Types of Markets

CFA Level 1 - Securities Markets

The Primary Market

The primary market refers to the market where new issues (stocks and bonds not sold before) are sold.  Investment bankers, acting as underwriters, bring new issues to the market through the primary market. This can be done as either an Initial Public Offering (IPO), when the stock has not previously traded, or as a seasoned offering once the stock has traded but new shares are being added to the market. 

The Secondary Market

A secondary market is the market in which assets are traded after they have been sold through the primary market. In this market, investors trade directly with each other through an exchange.

If the secondary market for a stock follows the characteristics we discussed previously, such as liquidity and marketability, and the issuer would like to issue more shares through a seasoned offering, the issuer would have a much easier time selling the new shares in the primary market.

For more on the markets where securities are traded, check out the article, Markets Demystified

Secondary markets for U.S. government/municipal bonds are traded primarily through banks, including investment banks. Treasuries, however, are traded through treasury dealers. Secondary markets for corporate bonds are primarily through the OTC market. In addition to the OTC market, secondary trading for corporate bonds also takes place on the New York Stock Exchange and the American Stock Exchange

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