What is the primary characteristic of secondary markets?

The primary characteristic of secondary markets is that trading occurs between investors. In these markets, existing financial instruments such as stocks and bonds are bought and sold among investors without the involvement of the issuer. This facilitates liquidity, allowing investors to enter and exit their positions easily.

Secondary markets are essential because they provide an avenue for price discovery, enabling investors to gauge the value of their investments based on current supply and demand dynamics. This interaction not only enhances market efficiency but also supports the overall health of the financial market ecosystem.

The focus on trading between investors distinguishes the secondary market from primary markets, where new securities are created and sold directly by issuers, and/or options that imply a limitation on who can participate in trading, such as only institutional investors trading or suggesting that new securities are generated in this market type.