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How Does The Secondary Market Work In A Stock Exchange?

When a company is listed on a stock exchange, it's price in the secondary market influences the amount of funds that can be raised by issuing additional stock in the primary market.

Corporate managers also pay attention to the price of the companyís stock in secondary market because it has an impact upon the financial wealth of the corporationís owners: the stockholders.

If the price of the stock rises, then the stockholders become wealthier. Typically, managers own only small amounts of a corporationís outstanding shares, relative to the size of the company. Most corporate managers also receive options to buy company stock at a selected price, so they are motivated to increase the value of the stock in the secondary market.

A stock exchange encourages investment by providing this secondary market. Stock exchanges also encourage investment in other ways. They protect investors by upholding rules and regulations. These rules ensure buyers will be treated fairly and receive exactly what they pay for.

They also support cutting edge technology and the business of brokering. This support helps traders buy and sell securities quickly and efficiently. Being able to sell a security in the secondary market increases the relative safety of investing. This is because investors can sell a stock that may be on the decline or that faces an uncertain future.

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To read more background information about the workings of a stock exchange, please visit the following pages:

Stock Exchange Information

What Is An Efficient Capital Market?

The Stock Exchange And National Economies

Stockholders On The Stock Exchange

Investment Institutions On The Stock Exchange

Executing A Trade On The Stock Exchange

Stock Exchange Scandals

Stock Exchange Regulations - The Sarbanes Oxley Act

Investment In The Stock Exchange

Learn About The Important Role Of Stock Rating Agencies

How Big Should Stock Market Bonuses Be?

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