5 FUNCTIONS OF THE SECONDARY MARKET

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The secondary market is the section of the capital market for buying and selling securities that have already been issued in the primary market are bought and sold.

It is the marketplace for previously issued and second-hand securities. In this market, securities are traded from one investor to another or from one speculator to another

Investors and speculators can trade securities at any time in the secondary market

It is important to note that the secondary market is not directly involved in capital formation, it only provides liquidity to the securities of the primary market

Because the secondary market provides a continuation for primary market securities, it is also referred to as aftermarket. 

A notable example of secondary markets is the stock market.

Functions Of The Secondary Market

1. liquidity: The primary role of the secondary market is to provide liquidity. The secondary market provides an aftermarket where primary market securities can be bought and sold.

Investors can feel confident about investing in long-term projects since the secondary market allows them to convert long-term investments into short- and medium-term investments by way of selling

2. media of securities pricing: in the secondary market, the price of securities is determined by the forces of demand and supply.

Hence, the secondary market helps determine the value of securities on the basis of demand and supply for securities.

3. Safety of transaction: Before any company can issue financial instruments on the stock market, it must first register with the securities and exchange commission.

Because the securities and exchange commission only lists securities that have been registered with the stock exchange commission, it makes for safety as every transaction in the stock market is easily regulated by the stock exchange commission.

4. Mobilizes saving: The secondary market help to mobilize funds from the surplus units of the economy to the deficient units of the federation.

5. Determines business cycle: The secondary market can be used to determine the overall economic condition of a business. 

A rise in stock prices, for example, may signal a recession, whilst a decline in stock prices could signal an economic boom.

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