Primary and Secondary Stock Markets

When a privately owned company wants to raise a lot of money, the kind of funding required to help the company grow to its full potential, its owners may turn to an investment banker. Unlike brokers who help facilitate trades on the secondary market, investment bankers guide companies down Wall Street, helping them turn privately owned businesses into publicly traded companies.

This primary market is where stocks are actually created and sold—which is called “floated”—to the public for the first time. The first sale of stock by a company to the public is an initial public offering, or IPO. And though technically these IPO shares are sold to the public, it’s not to the general public; rather, these shares are mainly sold to large institutional investors that have the kind of capital the issuing company is trying to raise.

Everyday trading takes place on the secondary market, what people think of as the stock market. These trades take place on the major stock exchanges all around the world, such as the NYSE, the NASDAQ, and the London Stock Exchange (LSE).

Here, in the secondary market, trades take place between investors, without the involvement of the issuing companies. For example, if you buy shares in Coca-Cola, you’re purchasing those shares from another investor; the Coca-Cola Company itself is not directly involved in the transaction.

Ticker Trivia

When a company purchases its own shares on the secondary market, it’s called a stock buyback.