The term secondary market trading signifies the buying and selling of securities, after they have been brought out through an Initial Public Offering. In order for secondary market trading to take place a particular security has to be listed in the relevant exchange.
The term secondary market trading could also be denoted to the dealing of the smaller parts of a larger loan and ownership interest in business enterprises.
Nature of Secondary Market
In the secondary markets the securities are traded by investors. The secondary markets need to have higher levels of liquidity so that transaction could be carried on properly.
Benefits of Secondary Market Trading
There are various benefits of trading in the secondary markets. The biggest advantage is that the investors can recover their investments to a certain extent, provided their economic status undergoes a change.
This is different from the conventional lending and partnership agreements. In such cases the investors may refrain from making long term investments. Even if they invest for a longer period of time, they would charge higher rates of interest for it.
In the secondary markets the investors are provided the luxury of being able to sell their interests in the respective investments. This is specifically applicable if the particular investment has been fragmented in comparatively smaller parts.
The investors are provided such luxuries in case of the securitized loans, equity interests like bonds or stocks that could be traded.
Secondary Stock Market Trading
In the secondary stock markets the stocks of the companies are listed in stock exchanges before they are traded. The trading in the secondary stock markets are carried out by the investors and the speculators.
The market makers are also important people in the context of secondary stock market trading as they are responsible for providing the bids and offers of new stocks.