What is the secondary market and how can you invest?

What is the secondary market?

The secondary market is where the majority of financial transactions for stocks, bonds and other markets take place. When most people think of the stock market, what they’re actually imagining is the secondary market – because that’s where things are being exchanged between buyers and sellers.

Primary market vs secondary market: what’s the difference?

The secondary market is often associated with the primary market, and it’s important to establish the differences between the two.

The primary market is where securities like stocks and shares are created, and it’s where they’ll initially be listed. Often, the primary market is saturated with institutional investors like banks, funds and other corporate entities.

Learn more about the primary market

The secondary market is where securities can be freely bought and sold between retail traders and investors – and it follows the primary market. Anyone with a trading account or investment account can take a position on a securities price movements on the secondary market – and as previously said, it’s where the majority of financial transactions take place.

How does the secondary market work?

The secondary market works by enabling people to buy and sell securities between themselves. For example, if you wanted to buy 100 Apple shares, you’d probably be buying them on the secondary market – even if you buy them through a broker.

Where this would be different, is if you were looking to invest in an initial public offering (IPO) – which means the stock might not be directly available to buy and sell yet. Instead, you’d need to register to receive a stock allocation on the primary market.

Learn more about IPOs and how they work

What are the types of secondary market?

Since the secondary market is anywhere where financial transactions take place after an initial listing, there are several types of secondary market to trade or invest in. This includes the:

• Stock market
• Forex market
• Options market
• Spot market
• Futures market

How can you trade or invest on the secondary market?

Trading or investing are similar terms with different meanings, and while some people will use them interchangeably, that’s often incorrect.

In the context of our offering, trading means that you’ll be taking a speculative position on a market’s price – like a stock, index or forex pair rising or falling in value. For example, trading shares on the secondary market with us means that you’ll be speculating on a company’s share price without owning the shares directly.

Instead, you’ll be opening a position with CFDs, which are leveraged derivatives. You can buy or sell based on your prediction of the market movement.

• ‘Buying’ means that you’re taking a position on prices rising – known as going long
• ‘Selling’ means that you’re taking a position on prices falling – known as going short

Since CFDs are leveraged, it’s important that you take steps to manage your risk because leverage can increase both your profits and your losses.

Learn more about the impact of leverage on your trading

Investing on the secondary market is different to trading because when you invest, you’re taking direct ownership of an asset rather than just speculating on prices. Investing in shares, for example, means you’ll profit if you sell your shares for a better price than what you paid to buy them.

Conversely, you’ll incur a loss if you sell your shares for less than this price.

Leverage isn’t available for investments, so you’ll need to commit the full value of the position upfront. While this can increase your initial outlay, it also caps your risk. Remember that investments can fall in value as well as rise, so you may receive back less than you initially invested.

With us, you can invest in shares on the secondary market from zero commission on US shares and from £3 commission on UK shares.

These rates are available to clients who opened three or more positions on their share trading account in the previous month.

Here’s how our share trading commissions match up to our competitors:

The secondary market summed up

• The secondary market is where the majority of financial transactions take place
• The secondary market follows the primary market – which is where securities like stocks and shares are created
• Once the primary market has concluded and the asset is publicly listed, it can be freely bought by traders and investors on the secondary market
• Trading means that you’re speculating on prices rising or falling without taking direct ownership, by using derivatives such as CFDs
• Investing means that you’re taking direct ownership of an asset like stocks or shares

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