What does the term "secondary market" refer to?

The term "secondary market" refers to the transfer of already issued securities. This market plays a crucial role in the financial system as it provides liquidity and allows investors to buy and sell securities after their initial issuance. When securities are first issued, this occurs in the primary market, where companies or governments create new stocks or bonds and sell them directly to investors. However, once these securities are issued and subsequently sold, they enter the secondary market, where existing owners can sell them to other investors.

In the secondary market, transactions do not involve the issuing company; instead, it's about trading among investors. This market is vital for establishing the current market value of securities, as prices fluctuate based on supply and demand dynamics. The involvement of various participants, such as institutional investors, individual traders, and market makers, contributes to the efficient functioning of this market.

Other concepts, such as direct trading between two parties or a market specifically for new startups, relate more to different aspects of financial transactions and markets but do not capture the essence of what the secondary market entails. The focus here is specifically on the trading of previously issued securities, which is foundational for understanding how markets operate and impact investment strategies.