Which statement about the secondary market is true?

Which statement about the secondary market is true?

• A. It is where new issues are sold to raise capital.
• B. It involves trading existing securities among investors.
• C. It is exclusively for institutional traders.
• D. It is where companies set IPO pricing.

Answer: (B)

The main concept here is what the secondary market does: it involves trading existing securities among investors after they have been issued. In the secondary market, you’re buying and selling shares or bonds that are already out there, with prices driven by supply and demand and liquidity provided by exchanges and market makers. This is the space where you can enter or exit positions in companies that have already issued stock or debt, rather than putting capital directly into new issues from the issuer. The statement about new issues being sold to raise capital points to the primary market, where the issuer raises funds by selling new securities to investors. The idea that the secondary market is exclusively for institutional traders is incorrect because both individual investors and institutions participate in trading existing securities. Finally, IPO pricing happens in the primary market before trading begins on the open market; the secondary market does not set the IPO price.

The main concept here is what the secondary market does: it involves trading existing securities among investors after they have been issued. In the secondary market, you’re buying and selling shares or bonds that are already out there, with prices driven by supply and demand and liquidity provided by exchanges and market makers. This is the space where you can enter or exit positions in companies that have already issued stock or debt, rather than putting capital directly into new issues from the issuer.

The statement about new issues being sold to raise capital points to the primary market, where the issuer raises funds by selling new securities to investors. The idea that the secondary market is exclusively for institutional traders is incorrect because both individual investors and institutions participate in trading existing securities. Finally, IPO pricing happens in the primary market before trading begins on the open market; the secondary market does not set the IPO price.