What it is
A secondary market is where investors trade financial assets like bonds and stocks after they’ve been sold by the original issuer. Primary issuers include government agencies, banks, and corporations.
Think of it as a marketplace for secondhand products, or in terms of buying physical property. For example, you can either get a car from its original manufacturer or find one that was previously owned by someone else.
There are different pros and cons attached to buying a used car versus getting a brand-new model.
Stocks work in a similar way. With these, companies issue shares of ownership for the first time by holding an Initial Public Offering (IPO).
After buying shares during the IPO, investors can later sell them by trading in the Philippine Stock Exchange (PSE). This makes the PSE a secondary market.
What it means for you
For small investors, secondary markets can make it easier to invest in certain financial products. This is because primary markets often favor large investors that can buy securities in bulk.
In secondary markets, investors trade with other investors. The original issuers usually aren’t involved. This allows for liquidity since assets are relatively easier to buy and sell.
Through trading, prices of assets will rise and fall due to supply and demand. As an investor, this gives you an opportunity to make a profit by buying low and selling high.
However, you’ll also face the risk of losing money during a downturn. That’s why it’s important to know when to hold on and when to pull your money out of an investment.
If you own shares of stocks or have invested in bonds, then you’ve probably already participated in a secondary market.
When trading, make sure to engage only with authorized and legitimate brokers or entities to stay safe while investing.
