If you are seeking to raise funds for your business, or to get in on the ground floor on a hot new stock, the primary market is the place to do it. The term “primary market” means that companies sell their stock or securities directly to interested investors. Companies introduce their shares to the primary market through an initial profit offering. Eventually, shares bought on the primary market will be bought and sold by others who do not represent the company. Primary markets represent an important growth engine for a country’s economy.
Initial Profit Offering
An initial profit offering (IPO) marks the first time a company sells its stocks or securities to investors directly. In the world of finance, the term “security” means that a company or government agency sells the right to share in its profits. For example, if Company A sells its stock to Investor B through an IPO, Investor B now has a right to a portion of Company A’s profits. Afterwards, Investor B can sell his share of the company to another investor but not on the primary market.
An Information Exchange
In addition to being a place where IPOs are sold, the primary market also acts as a source of information. If an investor seeks new opportunities, he will only find out about them on the primary market. Even before a company launches an IPO, news of its preparation circulates throughout primary markets. Investors then have the chance to determine whether a new company is a worthy investment or not.
Primary Markets as Growth Engines
Without investment from individuals or governments, a country’s economy cannot grow. Such investment is known as capital in the world of finance. Primary markets provide an opportunity for investors to help the economy grow by enabling them to support new ventures. In turn, these new ventures can provide employment as well as profit. Stock holders can use their profits to invest in more new enterprises. Through investment on the primary market, the economy can grow healthy and robust.