Understand the differences between primary and secondary markets with Vanguard. Learn how these markets impact your investments and trading strategies.

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Trading on the primary and secondary markets

Trading on the primary and secondary markets
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Points to know

  • Vanguard Brokerage offers CDs and bonds in both primary and secondary markets.
  • Buying CDs and bonds in the primary market means you're transacting with the issuer of the security.
  • Buying or selling CDs and bonds in the secondary market means you're transacting with other market participants.

Certificate of Deposit (CD)

An insured, interest-bearing deposit at a bank that requires the depositor to keep the money invested for a specific period of time. CDs can be traded on the secondary market.

Bond

A debt security (IOU) issued by a corporation, government, or government agency in exchange for the money the bondholder lends it. In most instances, the issuer agrees to pay back the loan by a specific date and make regular interest payments until that date.

Securities

Stocks, bonds, money market instruments, and other investment vehicles.

Bid-ask spread

 The bid/ask spread refers to the difference between the highest buyer's price (best bid) and the lowest seller's price (best ask).

Simple interest

 Interest calculated on the original principal amount.

Maturity

The date when the issuer of a money market instrument or bond agrees to repay the principal, or face value, to the buyer.

What are primary & secondary markets?

Primary market

When you buy a CD (certificate of deposit) or bond on the primary market, you're buying a security that's just been created, commonly referred to as a "new-issue." It's like buying a new car. You're the original owner.

Proceeds from your purchase go to the issuer of the security, such as a bank for CDs and corporation or government agency for bonds.
 

Secondary market

When you buy or sell a CD or bond on the secondary market, you're transacting with another market participant, not the issuing company or agency. It's like buying a used car.

If you're selling a security, you get the proceeds; if you're buying one, proceeds go to the seller.

Learn more about the financial markets

Compare the features of primary & secondary markets

Here's a breakdown of the pros and cons of investing in each market.

Liability

Outstanding debt.

Interest

The amount or rate charged when money is borrowed. For example, when you invest in bonds, you receive interest payments from the bond's issuer.

Credit quality

A measure of a bond issuer's ability to repay interest and principal in a timely manner.

Finding the right match

Vanguard Brokerage doesn't hold an inventory of CDs and bonds. Instead, we maintain trading relationships with a large number of bond dealers.

The broker-dealers in our extensive network compete against each other to sell us securities, resulting in the best possible price for you.

And because we don't put up capital to maintain a bond inventory, we can pass our savings on to you. Our commissions, markups, and markdowns are among the lowest in the industry.

Our fixed income specialists can also research bonds that best meet your needs or help find a buyer who wants the bond you're selling.

Pros

  • New-issue offerings from the government, agencies, municipalities, and corporations.
  • Price for all investors disclosed up front.
  • Stable and predictable investment income.
  • No bid-ask spread.
  • For CDs, simple interest; CDs not renewable at maturity.

Cons

  • Market limited to currently available offerings.
  • No price flexibility.
  • For CDs, subject to market and interest rate risk if sold prior to maturity.

Pros

  • Larger selection of CDs and bonds.
  • Flexibility in timing and pricing trades.
  • Stable and predictable investment income.
  • Liquidity in buying and selling.

Cons

  • Fluctuating prices based on prevailing interest rates, credit quality of the issuer, and general economic conditions.
  • Largely an over-the-counter (OTC) market where prices aren't seen by all participants at the same time.
  • Dependent on the broker-dealer network to get the best price.
  • For CDs, subject to market and interest rate risk if sold prior to maturity.

Learn how Vanguard Brokerage works to get the best price for you

When trades settle in each market

Trades on either market settle through your settlement fund at different times, depending on the security.

Settlement date

The date by which a broker must receive either cash or securities to satisfy the terms of a security transaction.

Settlement fund

This holds the money you use to buy securities, as well as the proceeds whenever you sell.

Trade date

The actual date on which shares are purchased or sold.

Underwriter

A company or another entity that handles the public issuance and distribution of securities from a corporation or other issuer.
  Primary market Secondary market
CDs Usually 1 or 2 weeks depending on the issue from the bank The next business day after the trade date
GNMAs Typically around the end of the third week of the month (21st or 22nd) The next business day after the trade date
Treasuries (bought at auction) Typically 3 business days The next business day after the trade date
Corporate bonds A few days or a few weeks, depending on the issue The next business day after the trade date
Agency bonds As defined by the issuer The next business day after the trade date
Municipal bonds As defined by the issuer The next business day after the trade date
Commissions & fees

Vanguard Brokerage acts as a principal only for new issues in corporate bonds and CDs. Vanguard Brokerage generally receives a fee concession from the underwriter.

View our commission & fee schedules

 Vanguard Brokerage always acts as an agent in the secondary market, executing the trade at the price you've chosen and charging a commission. There is no markup or markdown.


View our commission & fee schedules

CDs

Primary market

Usually 1 or 2 weeks depending on the issue from the bank

Secondary market

The next business day after the trade date
 

GNMAs

Primary market

Typically around the end of the third week of the month (21st or 22nd)

Secondary market

The next business day after the trade date
 

Treasuries (bought at auction)

Primary market

Typically 3 business days

Secondary market

The next business day after the trade date

Corporate bonds

Primary market

A few days or a few weeks, depending on the issue

Secondary market


The next business day after the trade date

Agency bonds

Primary market

As defined by the issuer

Secondary market

The next business day after the trade date
 

Municipal bonds

Primary market

As defined by the issuer

Secondary market

The next business day after the trade date
 

Commissions & fees

Primary market

Vanguard Brokerage acts as a principal only for new issues in corporate bonds and CDs. Vanguard Brokerage generally receives a fee concession from the underwriter.

View our commission & fee schedules

Secondary market

Vanguard Brokerage always acts as an agent in the secondary market, executing the trade at the price you've chosen and charging a commission. There is no markup or markdown.

View our commission & fee schedules

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All brokered CDs will fluctuate in value between purchase date and maturity date. The original face amount of the purchase is not guaranteed if the position is sold prior to maturity. CDs are subject to availability.

CDs are guaranteed (within limits) as to principal and interest by the Federal Deposit Insurance Corporation, which is an agency of the federal government.

Investments in bonds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates; credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline; and inflation risk, which is the possibility that increases in the cost of living will reduce or eliminate the returns on a particular investment.

All investing is subject to risk, including the possible loss of the money you invest.

Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.

The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.

VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.