A secondary market is any market in which financial instruments or other assets are bought and sold among investors. Prices are set in a secondary market based on supply and demand. The bulk of all trading occurs in secondary markets. The only parties not involved in a secondary market are the initial issuers of financial instruments or other assets. For example, a sculptor creates and sells a statue to a collector. The collector then sells the statue at an art auction. Since the art auction occurs after the original sale of the statue, it is considered a secondary market. Any stock or commodities exchange is another example of a secondary market.
Secondary markets reduce investment risk, since an investor can readily dispose of an investment in a secondary market. The term is used because it encompasses all sales occurring after financial instruments or other assets were originally offered for sale.