What exactly is meant by the term “secondary market”?
When a company floats in order to raise capital, the market for these new securities is known as the “primary market” and is represented by the security being purchased directly from the issuer. The shares are then effectively sold on, whereby trading begins on the secondary market – where the vast majority of share dealing as we understand it, takes place. The presence of secondary markets is seen to be vital, even though the capital has already been raised, since it gives confidence to other companies who are thinking of raising capital in this way, by providing a liquid market – that is, one where the shares continue to be easily traded – as well as providing the ability to trade these newly issued shares from the primary market.
