What is Secondary Market? With Meaning, Example and Features
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| What is Secondary Market? |
The Secondary Market is the place where securities like stocks and bonds are bought and sold after they are initially issued in the primary market. Unlike the primary market, transactions here occur between investors, not companies.
Example of Secondary Market
Suppose you bought Zomato shares during its IPO. After the listing on NSE, if you sell those shares to another investor, that transaction takes place in the Secondary Market.
Types of Secondary Markets
- Stock Exchanges: NSE, BSE – regulated and transparent.
- Over-the-Counter (OTC): Decentralized, often used for bonds and unlisted stocks.
Features of Secondary Market
- Liquidity: Easy buying and selling of shares.
- Price Discovery: Based on real-time supply and demand.
- Transparency: All trades are regulated by SEBI in India.
- Investor Protection: Monitored for fairness and accountability.
Difference Between Primary and Secondary Market
| Feature | Primary Market | Secondary Market |
|---|---|---|
| Seller | Company | Existing Shareholder |
| Purpose | Raising Capital | Trading Shares |
| Price | Fixed or Book Building | Market Driven |
| Example | IPO, FPO | NSE, BSE |
How to Trade in the Secondary Market?
- Open a Demat And Trading account with a SEBI-registered broker.
- Login to a platform like Zerodha, Groww, or Upstox.
- Search the stock, select quantity, and place a buy/sell order.
- Choose market or limit price and execute the trade.
- Shares are delivered to your Demat account.
Secondary Market Trading Hours (India)
| Session | Time (Indian Standard Time - IST) |
|---|---|
| Pre-Opening Session | 9:00 AM – 9:15 AM |
| Normal Trading Session | 9:15 AM – 3:30 PM |
| Post-Closing Session (for order matching) | 3:40 PM – 4:00 PM |
Explanation
- Pre-Opening Session: Price discovery phase where orders are collected but not matched immediately. Helps determine the opening price.
- Normal Trading Session: Active trading period where you can buy/sell shares.
- Post-Closing Session: Order matching session after the market closes.
Note
The market is closed on Saturdays, Sundays, and public holidays declared by the exchange.
Benefits of Secondary Market
- Provides liquidity to investors.
- Opportunity to earn through capital gains and dividends.
- Helps in price discovery.
- Allows easy entry and exit.
Risks in the Secondary Market
- Volatility and price fluctuations.
- Emotional trading can lead to poor decisions.
- Market risks due to global and economic factors.
🔄 Secondary Market Explained with Diagram
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| Secondary Market Explained |
1. Reliance (IPO) – The Origin Point
Though the IPO (Primary Market) is where shares are first issued to the public, this article focuses on what happens afterward — in the Secondary Market.
After the IPO, the company is not directly involved in share transactions anymore.
2. Stock Exchanges – NSE & BSE
Shares of companies like Reliance are listed on stock exchanges such as:
- NSE (National Stock Exchange)
- BSE (Bombay Stock Exchange)
These exchanges are where shares are continuously bought and sold by investors after the IPO.
3. Depository Participants (DPs): Zerodha, Angel Broking, etc.
Depository Participants (or DPs) are brokers who offer trading platforms to users. They connect you to the stock exchanges for:
- Buying existing shares
- Selling your holdings
DPs are linked to your Demat account, where your shares are stored digitally.
4. Demat Account (SHARE/STOCK)
A Demat account holds your shares safely in electronic form.
Whenever you buy a share through a DP (like Zerodha), it gets credited to your Demat account.
When you sell, the shares are debited from your account.
5. Users (USER1 & USER2)
These are investors like you.
In the secondary market, users trade shares with each other, not with the company.
- USER1 sells shares
- USER2 buys shares
The trade happens through brokers and is settled via the exchange.
6. SEBI (Regulator)
The Securities and Exchange Board of India (SEBI) ensures:
- Transparency in transactions
- Protection of investor interests
- Fair functioning of brokers and exchanges
📊 Summary of Secondary Market Flow:
| Element | Role |
|---|---|
| Exchanges (NSE/BSE) | Platform where shares are bought and sold |
| DPs (Zerodha, etc.) | Brokers offering trading access to retail investors |
| Users | Buy and sell shares among themselves |
| Demat Account | Stores bought shares electronically |
| SEBI | Regulates and monitors the market for safety and fairness |
In short, the secondary market is where the real action happens daily — investors buy and sell existing shares using trading accounts and Demat accounts, all under the watchful eyes of SEBI.
Conclusion
The Secondary Market is the backbone of stock trading in India. It offers liquidity, fair price discovery, and a platform for investors to trade efficiently. Understanding how it works is essential for any retail investor aiming to participate in the Indian stock market.
Back To Learn:
🔗 What is IPO And Primary Market ?
FAQs – Secondary Market in India
Q1: Can I buy IPO shares in the Secondary Market?
Yes, after IPO listing, shares are available for public trading in the secondary market.
Q2: Is Secondary Market trading safe?
Yes, it is regulated by SEBI. However, market risks are always present.
Q3: What do I need to start trading in the Secondary Market?
You need a Demat and Trading account with a stockbroker.
Keywords: What is secondary market, secondary market example, stock exchange, NSE, BSE, difference between primary and secondary market, stock trading.
