What is the primary market?
The primary market is the market in which companies offer new securities directly to investors. This happens when a company raises capital through, for example, a new share issue, or when shares are sold for the first time in connection with a stock exchange listing.
Unlike the secondary market, capital on the primary market goes directly to the company. The money is usually used to finance growth or investments, or to strengthen the company's financial position.
In practice, investors subscribe for shares at a predetermined price. When the subscription period has ended, the shares are registered and entered in the share register, after which they can be traded on if the company is listed.
How the primary market works
Here are some key characteristics that make it easier to understand how the primary market works:
- Shares are sold for the first time
- Capital goes directly to the company
- Often happens in a new share issue or stock exchange listing
- Subscription price and terms are set in advance
- More manual handling in unlisted companies
These factors show how the primary market differs from the secondary market and what role it plays in the company's capital raising.
Before investing on the primary market
Worth bearing in mind
When you invest on the primary market, it is important to understand why the company is raising capital and which terms apply to the share issue. A new share issue can strengthen the company's financial position and enable growth, but it can also mean dilution for existing owners.
As an investor, you should therefore examine the company's valuation, the purpose of the capital raising and how the money is planned to be used. It is also important to take into account the company's business model, outlook and level of risk before you take part.
In unlisted companies, the primary market often works more manually, for example through agreements, subscription lists and updating the share register. This can mean longer processing times and greater demands for clear documentation. Make sure, therefore, that terms, timelines and legal documents are correctly drawn up before the investment is made.
Frequently asked questions
What is the difference between the primary and secondary markets?
On the primary market, shares are sold directly by the company to investors. On the secondary market, investors trade shares with each other.
How do I take part in the primary market?
By subscribing for shares in a new share issue or taking part in a stock exchange listing where shares are offered for the first time.
How is the price set on the primary market?
The price is decided by the company and its advisers and is set before the subscription period starts.
Are investments on the primary market risky?
Yes. The valuation is often based on future expectations, and the share can fluctuate once it starts trading on the secondary market.
Is there a primary market in unlisted companies?
Yes. It then takes place through private share issues in which investors buy new shares directly from the company.