Summary: Issued by governments and prominent corporations, bonds are usually viewed as a safe choice for investors looking for capital preservation and long-term profit potential. To trade bonds, US investors can register an account at a bonds trading platform such as OANDA US.
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OANDA Corporation is regulated by the CFTC/NFA. OANDA is a member Firm of the NFA (Member ID: 0325821). CFDs are not available to residents in the United States.
OANDA CORPORATION IS A MEMBER OF NFA AND IS SUBJECT TO NFA'S REGULATORY OVERSIGHT AND EXAMINATIONS. HOWEVER, YOU SHOULD BE AWARE THAT NFA DOES NOT HAVE REGULATORY OVERSIGHT AUTHORITY OVER UNDERLYING OR SPOT VIRTUAL CURRENCY PRODUCTS OR TRANSACTIONS OR VIRTUAL CURRENCY EXCHANGES, CUSTODIANS OR MARKETS
Trading in digital assets, including cryptocurrencies, is especially risky and is only for individuals with a high risk tolerance and the financial ability to sustain losses. OANDA Corporation is not party to any transactions in digital assets and does not custody digital assets on your behalf. All digital asset transactions occur on the Paxos Trust Company exchange. Any positions in digital assets are custodied solely with Paxos and held in an account in your name outside of OANDA Corporation. Digital assets held with Paxos are not protected by SIPC. Paxos is not an NFA member and is not subject to the NFA’s regulatory oversight and examinations.
Leveraged trading in foreign currency contracts or other off-exchange products on margin carries a high level of risk and may not be suitable for everyone. We advise you to carefully consider whether trading is appropriate for you in light of your personal circumstances. You may lose more than you invest. Information on this website is general in nature. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. Trading through an online platform carries additional risks.
What are bonds?
Bonds
When investors buy bonds, they are essentially lending money to the issuer, and the bond serves as a promise that the issuer will pay back the principal and a specified interest rate at a future date.
Investors favor bonds because they offer a low-risk, predictable income stream, making them a stable addition to investment portfolios and a counterbalance to riskier assets like stocks. Bonds fall into the category of fixed-income investments, providing regular cash flows in the form of interest or dividends.
Note
What is bond trading?
Bonds trading is the process of buying and selling bonds issued by governments, municipalities, or corporations. As an investor, you can trade bonds in the primary and secondary markets:
- In the primary market, you can purchase new bonds directly from the issuer and receive a predetermined interest;
- In the secondary market, trading bonds entails buying and selling previously issued bonds between investors.
Where to trade bonds
To begin trading bonds, you will need to open an account with a trusted broker or online platform. These platforms facilitate the buying and selling of bonds, giving you access to a wide range of bond types and issuers, including both governments and corporations.
Our go-to broker for US bond investments is OANDA, a platform featuring:
- No minimum deposits and no deposit fees;
- A wide selection of trading and analytics tools;
- Free demo account;
- Over 20 years of experience and insight in the market.
Note
Trade Forex and Crypto with Ease
-
Trade 68 Forex and 8 cryptocurrency pairs
-
Enjoy no minimum deposits and no deposit fees
-
Explore 2,000+ indicators and develop your own trading strategy
-
Over 20 years of experience and insight in the market
OANDA Corporation is regulated by the CFTC/NFA. OANDA is a member Firm of the NFA (Member ID: 0325821). CFDs are not available to residents in the United States.
OANDA CORPORATION IS A MEMBER OF NFA AND IS SUBJECT TO NFA'S REGULATORY OVERSIGHT AND EXAMINATIONS. HOWEVER, YOU SHOULD BE AWARE THAT NFA DOES NOT HAVE REGULATORY OVERSIGHT AUTHORITY OVER UNDERLYING OR SPOT VIRTUAL CURRENCY PRODUCTS OR TRANSACTIONS OR VIRTUAL CURRENCY EXCHANGES, CUSTODIANS OR MARKETS
Trading in digital assets, including cryptocurrencies, is especially risky and is only for individuals with a high risk tolerance and the financial ability to sustain losses. OANDA Corporation is not party to any transactions in digital assets and does not custody digital assets on your behalf. All digital asset transactions occur on the Paxos Trust Company exchange. Any positions in digital assets are custodied solely with Paxos and held in an account in your name outside of OANDA Corporation. Digital assets held with Paxos are not protected by SIPC. Paxos is not an NFA member and is not subject to the NFA’s regulatory oversight and examinations.
Leveraged trading in foreign currency contracts or other off-exchange products on margin carries a high level of risk and may not be suitable for everyone. We advise you to carefully consider whether trading is appropriate for you in light of your personal circumstances. You may lose more than you invest. Information on this website is general in nature. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. Trading through an online platform carries additional risks.
How to trade bonds
Trading bonds can be an important part of your investment strategy, offering diversification and potentially lower risk compared to other investments like stocks. To start trading bonds, you can take the following simple steps:
- Select a trading platform: Sign up with a trusted bond trading platform like OANDA US;
- Analyze the market: Use analysis tools to study the market;
- Implement risk management: Incorporate strategies such as stop-loss orders to mitigate risk;
- Choose the bonds you want to invest in;
- Place an order;
- Monitor your investment: Stay vigilant, adjusting your strategy in response to economic updates and market shifts.
Most traded types of bonds include:
- Treasury bonds;
- Municipal bonds;
- Corporate bonds.
1. Treasury and government bonds
US Treasury bonds are issued by the US government, which is why they are considered low-risk investments. They can be purchased directly from the US Treasury or through an online broker, such as OANDA.
In addition to being backed by the government, treasury bonds have the advantage of a fixed coupon rate and a maturity of 10 years or more. Consequently, they can be a solid choice for new investors looking for an accessible market entry point and trying to generate a steady income.
2. Municipal bonds
Municipal bonds are issued by state or local governments, for example, to fund public projects. Like government bonds, they can offer several benefits, including tax advantages — they are sometimes tax-free, depending on the location — and relatively low risk. However, as the financial health of municipalities can vary, it is highly advisable to do some thorough research on each issuing body before committing to an investment.
3. Corporate bonds
Corporate bonds are issued by companies to raise capital for various projects, such as expanding their business, paying off debts, signing partnership contracts, etc. Unlike Treasury and municipal bonds, corporate bonds are generally riskier due to the fact that companies and corporations tend to be less stable than, say, governments.
To mitigate risk and invest in corporate bonds safely, it is wise to do your own research on the issuing company, diversify your portfolio by investing in other assets, and stay up-to-date with broader market developments.
Note
Things to consider when trading bonds
As a bond investor, there are several things you will have to consider to optimize your trading strategy. They include:
- Laddering: Laddering is an investment strategy that involves buying bonds with different maturity dates, creating a steady cash flow, and reducing the impact of interest rate changes. That is, by spreading out maturities, you reap the benefits of potentially higher yields on longer-term bonds while making sure you have access to your principal when shorter-term bonds reach maturity;
- Bond funds: Mutual funds or exchange-traded funds (ETFs) invest in a diversified portfolio of bonds, providing instant exposure to various types of bonds without having to research and invest in each bond individually. Bond funds pool money from multiple investors and can provide diversification and liquidity. However, they do not have a fixed maturity date;
- Bond yields: Understanding bond yields is crucial to evaluating the potential return on your investment. Higher bond yields offer higher income potential but often come with higher risk.
Pros and cons of trading bonds
Pros
- Bonds are considered a low-risk investment;
- Steady passive income;
- Diversification;
- You can sell bonds at the secondary market for more than you paid for them.
Cons
- With low risk come low returns;
- Interest rates can greatly affect bond prices;
- Companies that issue bonds can be ruined by debt;
- Not all bonds do well during inflation.
Conclusion
In conclusion, bond trading has the potential to bring significant benefits, offering a unique blend of advantages, including diversification, a reliable passive income stream, and the preservation of your capital. However, the key to harnessing this potential lies in the careful selection of bonds that align with your risk tolerance and financial objectives.
By doing a lot of research and carefully selecting what you invest in, you can create a comprehensive and reliable long-term financial strategy that not only safeguards your investments but also fosters steady growth and financial stability.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about how to trade bonds
What’s the difference between bonds and stocks?
Stocks represent ownership shares in a company. On the other hand, bonds are technically a loan you issued to a corporation or government. The key difference lies in how they generate returns. On the one hand, stocks rely on value appreciation and sales in the stock market. On the other hand, bondholders make a profit through regular semi-annual fixed interest payments, as well as the return of the principal amount upon maturity.
Is investing in bonds risky?
Bonds are generally considered safe investments. However, they do come with some risks, for example, interest rates. Namely, rising interest rates can lead to a decline in bond prices, making older bonds less attractive than newly issued ones.
There is also inflation, which reduces the real value of bond payments over time, as well as call risks, which arise when companies choose to redeem bonds before their scheduled maturity, cease interest payments, and reissue bonds with lower interest rates. Finally, there is the default risk, where a company may fail to make bond payments altogether, leading to financial losses for bondholders.
Where can I trade bonds?
Retail US investors can trade bonds through online brokerages such as OANDA US.
Trade Forex and Crypto with Ease
-
Trade 68 Forex and 8 cryptocurrency pairs
-
Enjoy no minimum deposits and no deposit fees
-
Explore 2,000+ indicators and develop your own trading strategy
-
Over 20 years of experience and insight in the market
OANDA Corporation is regulated by the CFTC/NFA. OANDA is a member Firm of the NFA (Member ID: 0325821). CFDs are not available to residents in the United States.
OANDA CORPORATION IS A MEMBER OF NFA AND IS SUBJECT TO NFA'S REGULATORY OVERSIGHT AND EXAMINATIONS. HOWEVER, YOU SHOULD BE AWARE THAT NFA DOES NOT HAVE REGULATORY OVERSIGHT AUTHORITY OVER UNDERLYING OR SPOT VIRTUAL CURRENCY PRODUCTS OR TRANSACTIONS OR VIRTUAL CURRENCY EXCHANGES, CUSTODIANS OR MARKETS
Trading in digital assets, including cryptocurrencies, is especially risky and is only for individuals with a high risk tolerance and the financial ability to sustain losses. OANDA Corporation is not party to any transactions in digital assets and does not custody digital assets on your behalf. All digital asset transactions occur on the Paxos Trust Company exchange. Any positions in digital assets are custodied solely with Paxos and held in an account in your name outside of OANDA Corporation. Digital assets held with Paxos are not protected by SIPC. Paxos is not an NFA member and is not subject to the NFA’s regulatory oversight and examinations.
Leveraged trading in foreign currency contracts or other off-exchange products on margin carries a high level of risk and may not be suitable for everyone. We advise you to carefully consider whether trading is appropriate for you in light of your personal circumstances. You may lose more than you invest. Information on this website is general in nature. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. Trading through an online platform carries additional risks.
