What happens to the money paid for a stock in the secondary market?

• A. It goes to the company as capital for operations.
• B. It goes to the previous owner; the company does not receive money.
• C. It is split between the exchange and the regulator.
• D. It is used to pay dividends to all shareholders.

Answer: (B)

In the secondary market, trading involves ownership changing hands between investors, not new money flowing to the issuing company. When you sell shares, the buyer pays you the sale price and you receive that cash; the company does not receive any of the proceeds from that sale because those shares have already been issued and funded in the past. The company’s capital comes from primary market activities like the initial offering, not from ongoing secondary trades.

Fees you pay to brokers or the exchange are separate costs and do not become part of the sale price going to the company. Dividends, meanwhile, are payments the company makes to shareholders from its profits, not funds obtained from selling stock in the market.

So the money from selling in the secondary market goes to the seller—the previous owner.