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What is an example of a primary market?

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Quick Answer

An example of a primary market is a company's initial public offering, or IPO, in which it sells its stocks to the general public for the first time. The primary market refers to a situation in which a company creates securities prior to them being traded on the secondary market.

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Full Answer

A company wishing to enter the primary market through an IPO must follow several rules and regulations that dictate the process. To begin the process, a company typically contacts a firm that acts as an underwriter. This firm then proceeds to determine the various financial and legal details behind the IPO.

The filing company must also submit a preliminary registration statement. This statement outlines the specifics and prospects of the company's shares. This statement is typically considered to be informational in nature and is not final.

A finalized statement and prospectus are also filed to appropriate governing and regulatory bodies. Once the statement and initial stock issue price is approved, the company is then able to proceed with its IPO.

After a company's IPO, its stocks are considered to have entered the secondary market. This secondary market refers to stocks traded between investors. In the secondary market, securities that have been issued can be traded without the original company's involvement in process.

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