Primary vs Secondary Market
The difference between buying from the company (IPO) and buying from another investor.
There are two very different moments in a shareA unit of ownership in a company.’s life, and confusing them confuses everything else.
The primary market: buying from the company
When a company first sells sharesA unit of ownership in a company. to the public — an IPO — the money goes to the company. This is the primary marketWhere new securities are first sold by the issuer.. It happens once for each batch of sharesA unit of ownership in a company.. Think of it as the factory selling a brand-new car.
The secondary market: buying from each other
After that, those sharesA unit of ownership in a company. trade between investors on the exchangeA regulated marketplace where shares are bought and sold.. When you buy Reliance today, Reliance gets nothing — you are buying from another investor who wants to sell. This is the secondary marketWhere existing securities trade between investors., and it is where 99.9% of all trading happens. Think used-car market: the same car changing hands, the manufacturer no longer involved.
If the company gets no money from secondary trading, why does it care about its stock price?
Because the share price affects its ability to raise more capital later, the wealth of its owners and management, employee stock value, and its credibility. A healthy price keeps future options open.