secondary market
Secondary Market is where investors buy and sell shares among themselves after the company has already collected its money from the first sale.
In plain English
Remember buying a ticket for a concert, then reselling it to someone else outside the gate because you could no longer go? The concert organiser already had their money the moment they sold you that ticket. Whatever happens after, whoever buys it from you, at whatever price, has nothing to do with the organiser again. That resale outside the gate is exactly what a secondary market is for shares.
When a company like Dangote Cement first sells shares to the public through an IPO, that is the primary market. The company receives the money directly and uses it to build factories, pay staff, or expand. But once those shares are sitting in people's accounts, the buying and selling that happens afterward on the Nigerian Exchange, NGX, is the secondary market. Dangote Cement does not receive a single kobo from that trading. It is investors trading among themselves.
This is what most people mean when they say they are trading stocks. You open your trading app, you see MTN Nigeria shares moving up and down during the day, and every time someone buys or sells, that trade is happening between two investors, not between the investor and MTN. The company just sits there, watching its share price rise and fall like everyone else.
It works the same way in the United Kingdom. Someone in London buying Barclays shares through their brokerage account is not sending money to Barclays. They are simply buying from another shareholder who wants to sell. And for a Nigerian in the diaspora who bought shares back home years ago, selling them today through a local stockbroker to fund a family project is also a secondary market transaction, calm and personal, but part of the same big machine.
Chidinma bought 500 shares of Zenith Bank at ₦32 each during an offer, paying ₦16,000 directly to the company. Two years later, she sells those same shares to another investor at ₦45 each through her stockbroker, earning ₦22,500. Zenith Bank gets nothing from that second sale. The trade happened entirely in the secondary market, between Chidinma and the person who bought her shares.
Questions people ask
Is the Nigerian Exchange (NGX) a primary or secondary market?
It is mostly a secondary market. Most daily trading on the NGX involves investors buying and selling shares among themselves. The primary market only comes alive when a company launches a fresh IPO or a new bond offer.
Does the price I pay in the secondary market go to the company?
No. When you buy shares in the secondary market, your money goes to the person selling those shares, not to the company. The company already received its funding when the shares were first issued in the primary market.
Why does the secondary market matter if the company does not benefit directly?
Because it gives shares their liquidity. Investors are more willing to buy shares in the primary market knowing they can sell them later in the secondary market. Without that resale option, fewer people would invest in the first place.
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