Secondary Market
The financial marketplace where previously issued securities are bought and sold between investors, as opposed to being purchased directly from the issuing company.
What is Secondary Market?
The secondary market is where investors buy and sell securities that were originally issued in the primary market (where companies and governments sell new securities directly to raise capital). When you buy Apple stock on the Nasdaq, you are purchasing it from another investor — not from Apple. Apple raised money in the primary market through its 1980 IPO; all subsequent trading is in the secondary market. The secondary market provides liquidity — the ability for investors to exit positions — which makes investors more willing to buy securities in the first place, thereby reducing the cost of capital for issuers. Major secondary markets include the New York Stock Exchange (NYSE), Nasdaq, bond markets, and over-the-counter (OTC) derivatives markets. Secondary market prices serve as the real-time valuation signals that guide capital allocation across the economy. The secondary market differs from the primary market, where new issuances (IPOs, secondary offerings, bond issuances) occur.
Example
In its 2012 IPO (primary market), Facebook raised $16 billion by selling newly created shares to institutional investors at $38 per share. Beginning the next morning, those shares began trading on Nasdaq (secondary market) between investors, with the price moving based on supply and demand. Facebook received no proceeds from any secondary market trading — all proceeds went to the seller, not the company. This is why daily stock price movements, while important for investors, do not directly affect the company's cash balance.