When it comes to investing your money, there are many ways that you can do that. A lot of people choose to invest in real estate, or safely in savings accounts with lower risks. But then there is investing in the primary market, secondary market, business start-ups, and so much more. So, secondary market, primary market, real estate investments… oh my! Where do you even begin? We know that all of these terms sound overwhelming and scary, but rest assured we are here to help you learn. So, since the stock market is a hot ticket item at the moment, why don’t we start there and tell you what there is to know about the secondary market.
1. The difference between the secondary market and the primary market
A great place to start when it comes to investing is figuring out the difference between the primary and secondary market. The primary market is where stocks, bonds, and investments are created. This market is where companies sell stocks and bonds for the first time to the public. It is referred to as an IPO, an initial public offering. That is the time where CEOs pop open bottles of champagne and celebrate going public. The secondary market is where stocks are traded amongst investors, which you know as the stock market. This includes the NYSE, the Nasdaq, & other exchanges worldwide.
2. Real estate in the secondary market
The secondary market is where investors and lenders can buy and sell mortgage-backed securities and existing mortgages. It is easy to think about as the secondary market is a resale marketplace for loans. When dealing with this section of the market, it is good to know how to determine mortgage prices, what types of lenders deal there, and how to best be prepared to make your mark within the real estate market.
3. Buying second hand is safe
In most sections of your life, you want to buy firsthand, that way you know you are getting the best of the best and something that is brand new. But that is different when it comes to the investment world. There is nothing wrong with buying from the secondary market. In fact, that is the most common way to throw your hat into the stock market. Say you want to buy Apple stock—you can buy the stock but you will be dealing with an investor who already owns a share, you are not dealing with Apple directly.
4. Further breaking down the secondary market
There are two specialized categories within the secondary market: auctions markets and dealer markets. In the auction market, all buyers and sellers gather together and an announcement is made for the prices they are willing to buy and sell at. This ensures that you are getting the best deal because it has been announced publicly. The best instance of an auction market is definitely the NYSE (think suits and ties, but comfortable dress shoes). A dealer market doesn’t need parties to congregate, which means the dealings can be done through electronic networks. The dealers hold an inventory and stand by ready to buy or sell with other market participants. They earn profits based on what they buy and sell. An example of a dealer market is the Nasdaq. The theory around dealer markets is that the competition between dealers can help to provide the best possible prices for everyday investors.
We hope that you are feeling more knowledgeable and better prepared to be buying, selling, or trading within the secondary market. Just know that when it comes down to it, seeking out help from a financial advisor is never a bad idea. They can help you learn, grow, and become better prepared to find your way in the market.