What is the secondary market and how can you trade it?

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 in. This includes the:

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

How can you trade on the secondary market?

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.

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 like CFDs

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