Knowledge Base

When you invest in the stock market, you’re participating in one of two markets – the primary market or the secondary market. You may not always realise which one you’re in, but the distinction matters because it tells you exactly what happens to your money.

The Primary Market — Buying Directly From the Company

The primary market is where new securities are created and sold for the first time. When you apply for an IPO, you’re participating in the primary market. The company issues new shares directly to investors like you, and the money you pay goes straight to the company. The price is fixed or set within a price band by the company and its bankers.

Other examples of primary market activity include Follow-on Public Offers (FPOs), rights issues, and bond issuances by companies or the government.

The Secondary Market — Buying From Other Investors

Once shares are allotted and listed on an exchange, all further buying and selling happens between investors. This is the secondary market that most people picture when they think of the stock market.

When you buy shares of any listed company on Samco today, you’re not buying them from that company. You’re buying from another investor who has decided to sell. The company receives no money from this transaction. The price is determined entirely by supply and demand.