Financial markets: primary & secondary
A financial market is any place — physical or electronic — where buyers and sellers trade financial assets such as shares, bonds or currencies. The most important distinction is whether a security is being sold for the first time (primary market) or passed between investors (secondary market).
The main kinds of markets
| Market | What is traded | Example |
|---|---|---|
| Stock (equity) market | Shares: pieces of ownership in companies | Buying Apple shares on Nasdaq |
| Bond (debt) market | Loans to governments and companies | US Treasury bonds, Romanian government bonds |
| Money market | Very short-term loans (days to one year) | Treasury bills, bank deposits between banks |
| Currency (forex) market | Currencies | Exchanging euros for dollars. The largest market in the world: several trillion dollars change hands every day |
| Commodity market | Raw materials | Oil, wheat, gold, copper |
| Derivatives market | Contracts whose value depends on another asset | Futures and options on oil or on a stock index |
The primary market: securities are born
When a company or government creates new shares or bonds and sells them to investors for the first time, that is the primary market. The money goes to the issuer, which uses it to grow, build or repay other debts. Investment banks usually organise the sale ("underwriting").
Real examples of primary-market sales
- May 2012 · Facebook IPOAn IPO (initial public offering) is a company's first sale of shares to the public. Facebook raised about $16 billion at $38 per share.
- December 2019 · Saudi Aramco IPOThe Saudi oil company raised about $25.6 billion on the Saudi exchange (more after an extra allotment), the largest IPO in history.
- July 2023 · Hidroelectrica IPOThe investment fund Fondul Proprietatea sold its 20% stake in Romania's largest power producer on the Bucharest Stock Exchange for about RON 9.3 billion (≈ €1.9 billion) — the largest IPO in Romania's history. Because these were existing shares, the money went to the selling fund, not to Hidroelectrica (see the tip below).
- Every month · government bondsGovernments sell new bonds to fund their budgets, for example US Treasury auctions or Romania's Fidelis bonds offered to the public.
The secondary market: investors trade with each other
After the first sale, investors buy and sell the securities among themselves. When you buy a Coca-Cola share through a broker app, you buy it from another investor — Coca-Cola receives nothing. Most daily trading happens here.
🏛️ Stock exchanges
Organised, regulated markets with public prices: the New York Stock Exchange and Nasdaq (USA), the London Stock Exchange, Euronext (Paris, Amsterdam…), Deutsche Börse (Frankfurt), the Tokyo Stock Exchange and the Bucharest Stock Exchange (BVB), whose main index is the BET.
🤝 Over-the-counter (OTC)
Trades negotiated directly between two parties, often through banks. Most bonds and currencies trade this way.
Why does the secondary market matter to companies?
Because investors only buy new shares in the primary market if they know they can sell them later. The easier it is to sell (the more liquid the market), the more investors are willing to pay — and the cheaper it is for companies to raise money.
Who is who
| Issuer | Company or government selling new securities |
| Investment bank (underwriter) | Prices and organises a new issue, finds the first buyers |
| Broker | Executes your buy and sell orders on the market (banks, online brokers) |
| Market maker | Always ready to buy and sell, so there is a price at any moment |
| Regulator | Protects investors and checks companies publish honest information: the SEC (USA), ESMA (EU), ASF (Romania) |
Show the answer
No. This is a secondary-market trade: your money goes to the investor who sold you the shares. A company only receives money when it sells new shares (and in Hidroelectrica's 2023 IPO even that did not happen: the shares sold were existing ones owned by Fondul Proprietatea).