Final answer:
The purchase of new stock issues occurs in the primary market during an IPO, not in the secondary market. The secondary market is for trading existing shares, providing liquidity for investors. Corporate decisions like issuing new stock are made by the company's board of directors.
Step-by-step explanation:
Purchases of new issues of stock do not take place in the secondary market. Instead, they occur in what is known as the primary market. This is where a company sells its shares to the public for the first time during an initial public offering (IPO). After the IPO, shares are traded among investors in the secondary market. The secondary market provides liquidity, allowing investors to easily buy and sell existing shares without affecting the company's balance sheet. Additionally, decisions in a publicly-owned company, such as when to issue stock or pay dividends, are generally made by the company's board of directors.
Guidance for Purchasing Stocks
- Individuals can purchase stocks through exchanges or using brokerage platforms, both representing the secondary market where existing shares are traded.
- Diversifying your portfolio is recommended to spread out risk and potentially stabilize returns over time.
Understanding Corporate Decisions
- A company does not promise a specific rate of return when it sells stock; investments in stock carry the risk of fluctuating market values.
- The board of directors, elected by shareholders, makes key decisions in a company with a large number of shareholders.