How are shares of a closed-end company typically transacted?

Shares of a closed-end company are typically transacted in the secondary market, which means that they are bought and sold among investors after the initial public offering. Unlike open-end funds, which continuously issue and redeem shares based on investor demand, closed-end funds issue a fixed number of shares at the outset. After the initial offering, these shares trade on exchanges like stock, with their prices determined by supply and demand rather than by the underlying net asset value.

This characteristic of closed-end funds is pivotal because it allows for the shares to fluctuate in price, which can create opportunities for investors to buy at a discount or sell at a premium relative to the fund's net asset value. The secondary market activity provides liquidity to shareholders who wish to enter or exit their positions without the involvement of the fund’s management or needing to redeem shares directly from the fund itself, as would be the case with open-end funds. Thus, the underlying mechanism of trading shares in the secondary market is essential to understanding how closed-end funds operate.