secondary market
A financial market where previously issued securities are traded between investors, such as the NYSE or NASDAQ, as opposed to the primary market where new securities are issued.
Example
“Once a company's shares are issued in an IPO, they trade in the secondary market where investors buy and sell among themselves.”
Memory Tip
SECONDARY market = the second time securities change hands. Investors trade with each other.
Why It Matters
Understanding the secondary market is crucial because most of your investment activities as an individual investor happen here rather than in the primary market. When you buy stocks through your brokerage account or trade ETFs, you are participating in the secondary market, which directly affects the prices you pay and the liquidity of your investments.
Common Misconception
Many people mistakenly believe that when they buy a stock, their money goes directly to the company that issued it. In reality, when you purchase shares on the secondary market like the NYSE, you are buying from another investor, and the company receives no proceeds from that transaction.
In Practice
Suppose Apple issued 1 million shares at 150 dollars per share in the primary market in 2020, raising 150 million dollars for the company. Today, you buy 100 Apple shares at 180 dollars per share on the NYSE secondary market, paying 18,000 dollars total, but Apple receives zero dollars from your purchase since you are buying from another investor who owned those shares.
Etymology
SECONDARY (second in order) MARKET. The SECOND stage where securities trade after their initial ISSUANCE.
Common Misspellings
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Related Terms
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See Also
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