Secondary market

Definition

The secondary market is a financial market where previously issued securities, such as stocks and bonds, are bought and sold by investors. It provides liquidity for investors looking to sell their holdings and allows new investors to buy existing securities.

5 Must Know Facts For Your Next Test

1. The secondary market includes major stock exchanges like the New York Stock Exchange (NYSE) and NASDAQ.
2. Prices of securities in the secondary market are determined by supply and demand forces among investors.
3. The secondary market is crucial for providing liquidity, enabling investors to quickly convert their holdings into cash.
4. Transactions in the secondary market do not generate new capital for the issuing company; they facilitate trading between investors.
5. Regulatory bodies such as the Securities and Exchange Commission (SEC) oversee activities in the secondary market to ensure fairness and transparency.

Review Questions

• What is the primary function of the secondary market?
• How are prices determined in the secondary market?
• Why is liquidity important in the context of the secondary market?

Related terms

Primary Market:

The financial market where new securities are issued and sold directly by companies to investors.

Liquidity:

The ease with which an asset can be converted into cash without affecting its price.

Stock Exchange: An organized marketplace where securities are traded between investors under regulated conditions.