1.1  Important Definitions in the Securities Industry

There are a few things you need to know in order to understand how securities are traded. First, the term “securities trading” refers to buying and selling securities, not swapping them. Second, before a security can be traded, it must be issued to the public through what is called the primary market. There is no actual “primary” market—no primary stock exchange or mall or website—the term primary market just refers to the idea that a security must first be issued to the public, hence the word primary.

After a security has been issued, it may be bought and sold by investors. This trading between investors takes place in the so-called secondary market. There is no actual “secondary market”—like primary market, it is simply a concept. “Secondary” means that a security is now being bought and sold between investors and none of the sales go to the company. In the primary market, when a security is first being issued, the money from the sale of a security goes to the company (the issuer). In the secondary market, where investors are trading securities that have already been issued, the money from the sale of a security goes to the investor who sells it. To use an analogy, buying a security in the primary market is like buying an iPhone from Apple. Buying a security in the secondary market is like buying a used iPhone off of Craigslist.

Secondary market transactions are executed by brokers and