Secondary markets are markets where investors purchase securities from other investors, rather than from issuing companies themselves. Secondary markets are important because they enable investors to convert securities easily to cash. In the United States, most secondary market transactions are accomplished on one of the numerous stock exchanges the NYSE or NASDAQ.
1. NYSE: is the oldest, largest, and best-known stock exchange market in the United States, which was founded in 1792. It is located on Wall Street New York city and lists over 2500 companies.
2. NASDAQ: was created in 1971 and is the world's first electronic stock market. NASDAQ is a computerized system that facilitates trading of stock and provides quotes for Over-the-Counter (OTC) stocks not listed on ...view middle of the document...
Because the entire cost of finding and bargaining with potential and desired trading partner is paid by just one party, there is only a small incentive to search among all possible partners in the market to find the best possible price. In fact, in direct search buyers and sellers, especially of securities but also of other goods and services, seek each other and perform trades without brokers or other financial institutions mediating.
2. Broker: as the trading of a specific stock becomes sufficiently heavy, brokers begin to offer specialized search services to market participants. They attempt to bring the buyers and seller together for a fee which is known as commission. Brokers assist their clients to find compatible trading partners and negotiate acceptable transaction prices for them. Since brokers are continuously in contact with many market participants they are likely to be aware of fair price for a specified transaction. Stock brokers can better arrange transactions that are closer to the best available price than is possible in a direct search market.
3. Dealer: They buy stocks keep it for a while and sell them at their own desired prices. Dealer markets remove the need for time consuming market searches for trading partners, because investors know they can buy or sell immediately at the quotes given by a dealer. The dealer should bear the risk that their stock prices may decline while they hold them to sell for higher price.
4. Auction: an auction market is a place where anyone with intention to buy and sell can go to. Auction markets have a fixed location where buyers and sellers can meet up each other directly and bargain over the transaction price. This is important since auction markets virtually eliminate the cost of seeking compatible partners and negotiating for a favorable price.