What is the primary market and how can you invest?
The primary market is where new securities are created and sold to investors for the first time. It is where companies raise capital through IPOs and where governments issue bonds. This guide explains how the primary market works and how investors can access it.
Key takeaway
The primary market is distinct from the secondary market (where shares trade on exchanges after listing). In the primary market, money flows directly to the issuer. In the secondary market, it flows between investors. Understanding this distinction is foundational to understanding how markets and capital formation work.
What is the primary market?
The primary market is the part of the capital markets where new securities are issued and sold to investors for the first time. When a company conducts an Initial Public Offering (IPO), it is operating in the primary market: it creates new shares and sells them to institutional and, in some cases, retail investors. The proceeds go directly to the issuing company, enabling it to fund growth, pay down debt or achieve other strategic objectives.
Once shares have been sold in the primary market and trading begins on an exchange, all subsequent trading takes place in the secondary market. The London Stock Exchange, NYSE and NASDAQ are secondary markets: they facilitate trading between investors in securities that were first issued in the primary market. The issuing company receives no proceeds from secondary market trading.
Primary market: key facts
IPO
The most common primary market event; a private company sells shares to the public for the first time
Underwriting
Investment banks price and guarantee the sale of new securities in the primary market
T+2
Typical settlement period once primary market shares begin trading on the secondary market
Types of primary market transactions
| Transaction type | Description | Who benefits |
| Initial Public Offering (IPO) | A private company sells shares to public investors for the first time. Price set through a bookbuild or fixed-price offer. | Company raises capital; early investors gain a potential exit |
| Follow-on Public Offering (FPO) | A company already listed on an exchange issues additional new shares to raise more capital. | Company raises further capital; dilution risk for existing shareholders |
| Rights issue | Existing shareholders are offered the right to buy new shares at a discount, proportional to their current holding. | Company raises capital; existing shareholders can maintain their percentage ownership |
| Government bond issuance | A government sells new bonds to investors, typically through an auction managed by the debt management office. | Government raises funds for spending; investors receive a fixed-income security |
| Corporate bond issuance | A company sells bonds to investors, raising debt capital without diluting equity. Often sold via bookbuild. | Company raises debt capital at a fixed interest rate |
Primary market transactions are typically managed by investment banks acting as underwriters. The bank helps the issuer price the offering, markets it to institutional investors through a roadshow, and guarantees to purchase any unsold securities (in a firm commitment underwriting). This process ensures the issuer receives the capital it needs regardless of demand shortfalls.
Primary market vs secondary market
The difference between the primary and secondary market is fundamentally about who receives the money when a security is sold.
| Feature | Primary market | Secondary market |
| Who sells | The issuing company or government | Existing investors to other investors |
| Who receives proceeds | The issuer (company or government) | The selling investor |
| How price is set | Underwriters through bookbuilding; or fixed offer price | Continuous supply and demand on exchange |
| Examples | IPOs, rights issues, new bond issuance | Trading on LSE, NYSE, bond markets |
| Investor access | Often limited; institutional investors prioritised | Open to all via brokerage accounts |
| Frequency | One-time or occasional events | Continuous during market hours |
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How can you invest in the primary market?
Retail investor access to the primary market is more limited than to the secondary market. Most IPOs are initially sold to institutional investors (pension funds, asset managers, hedge funds) during the bookbuild process. However, several routes exist for individual investors:
IPO applications via brokers: some IPOs include a retail offer tranche where individual investors can apply for shares at the offer price. Applications are typically oversubscribed, meaning allocations are scaled back proportionally.
Post-IPO secondary market: once shares begin trading on an exchange, individual investors can buy through a share dealing account or ISA at the prevailing market price. This is the most accessible route for most retail investors.
Government bond auctions: UK gilts can be purchased directly through the DMO's Purchase and Sale Service with no commission, giving direct primary market access to government bonds.
Rights issue participation: as an existing shareholder, you receive automatic primary market access to new shares offered through rights issues, typically at a discount to the market price.
The UK IPO market has faced challenges in recent years, with questions around whether the UK stock market is losing its global financial dominance. Several major companies have chosen New York over London for their primary listing, reducing the number of UK primary market opportunities for retail investors.
Notable primary market examples
The concept of 'animal spirits', the belief that investor confidence and optimism are self-fulfilling drivers of economic activity, is particularly visible in primary markets. IPO pricing reflects not just fundamental value but market sentiment: in bullish conditions, IPO valuations tend to be higher and oversubscriptions more common. Understanding animal spirits helps explain why IPO markets cycle between boom and bust periods that do not always track underlying economic fundamentals.
Recent high-profile primary market events in the UK and US include the IPO of MicroStrategy, which moved from a business software company to a de facto Bitcoin holding vehicle, illustrating how secondary market investor sentiment can reshape a company's identity. Similarly, Lloyds Banking Group has a primary market history shaped by the UK government's post-2008 bailout and subsequent phased share sale back into the market, one of the most complex managed primary market transactions in UK financial history.
Risks of primary market investing
Valuation uncertainty: IPO pricing is based on projections and bookbuild demand, not trading history. Post-IPO performance is frequently below the offer price in the first year.
Limited retail access: institutional investors typically receive priority allocation. Retail investors often access shares only on the secondary market after the pop or drop in early trading.
Dilution risk: follow-on offerings and rights issues increase the number of shares in circulation, which can dilute existing shareholders' earnings per share unless they participate.
Lock-up expiry: insiders and early investors in IPOs are typically subject to a lock-up period (often 90-180 days) during which they cannot sell. When lock-ups expire, increased selling pressure can depress the share price.
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Primary market FAQs
What is the primary market in simple terms?
The primary market is where new securities are sold to investors for the first time, with proceeds going directly to the issuing company or government. The most common primary market event is an Initial Public Offering (IPO), where a private company sells shares to the public for the first time.
What is the difference between the primary and secondary market?
In the primary market, investors buy newly created securities from the issuer, and the issuer receives the money. In the secondary market (exchanges like the LSE or NYSE), investors buy and sell securities from each other, and the issuer receives nothing. Most everyday stock market trading happens in the secondary market.
Can retail investors access the primary market?
Yes, though access is often limited. Some IPOs include retail offer tranches where individual investors can apply for shares. Government bonds can be bought directly from the DMO. Rights issues give existing shareholders automatic primary market access. For most individual investors, the secondary market (buying shares after they list on an exchange) is the primary route.
What is an IPO?
An Initial Public Offering (IPO) is when a private company sells shares to public investors for the first time, transitioning to a publicly listed company. The shares are priced through a bookbuild process managed by investment banks. Once trading begins on an exchange, all subsequent share transactions take place in the secondary market.
Important to know
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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