Secondary market
Secondary trading provides liquidity, price discovery and a means for investors to change their holdings. These functions can support issuers indirectly by making securities more attractive and informing future financing prices. The cash from a normal secondary sale goes to the selling investor, not the issuer. Liquidity varies widely across securities and markets, so a quoted price does not guarantee that a large holding can be sold at that price immediately. Distinguish trading volume and market capitalisation from the amount of capital originally raised.
Worked example
An investor sells 1,000 existing shares for $5 each to another investor. The seller receives $5,000 before costs; the company receives no subscription cash from this ordinary secondary trade.
Common mistake
Treating a rise in the market value of outstanding shares as cash paid into the company's bank account.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |