What is the difference between a primary and secondary offering?

A primary offering is characterized by the sale of new shares issued by a company. This process allows the company to raise capital directly, which can be used for various purposes such as funding growth, paying down debt, or other financial needs. In this case, the company is effectively increasing the number of shares in circulation, representing new ownership equity that did not previously exist.

On the other hand, a secondary offering occurs when existing shareholders, like major stakeholders or company insiders, sell their shares to the public or other investors. In this case, the company itself does not receive any funds from the transaction, as it does not issue new shares. Instead, the transaction simply transfers ownership of existing shares from one party to another.

This distinction is vital in equity markets, as it affects how the capital is raised and what it signifies regarding the company's financial health and strategies. For instance, primary offerings can signal that the company seeks to expand, while large secondary offerings might suggest that current shareholders wish to liquidate their investments or adjust their portfolios.