Bonds are one of the main stream types of investment along with stocks and real estate, and if you want to learn how to trade bonds make sure that you get a good education in the subject 1st. There are a number of important points that you must understand about bonds before you start investing in them. Not understanding these points may cause you to purchase the wrong bonds, at the wrong maturity date.
Like all investments it is important to learn about what you are investing in, and certainly don’t just take the advice given to you by a bond seller without checking it out 1st yourself. The three most important things that must be considered when purchasing a bond include the par value, the maturity date, and the coupon rate.
The par value of a bond refers to the amount of money you will receive when the bond reaches its maturity date. In other words, you will receive your initial investment back when the bond reaches maturity.
The maturity date is the date that the bond will reach its full value. On this date, you will receive your initial investment, and the interest that your money has earned.
Corporate and State and Local Government bonds can be ‘called’ before they reach their maturity, at which time the corporation or issuing Government will return your initial investment, along with the interest that it has earned thus far. Federal bonds cannot be “called”.
The coupon rate is the interest rate that you will receive when the bond reaches maturity. This number is written as a percentage, and you must use other information to find out what the interest will be. A bond that has a par value of say $2000, with a coupon rate of 5% would earn $100 per year until it reaches maturity.
Because bonds are not issued by banks, many people don’t understand how to go about buying one. There are two ways this can be done.
You can use a broker or brokerage firm to make the purchase for you or you can go directly to the Government. If you use a broker, you will more than likely be charged a commission fee. If you want to use a broker, shop around for the lowest commissions!
Purchasing directly through the Government is not nearly as hard as it once was. There is a program called Treasury Direct which will allow you to purchase bonds and all of your bonds will be held in one account, that you will have easy access to. This will allow you to avoid using a broker or brokerage firm.
More advanced traders may try to buy and sell bonds to take advantage of the price movements, you can even swing trade them. But this is a very risky business if you don’t know what you are doing, you will need to take a swing trading course if this was something that wanted to, but again most people just buy and hold.
Financial Success Articles
- Forex Online Software Trading – Wise Investing Method (If you have been looking for a wise method of investing, forex online software trading is for you. If you are wondering why, observe the options available around you nowadays where you can make wise investments without the need to take risk. Eventhough forex trading has its volatile side, those who really master how to [...])
- What Do The Best Traders Look For In Their Brokers? (Comparing stock brokers starts with figuring out what your priorities are and the different criteria. You should look at features like commission on stock and option trades, customer service, trade tools and research, trading community and trading options, to name a few considerations. You must also take note that each online stockbroker has specializations [...])
- Make Investment Decisions based on Sound Answers (I’ve been investing for years now, and I have to share something. Most investment research tools, including financial newsletters, stock newsletters, or investing newsletters do not please me. Stock Newsletters
I've had relationships with so many brokerages over my lifetime that I receive a ton of junk investment newsletters every week. These newsletters are awful. Only [...])
- Understanding The Gann Square of Nine (Gann Square of Nine or Gann Pyramid as it is also called, is one of the most useful tools in the investment industry. Though it is somewhat more complicated than other tools, once mastered it is very useful when applied to financial analysis. The Gann Square of Nine is most often used to confirm [...])
- Trading Using Charts – Commodity Markets (An important component of commodity futures trading is using charts and charting software. We get an interactive and visual representation of the price action data on a chart. This is very helpful in giving us the right signals when we want to take a trade. How To Use Charts A good trader will [...])
- New FX Forex Trading System (If you've been in the online foreign exchange industry for a while, you know there have been quite a few forex products available. From trading robots to trading systems, the forex market has for sure been saturated with different products. While some products have actually been worth it, others have been rather disappointing. A simple [...])
- Introducing Currency (Currency is the most important form of money in the present world. But it was not always like this. Earlier, coins usually made of gold or silver was used as a form of money. Coins have a natural or inherent value. Gold coins were used for large purchases while silver or copper coins were used [...])
- Real Estate Investing In The Age Of Government Intervention (The term real estate investing likely brings a number of things to mind. You likely leap to real estate investing as real estate portfolios and real estate retirement plans, and then you may expand to thinking of short sales, bulk reo investing or virtual real estate investing. You may also wonder what type of role [...])
- A Couple Advantages of Forex Trading (Everybody’s been talking about Forex lately. If one has an idea of what it is, then this would be a good read. Reading basic information about Forex is recommended for those who don’t. Many people might have read successful stories of people who engaged in foreign exchange. That’s [...])
- Real Estate Investing Tips & Techniques (The term real estate investing likely brings a number of things to mind. You may think of real estate investing as real estate portfolios and real estate retirement plans, or you might focus on short sales, bulk reo investing and virtual real estate investing. You may also consider what roles these things play in your [...])
Tags: achieve financial success, achieve success, achieving financial goals, achieving financial success, banks, bonds, broker, financial succes, financial success, invest, investment, money, stocks, swing trade, trader, trading
This entry is filed under financial investing.