Bonds can provide great diversity to your investment portfolio, as debt securities.

They represent cash appropriated by a corporation, a government or municipality to fund expansion, construction, and other growth-related projects. You as the bond investor holds an “IOU” from the borrower. It indicates you’re entitled to recover your money with a definite rate of interest at a specific point in time.

You can profit from bonds in three ways:

  1.    Investment: Apart from getting your capital back, you can opt to wait for the tenure of the bond to expire to get paid interest on it
  2.    Speculation: Bond prices are subject to market speculation
  3.    Traders can earn a profit on the changes in the bond yields (the interest to be paid) by buying and selling bonds to other market participants.

Trading in CFDs

The main advantage of CFD trading with bonds is the ability to leverage small price movements. Low margin requirements some as low as 5% are more lucrative to traders. CFDs don’t provide an option for “wait and see” for the bond to mature. Your trading has to be aligned to price fluctuations in order to gain a profit. Government Bond CFDs are based on the future contracts of the bonds. They’re suitable for both speculation and portfolio diversification.

Binary Options Bond Trading

To trade Bonds efficiently on the binary options markets, you need to have a clear understanding of market fundamentals. The focus is trading the differentials in bond prices. Here are some of the factors that affect bond prices:

  • Interest rates
  • Credit rating of Issuers
  • Bond Maturity
  • Economic data such as employment reports
  • Political and economic events like the Eurozone
  • Extreme variations in stock market prices

Any time these factors are disrupted bond prices fluctuates, presenting trading opportunities in the binary options market.

Spread Betting in Bonds

You don’t own the underlying bond when spread betting bond markets. In reality, no government is borrowing from you and neither will a government pay you in 5 years’ time. You’re trading the futures markets via the spread betting company based on government bond prices. Bond futures traders and spread betters try to make a profit from the change in price – not the interest the government pays on the bonds.

Relationship between Forex and Bonds

Certain characteristics of bonds such as Bond Yields and Bond Spreads will affect the value of a currency. In comparison to currencies, bonds are lower yielding investments but are safer investments instruments. More often the interest yield on bonds is guaranteed.

Higher bond yields lead to higher demand for the local currency as foreign investors exchange their currency for the local currency. This allows them to buy the bonds of the affected country. The resulting upsurge in demand leads to a rise in the value of the currency. Rising yields on the bond will lead to a higher currency value while falling yields will have the opposite effect.

Many economies are bound to debt. As a result, the value of most bond markets is almost double the value of stock markets. Moving forward, the challenge for financial regulators is to make sure the bond market operates seamlessly and efficiently.

Crypto Bonds

With the rise of bitcoin and other crypto currency a new form of bond has evolved. The best known crypto bond which is based on Bitcoin was set-up in Berlin, Germany by the name of Bitbond. It’s based on a peer-to-peer lending platform, where individuals or companies can either apply for a Bitcoin loan, or if they do own Bitcoin, they can lend it to other people and individuals with roughly up to 13% interest. For further information about Bitbond please read our review here.

bond trading financial options
Our contracts are off-exchange, so you can deal in fractions of contracts. Back your judgement on future changes in long term interest rates.

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U.S. bond market size

According to the Securities Industry and Financial Markets Association (SIFMA), as of Q4 2013, the U.S. bond market size is (in billions).

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