Primary Market

The primary market is where a security is created and sold for the first time. Before this happens, shares of a company don't exist for the public to buy — the primary market is the process that brings them into existence and puts them in investors' hands for the first time. The most well-known example is an IPO (initial public offering), when a private company sells shares to the public for the first time.

In practice, the primary market works through underwriting. A company that wants to raise money hires one or more investment banks, who agree to buy the new shares (or find buyers for them) at an agreed price, then resell them to institutions and, eventually, the public. The money from this sale goes to the company itself. This is the key distinguishing feature: in the primary market, the company issuing the stock is the one receiving the cash.

Once those shares have been sold and start changing hands between investors, they move to the secondary market — this is what people mean when they talk about "the market" day to day, like the NYSE or Nasdaq. If you buy 100 shares of a company that IPO'd five years ago, you're buying from another investor, not from the company, and your money doesn't go to the company at all. That's the secondary market.

There's a second, less common use of the term: for a security that trades on more than one exchange, traders sometimes call the exchange with the highest volume in that security its "primary market," distinguishing it from other venues where it also trades but more thinly. This usage has nothing to do with IPOs — it's just about where the bulk of activity happens.