What is the main function of the primary market?

The primary market primarily serves as the platform where new securities are created and issued to investors. This is where a company or government will go through an initial public offering (IPO) or a bond offering to raise capital. During this process, the new securities are sold directly to investors, which allows the issuer to obtain the necessary funds for expansion, projects, or other needs.

Investors in the primary market buy directly from the issuer, meaning that the capital raised goes directly to the company or government entity. This initial transaction is crucial as it marks the beginning of the security's lifecycle on the market.

In contrast, trading existing securities occurs in the secondary market, where previously issued securities are bought and sold among investors. The creation of derivatives and providing liquidity serve different purposes in financial markets and do not specifically define the function of the primary market. Thus, the issuance of new securities is the defining characteristic of the primary market.