Definition - What does New Issue mean?
A new issue is a stock or bond that is being sold to investors for the first time. This new issue can be an Initial Public Offering (IPO) of a company or it can be a new issue floated by an organization that has floated many such issues in the past. The market that deals with these new issues is called the primary market, as opposed to the secondary market that deals with existing shares and bonds.
Divestopedia explains New Issue
New issues are distributed through the primary market, which is a market where companies raise long term equity capital. In this market, the securities are issued directly by the company to the investors, as opposed to secondary markets where trading takes place between investors. Due to this direct dealing, companies tap into the idea of new issues when they want to start a business or expand an existing business or for any other activity that requires large sums of money. Hence, new issues are a crucial component of creating capital in the economy.
From an investor's perspective, new issues provide one of the best avenues for appreciation. When an investor buys the shares of a company, it is done at the face value or at the minimum price decided by the organization. Once the new issue closes, these shares are traded in the secondary market. Depending on the performance of the company, the share prices can go up or down. Most well-known companies that have a good track record tend to see more demand for their shares in the secondary market. When the demand goes up, the price of shares also increases thereby giving the investor a big return on his/her investment. On the flip side, new issues can also backfire because it is open to the public only for a limited amount of time and, as a result, these shares tend to be highly volatile. This uncertainty can even bring short-term or long-term losses to investors. Hence, it is wise for investors to read through the prospectus of the organization before buying a new issue because there are many risks associated with new issues.
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