market

Primary market is the type of capital market which deals with newly or first time issued securities. Companies, government can raise their fund by selling out their stocks and bonds. Dealers acts as intermediately or agent to sell out stocks,bonds to earn commission.

The expansion of existing business or creating a new business requires funding. There are several options available for the corporation to obtain funding which includes long term loan from banks or issuing of securities. Long terms loan can be obtained from the bank by paying annual interest rate on the principal amount. The second option available is to raise the corporation capital by issuing securities and stocks to the investors for that the cost of capital would be dividend paid by the company to the investors.

Primary market is the place for selling new stocks and securities. Agents perform the role of middle-tier between corporation and investors and receive commission for selling stocks. For example – If Dell wants to raise its capital so it sells it stocks to the investors and receive payment on per share basis, this would be primary market transaction. Primary market is only used of initial public offering once the initial trading is complete the rest will be conducted in the secondary market.

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