Future Business Leaders of America (FBLA) Securities and Investments Practice Test

The distinction between a primary market and a secondary market primarily revolves around the nature of the transactions taking place in each market. The primary market is where new securities are created and issued to investors, such as through initial public offerings (IPOs) for stocks. In this market, companies raise new capital by selling their shares or bonds directly to investors for the first time.

On the other hand, the secondary market is where existing securities are traded among investors after they have been issued in the primary market. In this market, investors buy and sell securities such as stocks and bonds without the issuing companies being involved. The existence of a secondary market allows investors to gain liquidity, as they can sell their securities to other investors, thereby providing a mechanism for valuation and price discovery of those securities.

This understanding underscores that the primary market's focus is on the issuance of new financial instruments, while the secondary market revolves around the transaction of previously issued instruments.