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The initial issuance of securities is known as the primary market. Afterwards, the securities can be bought and sold on secondary markets, either on stock Exchanges/Trading Venues or outside these. Secondary market offerings involve as well the placement of large blocks of already listed securities, held by large or strategic investors, private equities or founding shareholders, in which the proceeds go to the seller, instead of the issuing company (simply because no new securities are issued in this process).
Primary market
Primary markets are those where investors may acquire securities (shares, bonds or others) at the time they are being issued by subscribing directly from the issuer or by buying from the financial advisor that initially underwrote a particular stock.
An IPO is an example of a primary market issuing, others being rights offerings, private placements and preferential allotment.
A rights offering (issue) is an invitation to existing shareholders to purchase additional new shares in the company and it allows companies to raise additional equity through a new issue.
A private placement is a process in which securities are directly offered to (mainly) institutional investors such as hedge funds or banks without being publicly available. Preferential allotment offers securities to selected investors (usually hedge funds, banks, and mutual funds) at a favourable price not available to the general public.
In other words, primary markets are those where securities first become available to investors.
Secondary market
In secondary markets, securities are traded among investors on a physical or electronic trading venue/platform, where buying and selling orders can be placed and securities traded when these orders match. Specific entities – trading service providers, such as brokers and dealers as well as banks – interact with the trading venue, by placing trading orders received from their clients. The defining characteristic of the secondary market is that investors trade among themselves. The issuer is not involved, unless it is buying or selling own securities, as any other investor.
It must be noted that the trading activity outside a trading venue is said to be traded OTC (or Over-The-Counter) and is considered as secondary market as well.
In a simple way, secondary markets is where securities are bought and sold.
