What type of market allows investors to trade stocks outside of traditional exchanges?

The type of market that allows investors to trade stocks outside of traditional exchanges is the third market. This market facilitates the trading of listed securities over-the-counter (OTC), meaning that trades happen outside the formal structure of exchanges like the New York Stock Exchange or NASDAQ. In the third market, institutional investors, like mutual funds and pension funds, often engage in transactions directly with each other or through broker-dealers, which can lead to better pricing due to reduced fees associated with exchange trading.

The primary market, on the other hand, is where new securities are created and sold for the first time, usually through initial public offerings (IPOs). The secondary market is where existing securities are bought and sold among investors, but this activity occurs on organized exchanges or platforms. The fifth market is not a widely recognized term within the context of securities trading and doesn't formally exist in financial literature or practice. This helps clarify why the third market is the correct identification for trading outside of traditional exchanges.