What is the secondary market?
The key distinction is that in the secondary market, the issuing company or government receives no money. A sale of Apple shares on NASDAQ is a transaction between two investors; Apple does not participate and receives nothing. The price is set entirely by supply and demand between market participants, not by the issuer.
Primary market vs secondary market
The primary market is where new securities are created and sold for the first time. The secondary market is where those same securities are subsequently traded between investors. The distinction matters because:
Feature | Primary market | Secondary market |
Purpose | Companies/governments raise capital | Investors trade existing securities |
Who receives proceeds | The issuer | The selling investor |
How price is set | Underwriters via bookbuild or fixed price | Continuous supply and demand |
Frequency | Periodic (IPOs, bond issuances, rights issues) | Continuous during market hours |
Investor access | Often restricted to institutions initially | Open to all via brokerage accounts |
Examples | IPOs, government gilt auctions, rights issues | LSE, NYSE, NASDAQ, forex, bond markets |
Types of secondary market
Stock exchanges
The most familiar secondary markets are stock exchanges. The London Stock Exchange hosts the FTSE 100 and FTSE 250. The NYSE and NASDAQ are home to US equity markets. Exchanges operate under strict listing requirements, provide price transparency and match buyers with sellers through order-matching systems. All trades are publicly reported and settlement is standardised, typically T+2.
Over-the-counter (OTC) markets
OTC markets are decentralised networks of dealers who trade directly with one another rather than through a centralised exchange. The bond market is predominantly OTC: UK gilts, corporate bonds and other debt instruments are traded between institutional dealers rather than on an exchange. The forex market is also OTC: currencies are traded directly between banks, institutions and retail participants through electronic networks rather than on a physical exchange floor.
Spot markets
A spot market is where assets are bought and sold for immediate delivery at the current market price. Foreign exchange spot transactions typically settle in two business days. Commodity spot markets allow buyers to purchase physical delivery of oil, gold or agricultural products for near-immediate settlement.
Futures and options markets
Derivatives including futures contracts and options are themselves secondary market instruments: they derive their value from underlying securities that were originally issued in primary markets. Futures on FTSE 100 index levels, options on individual shares and commodity futures are all secondary market products that allow leveraged or hedged exposure to the underlying assets.
What can you trade on the secondary market?
Asset class | Secondary market venue | How to access with IG |
UK and global shares | Stock exchanges (LSE, NYSE, NASDAQ) | Share dealing account, stocks and shares ISA, spread bets, CFDs |
Government bonds (gilts) | OTC dealer market | Bond CFDs and spread bets; gilt ETFs via share dealing |
Corporate bonds | OTC dealer market | Bond ETFs via share dealing; CFDs on bond futures |
Forex (FX) | OTC electronic network | Spread bets and CFDs on 80+ currency pairs |
Indices (FTSE 100, S&P 500) | Derived from exchange prices | Spread bets and CFDs on cash and futures indices |
Commodities (oil, gold, silver) | Exchange-traded futures and OTC spot | Spread bets and CFDs; commodity ETCs via share dealing |
ETFs | Stock exchanges (LSE and international) | Share dealing account, stocks and shares ISA |
Options and futures | Derivatives exchanges (ICE, CME) | Options and futures accounts with IG |
How the secondary market functions: key mechanisms
Liquidity and price discovery
The secondary market's primary economic function is providing liquidity: the ability to convert an asset into cash quickly at a fair price. Without it, investors who bought IPO shares would be locked in until the company's dissolution. Liquidity encourages investment in the primary market because investors know they can exit positions when needed. Price discovery is the mechanism by which the market establishes the fair value of an asset through the continuous interaction of buyers and sellers.
Market makers
In many secondary markets, particularly OTC markets for bonds and forex, market makers provide liquidity by continuously quoting bid and ask prices. They commit to buying at the bid and selling at the ask, profiting from the spread between the two. In equity markets on major exchanges, electronic order books increasingly replace traditional market makers, though they remain important for less liquid stocks.
Settlement
When a secondary market trade occurs, the agreed-upon exchange of securities and cash must be formally completed through the settlement process. UK and US equity settlements follow a T+2 convention (two business days after the trade date). Bond settlements are typically T+1 for gilts. Forex spot transactions settle in T+2. Our share dealing account handles settlement automatically; when you invest in shares through us, you do not need to manage settlement separately.
Trading vs investing on the secondary market
Whether you trade or invest on the secondary market determines which products and tax treatments apply. Trading with spread bets means speculating on price movements without taking ownership; spread bet profits are free from CGT for most UK residents, and no stamp duty applies. Trading CFDs similarly involves leverage without ownership. Investing means buying the underlying security outright through a share dealing account or stocks and shares ISA; ownership carries dividend rights and shareholder status, and gains outside an ISA are subject to CGT.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with us. Capital at risk on investments. Tax treatment depends on individual circumstances and may change.
The secondary market is accessible to all UK retail investors with a brokerage account. Different account types suit different purposes: a SIPP provides pension-focused access to secondary market investments with upfront tax relief; an ISA provides CGT-free investing within the annual allowance; a share dealing account suits amounts above the ISA limit or assets not ISA-eligible.
Secondary market FAQs
What is the secondary market?
The secondary market is where previously issued securities are bought and sold between investors. This includes stock exchanges like the LSE and NASDAQ, the forex market, the bond market and derivatives exchanges. It is where all everyday trading and investing takes place after securities are first issued in the primary market.
What is the difference between the primary and secondary market?
In the primary market, companies and governments issue new securities and receive the proceeds. In the secondary market, investors trade those same securities between themselves; the issuer receives nothing. The London Stock Exchange, forex market and government gilt market are all secondary markets.
Is the stock market a secondary market?
Yes. The stock market, including the London Stock Exchange, NYSE and NASDAQ, is a secondary market. When you buy shares through a broker, you are buying them from another investor, not from the company that issued them. The company only received money when it first sold those shares in the primary market through an IPO or subsequent offering.
What are examples of secondary markets?
Examples include: stock exchanges (LSE, NYSE, NASDAQ), the forex market, the UK government gilt market, corporate bond markets, commodity futures exchanges and derivatives markets for options and futures. All are secondary markets because they facilitate trading in already-issued securities between investors.