Primary & Secondary Markets
Negotiable securities
- Common stock is negotiable, meaning investors can buy and sell it with each other by agreeing on a price.
- When you buy common stock, you become an owner of the company for as long as you hold the shares.
- You can sell your shares at any time.
- Once you liquidate (sell) your shares, you lock in your gain or loss and no longer participate in the issuer’s future successes or failures.
Definitions
| Term | Definition | Example |
|---|---|---|
| Issuer | The organization responsible for creating, registering, and selling a security. | Tesla is the issuer of Tesla common stock; the US Government is the issuer of US Government bonds; Ford is the issuer of Ford preferred stock |
| Secondary market | Where stocks trade after they’re initially sold in the primary market (e.g., initial public offerings). Commonly referred to as the “stock market.” | Buying shares of Home Depot stock from another investor rather than directly from Home Depot |
- When you buy a negotiable security, you typically buy it from another investor who is selling.
- For example, if you want to buy shares of Home Depot stock, you generally buy them in the secondary market from another investor — not directly from Home Depot.
Negotiable vs. redeemable
If a security isn’t negotiable, it’s likely redeemable. Common stock isn’t redeemable, but a few securities covered in future chapters are (like mutual funds and unit investment trusts).
| Feature | Negotiable security | Redeemable security |
|---|---|---|
| Who you trade with | Other investors | Directly with the issuer |
| Where it trades | Secondary market | With the issuer only |
| Common stock? | Yes — common stock is negotiable | No — common stock is not redeemable |
| Examples | Common stock; most securities | Mutual funds, unit investment trusts |
- A redeemable security is bought and sold directly with the issuer, not with other investors in the market.
- For example, investors purchase Vanguard funds directly from Vanguard. When Vanguard fund investors liquidate their shares, they redeem (sell) those shares with Vanguard — Vanguard “cashes out” the shares.
Settlement
- After a common stock trade executes, several steps happen behind the scenes.
- Settlement is the day the stock is “officially” in the buyer’s possession.
- Most trades use regular-way settlement, which occurs on the first business day after the transaction.
Regular-way settlement for common stock = T+1 (trade date plus one business day).
Don’t count weekends or holidays when calculating settlement time frames — settlement is based on business days.
More on the behind-the-scenes activity involving settlement comes in a future chapter.
The stock market
- Issuers can raise significant capital (money) by offering securities like common stock to investors in the primary market.
- The most notable primary market transaction is the IPO (initial public offering), which is the first time an issuer sells its shares to the general public.
- Primary market transactions are also known as issuer transactions because the issuer receives the proceeds from the sale.
Why companies sell securities
- Companies sell securities for one primary reason: to raise capital (money).
- Stockholders have some control over the direction of the company, so issuing stock means giving up some control.
- Companies do this because growing a business can require large amounts of money — for example, to build new offices, buy equipment, or hire employees.
Primary vs. secondary market
| Market | What happens | Transaction type | Who receives the proceeds |
|---|---|---|---|
| Primary market | Issuers offer securities to investors | Issuer transaction | The issuer |
| Secondary market (“the stock market”) | Investors trade securities with other investors | Non-issuer transaction | The selling investor (who gives up ownership) |
- After common stock is sold in the primary market, investors are generally free to trade it in the secondary market (often called the stock market).
- When a trade occurs in the secondary market, a non-issuer transaction takes place. That means the issuer did not receive the proceeds. Instead, the selling investor receives the proceeds.
Offerings after the IPO
| Offering type | Also known as | Who offers the shares | Who receives the proceeds | Notes |
|---|---|---|---|---|
| IPO (initial public offering) | — | The issuer | The issuer | First time an issuer sells shares to the general public |
| Follow-on offering | Additional public offering (APO); essentially “IPO part II” (or part III, IV, etc.) | The issuer, in the primary market after the IPO | The issuer | Issuers often don’t sell all possible shares in the IPO, leaving room to sell more and raise more capital later |
| Secondary offering | — | Large shareholders offering shares they previously obtained from the issuer | The selling shareholders (may not involve the issuer) | These shareholders are often officers or directors who accumulated shares through their employment |
“Secondary offering” ≠ “secondary market” and ≠ “follow-on offering.” A secondary offering may not involve the issuer at all — large shareholders sell their own previously obtained shares.
Worked example — Meta Platforms, Inc.
Let’s look at an issuer that’s been involved in all the transactions discussed above. Meta Platforms, Inc. (ticker: META), formerly known as Facebook, launched in 2003. After gaining some success and raising money from private investors, the company raised $16 billion from investors in its 2012 IPO. After the IPO, the stock began trading in the secondary market on the NASDAQ exchange (we’ll learn more about exchanges in a future chapter). Roughly a year after its IPO, the company completed its first follow-on offering, raising roughly an additional $1.5 billion. A secondary offering occurred at the same time as Mark Zuckerberg (CEO of Meta) sold over $2 billion of stock he personally owned.
Key points
Negotiable securities
- Trade in the secondary market between investors
- Common stock is negotiable
- Most securities are negotiable
Redeemable securities
- May only be bought and sold with the issuer
Primary market
- Where issuers offer securities to investors
- IPOs are a type of primary market transaction
Secondary market
- Where investors trade securities with other investors
Issuer transaction
- Sale of securities where the issuer keeps proceeds
- Takes place in the primary market
- Common example: IPOs
Non-issuer transaction
- Sale of securities where a party other than the issuer keeps proceeds
- Takes place in the secondary market
- Where securities trade after their initial sale
Sources
Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.
| # | Source | Publisher |
|---|---|---|
| 1 | Nasdaq — market structure and market makers | SEC |
| 2 | Trading basics — order handling and execution | SEC |
| 3 | T+1 settlement rule adoption | SEC |
| 4 | Achievable Series 65 — chapter 1.1.2 | Achievable (course text) |