Business, Legal & Accounting Glossary
A market in which an investor purchases a security from another investor rather than the issuer, subsequent to the original issuance in the primary market. also called aftermarket.
The Secondary market is a place where securities and bonds are traded.
Securities after being made public by a company in the primary market, are traded in the secondary market. The secondary market can be demarcated into the equity market and the debt market. The secondary market provides a platform for common investors to trade their securities.
There is a clear difference between the primary market and the secondary market. In a primary market, companies usually sell their securities and bonds to raise funds. A secondary market is a place where pre-issued securities are traded amongst investors. In a secondary market either there is an auction or dealings are done. The Stock exchange and Over-The-Counter are two parts of a secondary market. The stock exchange is referred to as a significant part of the auction market and OTC is a part of the dealer market.
Financial products and services that are exchanged in a secondary market include the following:
These shares provide partial ownership of any company to the investors. Some of the common varieties of equity shares are as follows:
These are credit risk-free securities that are issued by the central bank of any nation. One has to pay a fixed amount for these securities on a half-yearly basis. These securities come with various maturity dates that range from less than one year time to twenty years.
These are bonds that are issued by any company and bear a fixed rate of interest. The rate of interest is payable on a half-yearly basis. The principal amount invested in these bonds is payable on the date of redemption of debentures.
Issued by any company or any government institution that carries a promise to pay off a certain amount of money on a specified maturity date. Bonds can be of varied types like zero-coupon bonds and convertible bonds.
These are no-guarantee papers, which come with the assurance of repayment of a fixed amount of money. These papers are issued for a tenure of 3 months.
Primary market
Secondary offering
Auction market
Dealer market
Secondary market refers to the buying and selling of securities among investors, usually at a physical exchange but for some assets via traders, market makers or even electronic arrangments.
The secondary market is where most investors do the lion’s share of their buying and selling of stocks. The New York Stock Exchange, AMEX, Nasdaq, and other major exchanges across the globe are secondary markets.
The best way to understand what the secondary market is, is to understand what it is not. For stocks, primary markets are where buyers purchase a company’s shares directly from the company, such as during an initial public offering, or IPO. In the secondary market, owners of stocks are trading among themselves. When you buy stock in the secondary market, the money goes to the owner of the stock, not to the company.
A secondary market can be an auction market or a dealer market. In an auction market, individual buyers and sellers (or their brokers) come together and bid to buy or sell stocks. “Specialists” match up buyers and sellers. This process establishes the market value for an asset via a bid/ask auction system.
In a dealer market, dealers trade from their own accounts at firm bid and ask prices, using their own research and expertise.
Trading in the secondary market establishes a company’s market capitalization. Multiply the price of one share of stock by the number of shares outstanding and you end up with what the market thinks a company is worth. Market cap is important, but many things unrelated to the fundamental strength or weakness of a business can affect it.
The number of shares traded in a day (market volume) also tells investors something about whether a company’s stock is in demand. Big fluctuations in volume could indicate changes at the company or how it is perceived. You also want to consider volume on the secondary market when looking at what is causing price changes.
Secondary markets are also the place where packaged investments such as collateralized debt obligations are offered for sale. It’s also where companies go when they issue additional stock to raise money via a secondary offering.
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This glossary post was last updated: 28th November, 2021 | 0 Views.