A secondary Financial Market can be defined as a market where investors buy securities or assets from fellow investors, rather than buy from the issuing companies. Examples for secondary financial markets are like the New York Stock Exchange and the NASDAQ. When assets like mortgages are bundle up together then they can be resold as securities in the GNMA (Government National Mortgage Association) Pools on the secondary markets.These securities are then floated for sale to the investors.
In the secondary financial markets the market prices are determined by the supply demand forces at play, unlike the primary markets where the prices are already set beforehand.
How do the Secondary Markets work?
When a company gets listed on the stock exchange and its price is in the secondary market, then this will influence the amount of funds that can be realized by issuing of additional stock in the primary markets. if the price of the listed stock rises then the stock holder will make more money in the process.
The corporate managers will have to closely monitor the price of the company stocks in the secondary market, because any changes in the market, will have an impact of the financial status of the corporation owners (the stock holders). Whenever the stock prices go up then this will mean more money made for the stockholders. The corporate managers only own a small fraction of the corporation’s shares which is relative to the company size. The corporate will be given the option of buying the company stocks at a given price, in this way they will be motivated to increase the value of stock listed in the secondary market.
The stock exchange platform encourages investments to be made by the provision of a secondary market. There are rules and regulations that govern the stock exchange which also protect buyers and also make sure that there is fairness in the whole process.
The secondary market helps traders sell off and buy securities quickly and in an efficient manner. When an individual is able to sell off a security in this market, then this will increase the safety if investing for the traders involved in these markets. In such markets investors are able to sell off stock that is not doing too well at the moment or maybe on the decline. Investors who trade in such markets have some many advantages which include selling of stock at a good price, and buying of securities at a subsidized prices from traders who want to sell off stock quickly.