What is the secondary market? How does it work?

In a world where investment options are increasingly diverse, the secondary market presents itself as an interesting opportunity. For whom? For investors looking for flexibility and liquidity. However, what is the secondary market really and how can you take advantage of it in your investments?

If you have ever considered buying or selling shares of an already issued investment, today we want to tell you everything you need to know about its operation, advantages, and how platforms like Inversa are revolutionizing it.

What is the secondary market?

The secondary market is the space where investors buy and sell financial assets that have already been issued in the primary market. In this case, instead of securities being sold directly by the issuer, such as a company or the government, these assets change hands between investors.

We should consider this market as key to the economy. Why? Because it provides liquidity, allowing financial assets to be easily converted into cash without having to wait for maturity or final settlement.

Here, it is important to understand that the process in the secondary market follows a supply and demand logic. Asset prices fluctuate based on investor interest, providing a real-time valuation of circulating assets.

Types of secondary markets

Within the secondary market, there are two types: the organized market and the unorganized market. But what are the differences between these two types of secondary markets?

• Organized market - This is the regulated trading market. Transactions take place through a clearinghouse, which ensures proper functioning. It is a transparent option for investors, where they know each movement with precision.
• Unorganized market - Also known as the OTC (Over the Counter) market. This market has no regulation. Over the years, it has grown due to its lower costs, smaller guarantees, and customized contracts. However, as it is unregulated, it is less transparent, and conflicts of interest between investors are more common.

Why does the secondary market exist?

While we understand that it provides liquidity and benefits investors, it is interesting to know how it emerged and why it is important. The secondary market is highly relevant because it not only allows investors to sell assets when needed but also provides a continuous valuation function for these assets.

By offering liquidity, it enables investors to adjust their portfolios according to changes in personal or economic circumstances. Essentially, the secondary market ensures that financial assets do not remain “locked” and can be converted into cash when necessary.

Another positive aspect is that it promotes transparency. Why? Because prices always reflect supply and demand, helping investors make better-informed decisions.

As we can see, this market also allows the development of new financial products and strategies that improve the efficiency of the financial system.

Examples of actively traded assets in the secondary market

The secondary market is present in many forms and offers investors various financial products. Below are some of the main assets that attract investor interest.

• Stock market - One of the most common assets in the secondary market. When investors buy company shares on the stock exchange, they are operating in the secondary market. This happens after the initial public offering (IPO), where company shares are sold for the first time. In the secondary market, investors buy and sell shares among themselves, not directly from the issuing company.
• Bonds - Bonds can also be traded in the secondary market. After their initial issuance by governments or companies, they can be bought or sold between investors before their maturity date. Bond prices fluctuate in the secondary market based on factors such as interest rates and the issuer's credit rating.
• Investment funds - Though less known, investors can participate in the secondary market through investment funds. Some funds allow investors to sell their shares to others before maturity, providing an additional liquidity avenue.
• Crowdlending - A secondary market example at Inversa is the ability to sell loan shares to other investors. If an investor wants to recover capital before the agreed term, they can offer their share in the secondary market, allowing other investors to acquire it and hold the loan until maturity. This provides flexibility for both the seller and buyer, who can find investment opportunities in already funded projects.
• Real estate market - While not considered a financial market, real estate can also be seen as a secondary market. When someone sells a previously purchased property, the transaction occurs in the secondary market. Real estate investment platforms allow investors to acquire shares in existing properties, replicating this concept in the financial world.

Why does the secondary market exist?

While we can understand that it offers liquidity and benefits investors, it is interesting to know how it emerged and its importance for investors. In this case, we must recognize that the secondary market is highly relevant not only because it allows investors to sell assets when needed but also because it provides a continuous valuation function for these assets.

By offering this liquidity, investors can adjust their portfolios according to changes in personal or economic circumstances. Essentially, the secondary market ensures that financial assets do not remain "locked" and can be converted into cash when necessary.

Another positive aspect is that it fosters transparency. Why? Because prices always reflect supply and demand, making it easier for investors to have more information to make informed decisions.

As we can see, this market also enables the development of new financial products and strategies that improve the efficiency of the financial system.

How does the secondary market work?

Now that we understand the basics of the secondary market, let's define its operation in more detail. The most fundamental mechanism in this type of market is the interaction between buyers and sellers.

An investor who wants to sell an asset publishes their intention to sell at a certain price. On the other hand, a buyer interested in acquiring that asset can make an offer at a different price. Essentially, they enter into a negotiation until they agree on a price, at which point the transaction takes place.

It is important to note that in stock markets, this process can be facilitated through electronic platforms where thousands of operations occur every second.

One of the most important aspects is that the price of assets in the secondary market is not fixed; instead, it fluctuates constantly. These fluctuations are influenced by macroeconomic factors, the performance of the issuing company or government, and overall market expectations.

Benefits of the secondary market for investors

Now that we know what the secondary market is, how it works, and other details about its existence, it's time to understand its benefits. Although some advantages may already be clear, let's define them further:

• Liquidity - One of the main benefits is the ability to convert assets into cash relatively quickly, without waiting for the asset’s maturity or final payment.
• Flexibility - Investors can adjust their portfolios by selling assets they are no longer interested in or buying those that offer new opportunities.
• Transparency - By operating in regulated markets, investors have access to clear and real-time pricing, allowing them to make informed decisions.

On platforms like Inversa, this liquidity and flexibility become evident. Investors can sell shares in crowdlending projects, recovering their investment or adapting to changes in their financial needs.

Risks of the secondary market

However, just as its benefits and advantages may be very attractive, it is important to consider the disadvantages and risks that cannot be ignored:

• Price volatility - Asset prices can fluctuate significantly based on economic or market conditions. This can result in losses if an asset is sold at an inopportune time.
• Liquidity risk - While the secondary market provides liquidity, some assets may not be easily sold if demand is low or if they belong to less known or emerging markets.
• Credit risk - In assets such as bonds or crowdlending, there is always the risk that the issuer or borrower may fail to meet their obligations, directly affecting investors.

How to optimize your investments in the secondary market

To maximize opportunities in the secondary market, it is essential to be well-informed and have a clear strategy. Taking advantage of periods of low demand to buy or selling during high valuations can make a significant difference in terms of profitability.

Therefore, if you want to participate in the secondary market, platforms like Inversa, which give you access to diverse projects and allow you to sell shares early, offer great flexibility for optimizing your portfolio.