What Is Bond Trading?

The article concerns the question – What Is Bond Trading? It is imperative that you might have gained some idea about stocks and stock market trading. Naturally, you will have an inclination to learn in depth about bond trading. The underlying functionality remains the same. However, instead of peddling with company shares, you will be trading with bonds. There are brokers who specialize in this niche. If you wish to do bond trading, then you must consult a bond dealer or broker. The finer aspects of this form of trading will be highlighted in the remaining sections.

What Is Bond Trading

According to certain expert traders, one will be able to make appealing figures through bond market investing. The potentiality of bond trading rivals equity trading. If you are looking for higher returns then you must stick to bond trading. There are certain differences between equity and bond trading, though.

For instance, when you do equity trading, you are purchasing the company shares. However, companies issue bonds when they are in need of capital. As an investor, you are lending money, which the company will repay you after a predetermined period. An appropriate interest rate is also set while trading bonds.

One can exercise bond trading using corporate, governmental and municipal bonds. The face value tends to be higher for government issued bonds. If you are looking forward to trading with smaller denominations (such as $150), then you must concentrate on municipal and corporate bonds. If you are well versed with equity trading, you might find it easier to trade with bonds. As the prevailing interest rates falter, you can trade the bond for a higher price.

Allow me to illustrate the concept in plainer terms. Consider that you are purchasing a bond with face value $1000. The interest rate set by the issuer is 9 percent. Usually the accumulated interest rate is paid to the bondholder every six months. For the sake of illustration, imagine that the prevalent interest rate (nine percent) falls to six percent.

If you had opted for a CD, or if you had kept the sum idly in the bank, you will be paid interest rates at six percent. However, since you are holding on to a bond (which incidentally provides you the same old interest rate); you are at a highly advantageous position. If you wish to sell the bond, you may do so. At the end of the day, the bondholder is going to be pleased with his decision!

I am certain that you might display interest in learning more about bond trading. With the advent of the internet, one can exercise bond trading through the internet. The online world is also one of the best places to learn about several bond trading strategies. Download e-books and participate actively in the discussions held in various online communities.

Seasoned professionals will expend time calculating the bond rates. In order to ease the confusion present in the minds of many novice traders, many software companies have introduced bond trading platforms. In order to ensure maximum returns, you must concentrate on purchasing low risk bonds.

Leave a Reply

Your email address will not be published. Required fields are marked *