How to Invest or Trade in Bonds?
A bond is an investment that involves debt. An investor will loan companies or a government a fixed amount of money at a fixed time. Another name for a bond that is often used is a fixed-income security. Bonds are given by a state, a government, or a corporation. Interest on bonds is normally paid when the borrower gives back the loan.
A bond can be used as a balance in a portfolio that has stock mutual funds. So, when the values in the markets fluctuate, the bonds usually have less movement than stocks. There are different types of bonds that are traded in the market. There are two basic categories of bonds, a taxable bond and a tax free bond.
A taxable bond involves the government and corporations. A government bond is issued by the Treasury department of a country. This makes it so that government bonds are also now often called treasuries. A government bond lasts anywhere from three months to thirty years. They are usually paid back in a fixed regular rate. Obviously, the value of bonds will increase and decrease while being held, so when the shares are given back, they could have less value than they did before. A corporate bond is issued by companies to help in financing their business. The company says how much debt it will give and what interest rate it will have on it. Bonds can make a lot of profit, but they come with a bit of risk as well. A convertible bond is another type of corporate bond that can be converted into a stock. To do this, there is a pre determined price and rules to follow.
A tax free bond is also known as a municipal bond. Municipal bonds don’t have federal income tax usually. If they do, they usually don’t have state or local tax. Municipal bonds are very useful to people with a high tax bracket. This helps them earn a high pretax yield on a taxable bond.
Usually the investors of bonds are the bigger corporations, governments, and mutual funds. When these big corporations (and others) are concerned, bonds worth a million dollars would be a very small amount. In bonds there is no limit to how much money. It can easily get up to five hundred million dollars.
Bonds are almost as popular as stocks when it comes to trading. There is no physically location for bond trading like a stock exchange for stocks. However, some of them can be listed under an exchange market, but most of them are not.
There are many bond brokers out there who could assist beginner traders to start trading online in the bond market. However beginners should first learn bond trading from a professional or a good college/school and then find an affordable investing company that lets you do trading in bonds. Also bear in mind whether such financial firm offers a strong user friendly and simple bond trading software along with a demo so that you can learn online before getting on to the real trading.