You buy and sell shares on a stock market — a network of exchanges like the NYSE and Nasdaq. But how do shares get there, and how is a price set?
From company to investor: the primary market
A company that wants public investors holds an initial public offering (IPO). This is the primary market: the company issues new shares and sells them to investors, and the money goes to the company. It’s the moment a private business “goes public”.
Investor to investor: the secondary market
After the IPO, those shares trade between investors on an exchange — the secondary market. Here the company isn’t involved and gets none of the money; you’re simply buying from, or selling to, another investor. The vast majority of trading you’ll ever do is on the secondary market.
How a price is set
There’s no official “price” handed down — it emerges from supply and demand:
- The bid is the highest price a buyer will pay right now.
- The ask is the lowest price a seller will accept.
- A trade happens when the two meet. The last traded price is what gets quoted.
More eager buyers than sellers nudges the price up; more eager sellers nudges it down. The quoted price is just the latest point where someone agreed to buy and someone agreed to sell.
Liquidity matters
A heavily traded stock has lots of buyers and sellers, so the bid and ask sit close together and you can trade near a fair price. A thinly traded one has a wider gap, and your order can move the price against you. Big, well-known companies are usually easy to trade; tiny ones can be tricky.
The takeaway
Companies first sell shares in an IPO (the primary market); after that, investors trade those shares with each other on an exchange (the secondary market). No one sets the price — it’s wherever supply and demand currently meet, quoted as the bid and ask.