1.4 Primary vs. Secondary Markets
Understanding capital flows is essential: the primary market provides new financing to issuers, while the secondary market provides liquidity to existing investors.
Key FINRA Exam Takeaways
- Primary Market: Issuers sell new securities to investors to raise capital; proceeds flow directly to the issuer.
- Secondary Market: Investors trade previously issued securities among themselves; proceeds flow between investors, NOT the issuer.
- Third Market: Exchange-listed stocks traded off-exchange in the Over-The-Counter (OTC) market.
- Fourth Market: Direct electronic trading between institutional investors without broker-dealer intermediaries (ECNs).
Interactive Knowledge Checkpoint • Section 1.4
An investor purchases 100 shares of Apple (AAPL) common stock on the Nasdaq exchange from another investor. In which market did this transaction occur?