What Is a Secondary Market?

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A secondary market is a market where existing securities or other assets are bought and sold. They differ from primary markets, which are where the assets originated. Generally, most investors will only trade on secondary markets.

Key Takeaways

  • A secondary market is a market where existing securities or other assets are bought and sold. 
  • Primary markets are where an asset or security is first issued.  
  • There are many types of secondary markets, with stocks being the most commonly traded security in a secondary market.
  • Fannie Mae and Freddie Mac—two-government backed institutions—play a central role in the secondary mortgage market.
  • The way an asset moves from a primary market to a secondary market will differ depending on the type of asset at hand.

Definition and Examples of Secondary Markets

Secondary markets are where assets are traded after they are issued. In a secondary market, transactions are made with other investors, not the issuer of the security. You can compare the process to buying items from the classifieds, or buying a used car from a dealership, rather than from the manufacturer itself.

For example, stocks and bonds purchased in a retirement plan or through a brokerage account are transacted on secondary markets. 

Let’s say you have two portfolios: one is an employee stock ownership plan and one is with a discount brokerage. When you buy stock directly from the company as with the first plan, it is a primary market transaction. When you buy in the discount brokerage account through stock exchanges, it is a secondary market transaction.

How Secondary Markets Work

Investors trade with one another in secondary markets, rather than the issuing organization. Secondary markets hold their name because when you trade on one, the trading occurs after the asset is already issued on the primary market.

While stocks are the most commonly traded security on a secondary market, the mortgage market is another good example to refer to when discussing the secondary market.

A financial institution writes a mortgage for a consumer, which creates a mortgage security. Next, the bank or other financial institution can then sell it to Fannie Mae or Freddie Mac on the secondary market to finance the construction and sale of housing, creating a secondary transaction.

Types of Secondary Markets

There are many types of secondary markets, and the way they work might differ depending on how they are structured and what types of assets are being traded. You’ve likely heard of some secondary markets, like the popular stock exchanges. Let’s go over the most common types of secondary markets, with examples:

Stock Exchanges

Public stocks trading on exchanges such as the New York Stock Exchange (NYSE) or the NASDAQ trade on the secondary market. Transactions are handled by brokers who work with market makers to provide bid and ask prices for individual investors and institutions. 


For the most part, any time you buy a stock, you’ll be buying it on a secondary market. There are exceptions, like if you participate in an employee stock ownership plan, but even in these instances you would likely need to sell the shares on a secondary market.

Fixed Income Instruments

Fixed income instruments from Treasury bills to corporate bonds all trade on a secondary market. The bond market, however, isn’t as open and liquid as the stock market. You can rarely find a real-time quote for a bond. Instead you work through intermediaries like broker-dealers. 

Bonds are issued at par value. Then once they are on the secondary market, their prices fluctuate based on factors such as credit, market conditions, and interest rates.


Mortgages are technically a subset of fixed income, but there are enough differences for them to earn their own section. As mentioned, generally, once your mortgage originates it is sold by the lender to a market operator like Freddie Mac, which was chartered by Congress to be a secondary mortgage market. The buyer then pools mortgages together into one big security and sells that to investors who buy the income stream. 


The role of Fannie Mae and Freddie Mac is to help provide liquidity, stability, and affordability to the larger mortgage market. By attracting investors who may not otherwise invest in mortgages, the pool of funds available for housing is expanded. That makes the secondary mortgage market more liquid, and also lowers interest rates paid by homeowners and borrowers.

Small Business Loans

Government guaranteed small business loans can also be pooled and sold to investors, just like mortgages. This happens most often with the Small Business Administration’s 7(a) loan program. Banks originate loans and then sell the guaranteed portion on a secondary market to a financial institution that pools the loans together.

The secondary market provides a guaranteed payment stream for investors, and allows banks to sell loans for a quick premium. The banks can then go out and lend the money again. 

Private Companies

Employees who are issued shares of private companies (meaning that no shares are trading on a public stock exchange) often have trouble selling the shares if they need to raise cash to pay taxes or for some other reason. When the shareholders are allowed to sell shares, they do it through online secondary markets where accredited investors will take the shares off their hands. 

Buyers in this case generally include wealthy individuals, venture-capital firms, hedge funds, private-equity firms, and institutional investors.

Primary Markets vs. Secondary Markets

Asset Primary Market Secondary Market
Stocks Initial Public Offerings (IPOs) NYSE, NASDAQ, etc. 
Fixed-Income Securities (Bonds) Financial institutions Through broker-dealer intermediaries
Mortgages & Small Business Loans Banks and other lenders SBA 7(a); packaged in mortgage pools or ETFs
Private Companies Venture capital funds; employee offerings Online markets to specialized investors

Primary markets are where assets are originally issued. The easiest way to compare the two is to go through the various markets covered above and explain how the primary market works for each. 


The primary market for stocks is through initial public offerings (IPOs). The company’s management presents the offering to financial institutions and then sells shares to them. The shares then become available on a stock exchange.


Individual investors will likely not be able to invest in an IPO at the offering price, as it is reserved for underwriters or clients initially involved in the process. Most individual investors will have to buy shares on the secondary market days later.

Fixed Income

The bond primary market is very similar to the stock one. The issuer tours financial institutions pitching the bond and then sells it to them. The financial institutions then make the bond available for sale on the secondary market, where it trades through broker-dealers.    

Mortgages & Small Business Loans

Both of these are originated by banks and non-bank lenders. The lenders underwrite the loan and issue the original money to the borrower. The lender then sells the loan, or part of it, to financial institutions that make it available on a secondary market. 

Private Companies

Private companies generally sell shares to venture capital funds or issue them to employees as an incentive or company benefit. This is considered the primary market until or unless the business decides to go public with an initial public offering. 

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  1. Congressional Budget Office. "Fannie Mae, Freddie Mac, and the Future of the Secondary Mortgage Market." Accessed Nov. 4, 2021.

  2. U.S. Department of Housing and Urban Development's (HUD's) Office of Policy Development and Research (PD&R). "The Secondary Market in Residential Mortgages," Page 10. Accessed Nov. 4, 2021.

  3. My Home by Freddie Mac. "How the Secondary Mortgage Market Works." Accessed Nov. 4, 2021.

  4. The Federal Housing Finance Agency. "Fannie Mae and Freddie Mac." Accessed Nov. 4, 2021.

  5. Small Business Administration., "7(a) Loans." Accessed Nov. 4, 2021.

  6. Harvard Law School Forum on Corporate Governance. "Cashing It In: Private-Company Exchanges and Employee Stock Sales Prior to IPO." Accessed Nov. 4, 2021.

  7. U.S. Securities and Exchange Commission. "Investor Bulletin.Investing in an IPO," Page 2. Accessed Nov. 4, 2021.

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