What is the 'primary market'?

The primary market is defined as the financial market where newly issued securities are sold for the first time. This is a crucial part of the capital formation process, as it allows companies to raise new capital by issuing stocks or bonds to investors.

In the primary market, the issuer directly sells securities to investors, often through an Initial Public Offering (IPO) for stocks or a new bond offering. The funds raised from these transactions go directly to the issuing company or organization, which can then use the capital for various purposes such as expansion, paying off debt, or investing in new projects.

This contrasts with other markets, such as the secondary market, where previously issued securities are bought and sold among investors. In that case, the issuing company does not receive any funds from these transactions. Understanding the primary market is essential for grasping how new investments are made and how companies can access resources for their growth initiatives.