Primary and secondary markets
Within the capital markets, there are two main types of transactions that take place.
1. Primary markets
Primary markets involve a company (or other entity) selling investment securities directly to investors, typically investment banks, hedge funds, and other institutional investors.
For example, when a company issues new shares in an initial public offering (IPO), that's an example of primary market trading. When a company decides to raise capital via a debt offering and sells bonds to institutional investors, that's a primary market situation. Companies hire investment banks to help issue new shares or bonds (a process known as underwriting), and, for this reason, the primary market is often referred to as the "new issue" market.
2. Secondary markets
On the other hand, the secondary market refers to stocks, bonds, or other securities being traded between investors. When you buy stock through your broker, it's an example of secondary market trading since your shares come from other investors, not the company itself. The NYSE is an example of a secondary market.
When it comes to stocks, bonds, options, and several other types of investments, there are regulatory agencies such as the Securities and Exchange Commission (SEC) that oversee trading activity. Their regulations apply to both primary and secondary market activity.
Related investing topics