What you need to know to successfully use the secondary investment market

When deciding to invest in loans or other fixed-term financial instruments, one of the most important questions is investment liquidity — how easily and quickly you can access your money if your circumstances, financial situation or investment strategy change.

In brief:

• The secondary market allows investors to buy and sell existing investments between themselves, rather than holding them until the end of the term.

• Its main function is to improve investment liquidity.

• The price can be set in three ways: at face value, at a discount, or at a premium.

• The most common transactions take place at a small discount (95 to 99 per cent).

• The speed of sale is not guaranteed and depends on the quality of the loan.

• On the TWINO platform, it is available under Invest → Manual Investing → Secondary Market.

The investment secondary market: Its importance and trends

In the context of investment decision-making, the investment secondary market plays a significant role. Put simply, it is an environment where investors buy and sell existing investments between themselves. The secondary market allows investors to choose whether to hold investments until maturity or actively manage their portfolio, sell investments, acquire new instruments and tailor the portfolio to their needs. If you've ever asked yourself "how do I sell my investments" before the end of the term, the secondary market is the answer.

Unlike the primary market, where an investment is made from scratch, the secondary market involves the sale of already financed loans or portions of them, thereby improving investment liquidity and enabling a more flexible investment strategy.

In recent years, the secondary market has become an essential component of investment platforms, increasing liquidity in this investment segment.

Global trends

• Investor demand for more liquid investments is growing.

• Platforms are increasingly developing automated secondary markets.

• Economic fluctuations are heightening investors' desire to maintain flexibility.

Trends in Latvia and the Baltics

• Investors actively use the secondary market to rebalance their portfolios.

• Demand for high-quality investments remains strong.

• During periods of higher interest rates, the need to sell at large discounts decreases.

Overall, the trend is clear: flexible investments and investment liquidity are becoming one of the key criteria in investor decision-making.

How to sell investments on the secondary market

If an investor is considering selling investments on the secondary market, the following steps should be taken in order.

1. Evaluating the investment

• Whether the loan is being repaid on time.

• What the interest rate is compared with the current market situation.

• How much time is left until maturity.

2. Setting the price

The higher the quality of the investment, the greater the chance of selling it at a favourable price. The investor has three options.

• Sell at face value (100%) — suitable for high-quality investments with a competitive interest rate.

• Sell at a discount (95 to 99%) — in practice, the most common variant, particularly in situations where you need to access your money quickly.

• Sell at a premium (101 to 105% or more) — possible if the loan is particularly attractive.

3. Listing the offer and completing the transaction

Once the price has been set, the investment is placed on the secondary market and becomes visible to other potential buyers. When a buyer accepts the offer, the transaction is usually executed automatically, without any additional action from the seller.

How to invest on the secondary market

From the buyer's perspective, the investment secondary market offers the opportunity to select investments based on various parameters and learn how to invest on the secondary market effectively.

Investors are advised to evaluate

• The loan status (active, overdue, and so on).

• The interest rate.

• The price relative to face value.

• The length of the remaining term.

Strategically, investors often look for investments at a small discount to increase their overall returns, since the investor has paid less but receives interest on the full amount. On the other hand, buying at a premium can be justified if the investment carries low risk or has particularly attractive conditions.

How quickly can investments be sold on the secondary market?

Before starting to use the secondary market, it is important for investors to recognise that it improves investment liquidity but does not guarantee immediate recovery of funds. The actual sales time depends on several factors and can vary considerably.

Experience shows that the typical expected sales time may be approximately as follows, although it is not guaranteed.

• From a few minutes to a few hours — if the price is at a discount and the investment is of good quality.

• One to three days — if the price is close to face value.

• A week or longer — if the price is at a premium or the loan is riskier.

These are only indicative figures based on historical experience. The actual sales time may differ depending on market conditions and is not guaranteed.

Factors that influence sales speed

• Market demand.

• Interest rate levels.

• Investor activity on the platform.

• The quality of the specific loan.

How to evaluate offers on the secondary market

To make thoughtful investment decisions, it is not enough to look only at price or interest rate. It is essential to analyse several parameters together.

We have already mentioned the concept of "loan quality" several times in this article. Let us take a closer look at what exactly is worth paying attention to.

What characterises a high-quality loan

• Regular payments without delays — a stable payment discipline is one of the main quality indicators.

• High rating of the loan originator — platforms often provide an assessment or risk classification.

• A competitive interest rate — not excessively low relative to market averages.

• A clear borrower profile — transparent information about the borrower and the purpose of the loan.

• A shorter remaining term — less uncertainty risk.

What may indicate increased risk

• Delayed or irregular payments.

• Insufficient information about the loan.

• Unusually high interest rates (which may signal higher risk).

• Long-term loans with significant uncertainty.

Where to find information about loans

The information available to investors is typically within the platform, and it is important to use it fully. The main sources of information are as follows.

• Platform data — loan status, payment history, interest rate and term.

• Loan originator's profile — financial indicators and operational performance.

The main risks of the secondary market

Although the secondary market offers significant advantages, it also involves several risks that investors should be aware of.

Credit risk

The quality of a loan may deteriorate after the investment has been purchased. A discount does not always compensate for potential losses, and the investor may lose part of the invested capital.

Liquidity risk

There is no guarantee that the investment can be sold at the desired time or price. Market demand may be low, especially in certain loan categories or under specific market conditions. Even when seeking to exit an investment, market dynamics can affect how quickly you can access your money.

Market risk

Changes in market interest rates may affect the attractiveness and price of investments on the secondary market. If overall interest rates rise, the market value of existing loans with lower rates decreases.

Regulatory risk

Changes in financial services regulation may affect the operation of the secondary market, the availability of certain instruments or the tax regime.

Behavioural risk

Investors often make hasty decisions, such as selling investments at excessive discounts during moments of panic.

Practical tips for investors

To effectively use the secondary market and make thoughtful decisions, the following practical tips are recommended.

Plan liquidity in advance

The secondary market should not be regarded as a guaranteed "exit". If there is a high probability that funds will be needed at a specific time, it is advisable to structure your portfolio with various maturities or to keep some funds in more liquid investments.

Diversify your portfolio

Spread investments across different loan types, terms and risk categories. This not only reduces overall risk but also increases the likelihood that a portion of the portfolio can be sold more easily without a significant discount.

Evaluate the price strategically

The price directly affects how quickly the transaction is completed. A small discount (for example, 1 to 2 per cent) often significantly increases the chances of selling, while a premium is only justified if the investment is objectively more attractive than the average market offering.

Analyse loan quality

Before buying or selling, evaluate the loan status, payment history and borrower profile. Higher quality means not only lower risk but also greater demand on the secondary market.

Avoid emotional decisions

Under the influence of market volatility or negative news, investors tend to sell investments at excessive discounts. In the long term, this can significantly reduce overall returns.

Monitor the market regularly

Observe the prices and conditions prevailing on the secondary market. This helps you understand how to set a competitive price and when is the best moment to sell or buy investments.

In conclusion

The investment secondary market is a useful tool in portfolio management that allows investors to adapt to changing market conditions and their own financial needs. It improves investment liquidity, offers the opportunity to sell investments before the end of the term, and provides more flexible investments as part of a broader strategy for accessing liquid investments when needed.

However, the secondary market is not a universal solution for every situation. Successfully using the secondary market requires a certain level of preparation from the investor, an understanding of market mechanisms, pricing and risks.

If you are ready to take your first steps or deepen your knowledge of how to put your money to work, you will find more detailed information in our FAQ and Resources sections, and our specialists will be happy to answer any questions you may have.

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This material is for informational purposes and is not individual investment advice.