What is meant by the secondary market?

The secondary market refers to the platform or environment where previously issued securities are bought and sold among investors. This market is crucial because it provides liquidity to investors, allowing them to easily sell their securities when desired, rather than holding them until maturity, as would be the case in a primary market where new securities are created and sold for the first time.

In the secondary market, the trade occurs among various participants such as individual investors, institutional investors, and market makers, which helps establish the current market price of those securities based on supply and demand dynamics. The activities in this market are essential for market efficiency, as they reflect real-time valuations and investor sentiment regarding previously issued assets.

Other options describe different aspects of financial markets. For instance, the creation of securities occurs in the primary market, where corporations or governments issue new shares or bonds, while derivatives trading specifically pertains to financial instruments whose value is derived from other assets. Lastly, a market that only includes government securities does not encompass the full scope of the secondary market, which also includes corporate stocks, bonds, and other types of previously issued securities. Thus, the definition provided aligns precisely with the characteristics and functions of the secondary market.