Final answer:
The transaction in which a security is sold from one investor to another occurs in the secondary market, where previously issued securities can be bought or sold, providing liquidity to investors.
Step-by-step explanation:
When one owner of a security sells the security to another person, the transaction takes place in the secondary market. The secondary market is a financial market that allows for the buying and selling of previously issued securities between investors. This is distinguished from the primary market, where securities are created, and the original issuers sell securities directly to investors.
The secondary market provides liquidity, making it possible for investors to sell their assets to other individuals or groups, potentially with minimal penalties for liquidation. Examples of securities that can be traded on the secondary market include stocks and bonds. It is the secondary market where most of the trading occurs after the initial public offering (IPO) of the assets, providing a platform for existing investors to exit or adjust their investment portfolio.