who gets the money when you buy a stock

A concise explanation of who receives cash when you buy a share: on the secondary market your payment goes to the selling investor; the issuing company only receives cash when it issues new shares ...

2025-09-08 09:15:00

By Alex Carter

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Who Gets the Money When You Buy a Stock

Short answer: If you buy shares on the open market, the cash you pay generally goes to the investor or liquidity provider who sold those shares; a company receives cash only when it issues new shares in the primary market (for example, an IPO or a follow‑on offering). This guide explains participants, the trade lifecycle, where fees and spreads go, special cases, and how token purchases differ — all written for beginners and referencing market infrastructure and recent reporting.

who gets the money when you buy a stock is a common question for new investors. Read on to learn the practical mechanics of an equity purchase, who actually pockets the money you hand over, and when the company itself benefits.

Primary market vs secondary market

Primary market — where companies raise capital

When a company issues new shares it is selling ownership stakes directly to investors. Typical primary market scenarios include:

Initial public offerings (IPOs).
Follow‑on offerings or secondary offerings where the issuer sells additional newly created shares.
Rights offerings and certain convertible note conversions that create fresh equity.

In these primary events, the proceeds from buyers flow to the issuing company (or, in some structured direct listings, to selling shareholders) after the deduction of fees. Underwriting fees, legal and accounting costs, and transaction expenses are paid to intermediaries such as investment banks and counsel. Net proceeds are recorded on the company’s balance sheet and can be used for operations, debt reduction, capex, or other corporate purposes.

Secondary market — the everyday trading floor

Most retail activity takes place on the secondary market: exchanges, electronic communication networks, dark pools, and over‑the‑counter venues where existing shares trade among investors. When you place a retail buy order for a publicly traded stock on an exchange:

The shares you purchase are usually owned by another investor, fund, or a liquidity provider at the moment of the trade.
Your cash payment goes to that seller (or to the seller’s broker/agent through the clearing and settlement chain), not to the issuing company.

Because most trades are secondary, the technical answer to the headline question for the majority of retail trades is straightforward: the selling investor, not the company, receives your money when you buy a stock on the open market.

Who the main participants are (and who actually receives money)

Understanding who handles cash and shares helps you see where the money flows and what costs you might incur.

Broker / retail platform

Brokers accept your orders, hold client cash in segregated accounts, and route orders for execution. They may charge explicit commissions or fees for certain services. Importantly, brokers do not keep the principal you pay to buy shares; that principal is passed through the broker into the clearing and settlement system so the seller can receive it.

Many retail trading platforms now offer zero‑commission equity trading, but that does not eliminate other execution costs (spreads, fees, or payment for order flow arrangements). If you trade via a regulated broker, your cash and securities are usually held under custody rules and protected by regulatory frameworks (for example, SIPC protection in the U.S. where applicable), subject to limits and conditions.

Exchange / matching engine

An exchange (or matching engine) receives orders and matches available buy and sell interest. Exchanges charge transaction and market data fees; typically these fees are billed to member brokerages rather than directly debited from your account on a trade‑by‑trade basis. Exchanges are infrastructure providers — they match orders and report trades — but they do not become the beneficiary of your purchase price.

Market makers and liquidity providers

Market makers post two‑sided quotes (bid and ask) and supply liquidity. They capture the bid–ask spread — the difference between what buyers pay and what sellers receive. When you buy at the ask, part of your implicit trading cost is the spread and that amount is typically realized by whoever provided the quoted ask (a market maker or liquidity provider).

In some venues, liquidity providers are compensated through explicit rebates and fees as well. The combination of spread capture and routing arrangements is a key component of where trade proceeds indirectly flow.

Seller (other investor, fund, institution)

In a standard secondary trade, the ultimate recipient of your purchase price is the account holder who sold the shares: another retail investor, an institutional holder, or an algorithmic trader. That investor receives cash on settlement (e.g., T+2 in the U.S.).

Underwriters / investment banks

In primary market transactions such as IPOs, underwriters coordinate the issuance and distribution of new shares. Underwriters receive underwriting fees and commissions from the offering proceeds. Underwriting fees are deducted from gross proceeds before the company records the net raise.

Clearinghouse / settlement agent (e.g., DTCC in the U.S.)

Clearinghouses facilitate the post‑trade process: they net obligations, novate trades in some systems, and ensure that cash and securities move between counterparties on settlement date. Clearinghouses do not typically keep a trade’s economic value; they act as intermediaries to reduce counterparty risk and organize settlement. Their fees are small components of total transaction costs.

Custodian / transfer agent

Custodians safeguard securities and hold them in street name for broker clients; transfer agents update the shareholder register and handle corporate actions (dividends, share issuance). These parties earn custody or transfer fees, but they do not usually retain your trade proceeds.

How a trade is executed and how cash actually moves

Order routing and execution

The lifecycle of a retail trade typically follows these steps:

Investor submits an order through a broker platform (market, limit, or conditional order).
The broker validates funds and order parameters and routes the order to an exchange, market maker, or other execution venue.
The order is matched with opposite interest — a resting sell order on an exchange or a liquidity provider’s quote.
A trade is executed and a trade report is generated immediately.

Where the order is sent matters: some brokers route to displayed exchanges, some to internalizers or market makers, and some to dark pools for block executions. Routing choices can affect price improvement, speed, and whether payment for order flow is involved.

Clearing and settlement (T+2 in U.S.)

After execution comes clearing and settlement:

Clearing: trades are affirmed, matched, and netted. Clearinghouses may offset positions to reduce the number of cash and share movements.
Settlement: on the settlement date (the U.S. standard is T+2 — trade date plus two business days), cash from the buyer is delivered to the seller and shares are delivered to the buyer’s account.

Between execution and settlement, brokers may update account positions and display the new holdings, but legal ownership transfers on settlement.

Exceptions and complexities include:

Short sales and margin accounts: when you short or trade on margin, the seller may be a lender of shares rather than someone liquidating a long holding.
Settlement failures: if either side cannot deliver cash or shares on settlement date, the clearinghouse’s rules and market penalties apply.

Movement of funds — bookkeeping path

A simplified bookkeeping path for a typical buy order on the secondary market:

Your broker debits your cash or margin line in your client account.
The broker instructs the clearinghouse that you purchased X shares at Y price.
On settlement date the clearinghouse coordinates: cash from the buyer’s clearing broker moves to the seller’s clearing broker; securities are moved in the opposite direction.
The seller’s broker credits the seller’s cash account.

Regulatory custody and segregation rules mean brokers keep client assets separate from firm assets. Protections like SIPC can cover certain broker failures, but they do not shield against market losses.

Fees, spreads and other costs — who pockets them

The headline question of who receives your cash on purchase is only part of the story. Execution costs reduce the effective proceeds that reach the seller or add to the buyer’s cost. Those costs are captured by different parties.

Explicit broker commissions and platform fees

Some brokers charge per‑trade commissions, account maintenance fees, or fees for advanced order types. When charged, these are taken by your broker or platform. Many retail brokers offer $0 commission on standard U.S. equities, but other fees can still apply (inactivity, wire fees, or advanced access fees).

Bid–ask spread and market maker capture

The bid–ask spread is an implicit cost. If you buy at the ask and later sell at the bid, you immediately realize the spread as a loss relative to midprice. Market makers and liquidity providers who post the side of the market you hit typically collect the spread.

Exchange, clearing and regulatory fees

Small transaction fees are collected by exchanges, clearinghouses, and regulators. These fees are often embedded in execution or settlement pricing and are generally a very small component of total cost compared with spread.

Payment for order flow (PFOF)

Payment for order flow occurs when brokers route retail orders to market makers or internalizers who pay the broker for order flow. PFOF revenue goes to the broker and can subsidize zero‑commission trading. Critics argue PFOF creates conflicts of interest and can affect execution quality. Regulators require brokers to disclose routing practices and execution quality statistics.

Taxes and transfer taxes

Taxes on trades (capital gains taxes on realized profits) are paid to government authorities, not market intermediaries. Some jurisdictions impose transfer taxes or stamp duties on secondary trades; those go to government entities.

When the issuing company benefits (corporate actions and special issuances)

Although typical open‑market purchases do not send money to a company, there are situations where a company directly receives or pays cash.

IPOs, follow‑on offerings, convertible issuances and rights offerings

When a company issues new shares as part of an IPO, follow‑on equity sale, or rights offering, buyers’ cash — net of fees and underwriting costs — flows into the company and is recorded as equity on the balance sheet. Convertible note conversions that create new shares can have similar effects depending on the financing terms.

Treasury shares and share repurchases

When a company repurchases its own shares, cash flows from the company to the selling shareholders. A buyback reduces outstanding shares and moves corporate cash to those sellers.

Dividends

Dividends are cash distributions from company reserves to shareholders. Buying a share on the secondary market does not directly fund a future dividend; dividends are paid from company earnings/cash to the registered holders on the dividend record date.

Special trading cases and complexities

Direct listings and secondary sales by insiders

Direct listings differ from traditional IPOs. With a direct listing, existing shareholders may sell shares directly to the public, and the company may or may not issue new shares. In many direct listings proceeds go to selling shareholders rather than to the company. The exact mechanics depend on how the listing is structured and whether fresh capital is raised.

Dark pools and block trades

Large institutional orders may be executed off‑exchange in dark pools or via negotiated block trades. The cash still flows to sellers, but execution protocols, price discovery, and fee arrangements differ. Block trades often use specialized brokers and can include discounts or commissions to facilitate large transactions.

ETFs and mutual funds

ETFs: Buying ETF shares on the secondary market typically means your cash goes to the seller of those ETF shares. The ETF issuer interacts with authorized participants (APs) who create or redeem large creation units directly with the fund; those primary flows involve buying or delivering baskets of securities and do, in aggregate, affect fund holdings. If you buy ETF shares on the primary side (via an AP), your funds effectively support the creation of shares and the fund’s holdings.
Mutual funds: When you purchase mutual fund shares directly from the fund company, your cash usually goes into the fund and is used to buy portfolio holdings — a primary market purchase. However, many mutual funds allow secondary transactions through broker intermediaries where shares are transferred between investors.

Fractional shares and synthetic products

Fractional share programs and derivatives (CFDs, swaps) introduce other custodial or synthetic arrangements. If your broker offers synthetic exposure, you might hold a contract rather than the underlying security; cash flows and counterparty exposures differ in these setups. If your broker provides custody of fractional shares, the broker often aggregates full share holdings and allocates fractional ownership internally.

How this compares to cryptocurrency / token purchases

The mechanics for tokens share similarities with equity markets but also important differences.

Token primary sales vs secondary exchange trading

Primary token sales (ICOs, IDOs, IEOs): funds raised in an initial token sale generally flow to the issuer or project team subject to sale terms and vesting schedules.
Secondary token trades on exchanges: most trading activity occurs in secondary markets, where buyers pay sellers, or liquidity providers are rebalanced.

Therefore, like stocks, the issuer benefits only when new tokens are issued or sold directly by the project.

Decentralized exchanges and AMMs

On automated market makers (AMMs) such as liquidity pools, swaps alter token balances in the pool. Proceeds (after swap fees) accumulate to liquidity providers proportionally. The issuing team does not directly receive funds from each swap unless they control liquidity or have a protocol fee.

Custody differences

Crypto purchases can be transferred to a self‑custody wallet that you control. With equities, ownership is often held in street name by broker custodians. Self‑custody shifts custody risk to the wallet holder and changes counterparty exposure. Bitget Wallet can be recommended for users seeking integrated custody services with an exchange environment.

Practical takeaways for investors

Here are simple rules and pragmatic tips to reduce surprises:

Rule 1: If you buy on the open market, the seller — not the company — usually receives your cash. Repeat: who gets the money when you buy a stock? In most retail trades, it’s the selling investor or liquidity provider.
Rule 2: The company receives cash only when it issues new shares in the primary market (IPO, follow‑on offering, or rights issuance).
Rule 3: Execution costs (spreads, commissions, PFOF) and order routing influence your effective price. Ask your broker for execution quality statistics and order routing disclosures where available.
Rule 4: Settlement timing matters. In the U.S., settlement is typically T+2. Know when cash and shares legally change hands.

Tips to reduce surprise costs:

Check your broker’s fee schedule and routing policies.
Use limit orders if you want a guaranteed price instead of a market order that may cross a wide spread.
Be mindful of liquidity: thinly traded stocks can have large bid–ask spreads.
For crypto, use reputable custody solutions such as Bitget Wallet and consider trading on regulated platforms like Bitget exchange for improved compliance and operational support.

Special reference: recent reporting on big IPOs and market context

As of Dec. 15, 2025, according to a Motley Fool podcast transcript, SpaceX was discussed as a potential large IPO at a reported valuation of about $1.5 trillion, with analysts noting Starlink revenues and user metrics (Starlink reported more than 8 million subscribers and revenue growth estimates rising from roughly $1.4 billion in 2020 to estimates near $15.5 billion in later years). Those public reporting points illustrate how primary market issuances (IPOs) are the occasions when companies can convert investor cash into corporate capital — a contrast to secondary market trades where cash transfers occur between investors.

Note: the Motley Fool podcast transcript is used here as a factual, time‑stamped reporting source to illustrate how large primary market events are discussed in public markets. This article does not recommend buying or selling any security mentioned in external reporting.

More about Bitget and custody options

If you are exploring both traditional equities and digital assets, consider platforms that provide regulated trading and custody. Bitget exchange offers regulated trading services and execution technology designed for retail and institutional users. For Web3 custody, Bitget Wallet is available as an integrated self‑custody option that supports token management and protocol interactions.

Explore platform features carefully and review custody, security, and regulatory disclosures when choosing where to trade or store assets.

Final practical reminders and next steps

Remember the simple rule: who gets the money when you buy a stock? In most cases on the open market, it’s the seller, not the company.
When a company raises capital via an IPO or follow‑on offering, buyers on the primary side do fund the company.
Monitor execution costs, know your broker’s routing practices, and be mindful of settlement timing.
For token purchases, similar primary/secondary distinctions apply; on decentralized platforms, liquidity providers typically receive swap fees and spreads.

To learn more about order types, settlement cycles, or custody options for crypto and traditional assets, explore your broker’s educational center or the documentation and tutorials available through Bitget exchange and Bitget Wallet.

If you want a focused walkthrough on order types, settlement timelines, or comparisons between buying ETF shares versus an individual stock, say which topic you prefer and I’ll provide a step‑by‑step guide tailored to beginners.

The content above has been sourced from the internet and generated using AI. For high-quality content, please visit Bitget Academy.