Welcome to Trading Brokers step by step guide to trading bonds online. Here you will find an easy to understand explanation of bonds trading. This includes how to trade bonds online, what you need to trade bonds and how to open a trading account with a broker so that you can start trading bonds online today.
Maybe you have heard of bonds trading online or through a friend. Perhaps you are looking to trade and are curious about the different options available to you. Whether you are looking to speculate, invest or just learn more, this guide on how to trade bonds can help you along your journey.
When companies or some other entities including governments need to raise funds for new projects, ongoing operations, or refinance existing debts, they may choose to issue bonds directly to investors as a way to get the capital. It is common for many corporate and government bonds to be publicly traded on exchanges.
When you buy a government bond, you are effectively loaning your capital to whichever government issued the bond. Corporate bonds work in the same way, but you are instead loaning your capital to a company. Corporate bonds are usually considered to be riskier due to the increased possibility of a company having to default on its loans.
For some people, a government bond presents itself as a more long-term investment opportunity, offering steady returns with low risk. However, the inverse relationship that occurs between bonds and interest rates along with other factors that affect bond prices, can also make them a potential trading instrument of choice for active day traders.
First and foremost, it is important to distinguish the differences between trading bonds and investing in them.
Trading bonds is when a trader speculates on bond price movements over the short and medium term. In a nutshell, they will buy a bond if they think its price will rise, or sell if they think it will fall. This way they are looking to profit from the movements in bond prices.
There are many brokers who provide bonds trading with leverage. Leverage involves borrowing a certain amount of the money needed to invest in something. This is done in order to control a larger position size.
For example, if you had an account size of $1,000 and leverage of 1:3, you would be able to take a position size of $3,000. Now, whilst this can be tempting, it is also very dangerous. Leveraged trading greatly increases risk and potential loss. It is important to have a clear understand of leverage and how it works before even considering it.
This type of investing is when an investor will look to hold government bonds over the long term. They buy bonds and carry the risk of losing out if bond prices fall but can profit from regular interest payments and a bond yield (return to investor at maturity). This type of investment requires the full amount upfront and a bond broker.
ASIC, BVI, CBI, FFAJ, JFSA, FSCA, IIROC, ADGM FRSA
Min $100 Deposit
FCA, CFTC, NFA, BaFin, FINMA, ASIC, FMA, MAS, FSA, FSCA, DFSA, JFSA, METI, MAFF
Min $250 Deposit
ASIC, FCA, DFSA, SCB, CySEC, BaFin, CMA
Min $200 Deposit
ASIC, CySEC, IFSC, DFSA
Min $5 Deposit
Investors may choose to trade bonds for a number of reasons, with some of the key reasons being to try and make a profit, for protection and a way to diversify a trading portfolio. It is imperative that a trader has a clear understanding of what bonds are and why or why not they should trade them.
If you have taken the time to read through the above, you should hopefully have an understanding of how to trade bonds. Here is a summary of the key steps:
Trading bonds online carries an element of risk and can take more time than other forms of investing. You will need to research bonds, manage your trades, follow market news and decide how to react to it. It is important to understand the risks and dedication that comes with trading bonds online.
Before trading bonds, it is imperative to learn as much as possible about investing and bonds in particular. Any mistake could prove to be costly. There is an abundance of free educational materials provided by many online brokers that can help you to improve your trading skills and knowledge.
Most bond brokerages will also provide a free demo trading account so that you can practice trading bonds online with virtual funds in order to familiarise yourself with the trading platforms and practice your trading strategies until you feel confident enough to open a real trading account.
In order to trade bonds online, you will need a broker account and trading platform to execute your trade positions through to the markets. When choosing a broker, there are a few important things to consider such as regulation, commission fees, platforms, tools, education, funding options and customer support.
If you do not have the time to research brokers, you can see a list of our best brokers that we have already prepared to help traders. If you would like to know more, you can also view our detailed guide on how to choose a trading broker.
If you have made it this far then you may be ready to start trading bonds online! The next step is to research the different bonds to discover which of them you have an interest in trading. Perhaps there is a particular industry, product or service that is already of interest to you. Many brokers will allow you to filter bonds according to various criteria in order to narrow down your search if need be.
Many traders will begin by analysing different companies, studying public information such as finances, earnings and reports from professional analysts. The best brokers should have this information conveniently displayed for you within their trading platform.
Some of the most important factors that can help determine bonds trading performance can be the trading plan and discipline. It is important to have a solid trading plan personalised to your own needs that includes the money management and trading strategy that you will use. Most experts and professional traders would try to not let negative emotions such as fear, anger and greed affect their trading strategy.
Once you know what bonds you want to trade online, you can analyse them to help decide if and when you will place your trades. After placing a bonds trade, you will need to keep track of how it performs and manage it according to your trading plan. Some investors will keep hold of bonds for the long-term, whereas traders may buy and sell bonds on a more frequent basis.
Bonds trading can be a way to take advantage of the inverse relationship between long-term interest rates and bond prices. Traders who would usually trade CFDs, trade futures, trade ETFs, trade options, may look to diversify their portfolio.
However, it is important to understand the significant risks involved with trading bonds online, especially when using leveraged positions. Most experts would suggest trading on a demo account with virtual funds to begin with.
This can be a useful way to familiarise yourself with how to trade bonds and using trading platforms whilst allowing you to practice your trading strategies until you feel confident and produce consistent results. Most trading brokers provide unlimited demo accounts free of charge.