Introduction
The stock market is comprised of two distinct markets, the primary and secondary market. While both of these markets may operate on the same exchange they are distinctively different.
When making distinctions between a money and capital markets the primary determinant is time. Broadly speaking capital markets are for long term assets that extend beyond one year. This is in contrast to money markets that are used for short term assets that are up to one year.
Learning Materials
Primary and Secondary Markets
Primary market
The primary market is the initial market that securities are sold on. When you hear of a firm having an initial public offering, such as Facebook, this is a transaction on the primary market. The issuing firm will receive the funds from this initial sale which is why it is referred to as the primary market.
This is a common way for firms to receive substantial amounts of capital. Practically speaking the primary market is not equally available to all. Given that firms solicit help of investment bankers it becomes necessary that they take a role in selling shares. These shares are commonly first offered to preferred customers which of course leave out the average retail investor. From a corporate perspective an IPO is also not always feasible since the firm must have a solid reputation and a potential for longevity and success.
Secondary market
Once a stock has been purchased directly from the firm in the primary market it will continue to trade on the secondary market. For each of these additional trades the issuing firm does not receive the funds. For example, when you go to buy a share of Home Depot the firm will not receive the funds directly but rather the previous owner of the share will receive the payment. The secondary market is open to all and is not as restrictive as the primary market.
Money and Capital Markets
Money market
Money markets operate in tandem with capital markets. While the capital markets allow for the sourcing of long term funds, the money market allows for the placing of short term funds.
The idea behind utilizing this market is that firms must have access to funds on a regular basis and the money market permits for this. Liquidity management is often what drives this market. An entity may need these funds to cover operating expenses or working capital needs. The immediacy of these potential obligations makes the money market an ideal location for funds and not the capital market.
Capital market
The average investor is most familiar with the capital market. The capital market includes stocks and bonds which comprise much of the retail investors’ portfolio. It is for this reason that this market is the most commonly referenced and followed. Since this market receives such a substantial amount of attention its participants are also among the most scrutinized. This is the market that firms go to raise capital for long-term horizons and also the market that investors go to for long term investments.

Summary
Initial public offerings often receive a fair amount of media attention and understanding not only what they are but also how they trade is important to anyone that seeks to engage in the stock market. Engaging in the stock market can take the role of personal investing or in securing equity funds for a corporation.
Financial markets are intended to bring buyers and sellers together in order to trade assets such as stocks and bonds. Although there are many facets to financial markets the two most commonly used by both retail investors and firms are money markets and capital markets.

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