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What is Secondary Stock?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 03 October 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Also known as second tier or small cap stock, secondary stock is a publicly traded stock offering that is considered to be inferior to the blue chip stocks that are traded on most markets. The stock may be viewed as being of lesser quality than blue chip offerings, owing to the size and profitability of the firm that issues the shares. Often, this type of stock carries a higher level of volatility, a factor that may cause some investors to focus their attention elsewhere.

While secondary stock may not have the prestige of blue chip stock offerings, these lower quality stocks can still be lucrative in terms of investment activity. The higher rate of volatility that comes with these riskier stock offerings does open the possibility of earning a significant return from a smaller investment. At the same time, secondary stock is traded on most markets, including national and regional exchanges. Investors can often find great deals on these types of stocks through over the counter trading as well as trading on the various exchanges.

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One of the other characteristics of secondary stock is the amount of market capitalization associated with these riskier stock offerings. While there is some difference of opinion, any stocks that have a market capitalization of less than 1 billion US dollars (USD) would fit the description of being small cap. In spite of the lower capitalization, stocks of this type do exhibit an attractive growth potential that is often considered worth incurring additional risk, considering the potential for earning a higher return.

As with any type of investment activity, investors who are interested in some type of secondary stock employ various strategies to assess the potential of that stock offering, and weigh that potential against the degree of risk involved with owning the shares. This usually means considering the past performance of the shares, their current worth, and the stability of the entity that issues the stock. Along with these considerations, investors will often look at any indicators that could alter the course of the economy in general and have some type of effect on the value of those shares. Assuming that conditions are favorable for the shares to increase in value, and the investor does not see any signs of adverse events or factors arising over the short term, a secondary stock may well be worth the risk of acquiring and holding for at least a year or two.

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