What is the function of the secondary market?

The function of the secondary market is primarily to promote the trading of previously issued securities. This market allows investors to buy and sell securities that have already been issued, providing liquidity and enabling price discovery for these financial instruments.

In the secondary market, transactions occur between investors rather than between issuers and the investors, which is the case in the primary market. This facilitates a continuous trading environment, where the prices of securities can fluctuate based on supply and demand. It also allows investors to quickly enter and exit positions in their investments, which is crucial for market efficiency.

The secondary market plays a vital role in the overall function of capital markets as it supports the valuation of securities and helps establish their market price, reflecting real-time investor sentiment and market conditions. By doing so, it indirectly supports issuers of securities by ensuring that their securities remain liquid, encouraging investment in their primary offerings.