Glossary
Secondary market
Where investors buy and sell existing securities among themselves, such as on stock exchanges, with no money going to the issuer.
On this page
The secondary market is where previously issued securities change hands between investors. When you buy shares of a public company through your broker, you are almost always buying them from another investor, not from the company. The issuer received its money when the securities were first sold in the Primary market; secondary trades move ownership and set prices, but the company gets nothing from them.
How it works
Most secondary trading in stocks takes place on exchanges such as the NYSE and Nasdaq, on alternative trading systems including dark pools, and through wholesale market makers that fill retail orders. Bonds trade mostly Over the counter (OTC) between dealers. Each trade needs a buyer and a seller, and the price moves to wherever they meet.
Why it matters
The secondary market is what makes the primary market work. Investors are far more willing to buy newly issued stocks and bonds when they know they can sell later. Key benefits:
- Liquidity. Holders can turn securities into cash quickly.
- Price discovery. Continuous trading reveals what investors collectively think a company is worth, which feeds back into decisions on borrowing, acquisitions and new issues.
- Lower cost of capital. Liquid shares command higher prices, so companies can raise money more cheaply.
Secondary trading also carries costs: spreads, fees and market impact. US secondary markets are regulated by the SEC, with FINRA overseeing broker-dealers.