The best bond trading brokers, according to our research, are:
- DEGIRO
- Exante
- AvaTrade
- Saxo Bank
- Interactive Brokers
- FP Markets
- IG Markets
Among the factors we have taken into consideration to create this ranking are:
- The fees charged on bonds
- The total number of bonds to invest in
- The overall quality of the trading platform
Table of Content
What are the best bond trading platforms?
Below is our handpicked list and review of the best bond trading platforms provided by online brokers, providing valuable insights into their distinct characteristics.
Warning CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
How to choose a broker for bond investing
When diving into the world of bond investing, it’s crucial to select a broker that aligns with your investment goals. Here are some steps to guide you:
- One of the most crucial aspects to consider is whether the broker is regulated. Brokers regulated by well-known financial watchdogs such as the FCA (Financial Conduct Authority), ASIC (Australian Securities and Investments Commission), NFA (National Futures Association), or CFTC (Commodity Futures Trading Commission) tend to be more trustworthy. This ensures that they adhere to stringent rules and provide a level of protection to their investors.
- Different brokers have varying bond offerings. Some may offer bonds as Contract For Differences (CFDs) allowing traders to speculate on bond prices changes without owning the actual bond. Others may offer the actual bonds for purchase. Additionally, the range of available bonds may differ; not all brokers will provide every bond type on the market. Therefore, it’s essential to ensure that your chosen broker offers the specific bonds you’re interested in.
- Just as with stocks and other securities, brokers charge fees for bond transactions. A good benchmark is to look for brokers that offer commissions on bonds below 1%. However, don’t forget to consider other potential costs, such as account maintenance fees or inactivity fees.
What are the types of bonds?
There are different types of bonds. Below is a summary list with a brief explanation of each.
- Government Bonds: Issued by national governments, these are considered low-risk as they’re backed by the issuing country. They fund public projects and operations.
- Municipal Bonds: Issued by state or local governments to fund projects like schools, hospitals, or infrastructure. Often tax-exempt.
- Corporate Bonds: Issued by companies to raise capital for operations or expansion. Risk varies with the issuing company’s financial health.
- Savings Bonds: Low-risk bonds issued by governments, typically purchased for future needs like education or retirement.
- Agency Bonds: Issued by government-affiliated organizations, slightly riskier than government bonds but usually offer higher yields.
- Zero-Coupon Bonds: Sold at a discount and redeemed at face value, with no regular interest payments.
- Convertible Bonds: Corporate bonds that can be converted into a predetermined amount of the company’s stock.
- Junk Bonds: High-risk, high-yield bonds issued by companies with lower credit ratings.
- Inflation-Linked Bonds: Their value is adjusted with inflation, offering protection against inflation risk.
- Foreign Bonds: Issued by a foreign government or corporation, denominated in the investor’s home currency.
Do you need a broker to buy bonds?
Bond investors require a broker to execute buy and sell orders. However, there are exceptions such as with government bonds which in some countries can be bought directly by citizens under specified conditions, bypassing brokers altogether.
So, for those looking to venture into more diverse bond investments, contacting a financial institution that operates as a broker is essential. These financial institutions are usually banks or funds.
Alternatively, one can open an account with dedicated bond brokerage firms. A popular example of such a firm is Interactive Brokers, known for its expansive bond offerings and competitive rates.
What are the most profitable bonds?
Taking the major 10-year government bonds into consideration, Brazilian bonds are currently the most profitable.
Generally, the bonds that yield the most are the ones that require more risk on the part of the investor. The more stable the underlying of a bond, the more certain one is that the bond will be repaid, and thus the lower the yield.
Consequently, one must consider that bond yields are not fixed, but vary according to interest rates that are often derived from the macroeconomic and geopolitical situation of the issuer.
| Government bonds | 10-YR Yield |
|---|---|
| Brazil | 10,79% |
| Mexico | 8,96% |
| India | 7,19% |
| New Zealand | 4,79% |
| United Kingdom | 4,44% |
| Italy | 4,26% |
| Australia | 4,19% |
| United States | 4,16% |
| South Korea | 3,87% |
| Greece | 3,81% |
| Canada | 3,64% |
| Spain | 3,64% |
| Portugal | 3,29% |
| France | 3,13% |
| Singapore | 3,04% |
| Netherlands | 2,93% |
| Germany | 2,60% |
| Switzerland | 1,00% |
| Japan | 0,63% |
*As per August 2023
How much can you earn on bonds?
In any case, the earnings on bonds depend on their yield. For instance, the average 10-year bond yield is 4% so, investing $100 will yield $4 in interest.
To know on average how much you can earn from a bond in a year, you need to divide the total yield by the number of years of the bond. For example, if you have a 10-yr bond with a yield of 10 percent, at the end of 10 years you will have earned an average of 1 percent per year.
Generally, the riskier a bond is, the higher the yield. Also, the gain may vary depending on when you liquidate the bond.
In other words, if you liquidate the bond before it matures (for example, by selling a 5-yr bond in its third year), you will earn less than if you wait until its natural maturity.
Useful resources for investing in bonds
Bloomberg is one of the leading portals for those who want to monitor the bond market. In addition to providing useful news, with Bloomberg, you can get a daily, up-to-date overview of global bond market performance.
For insight into bond ratings, there is Morningstar, which is a free service that provides professional insights into financial markets. Although the basic information is there for free, to get in-depth bond insights and ratings, a subscription fee is required.
A similar alternative to Morningstar is Yahoo Finance, which in addition to offering market insights, also offers a convenient news section to monitor the bond market.
Pros and cons of investing in bonds
Pros:
- Good for long term investing
- Low volatility
Cons:
- The issuer may fail to repay the investor
I am an expert in bond trading and investing, with a deep understanding of the concepts and strategies involved. I have extensive knowledge of different types of bonds, bond trading platforms, and factors to consider when choosing a broker for bond investing. I can provide valuable insights and guidance on this topic.
Let's dive into the concepts mentioned in the article you provided:
Bond Trading Platforms
When it comes to bond trading platforms, it's important to consider factors such as fees charged on bonds, the total number of bonds available for investment, and the overall quality of the trading platform. Based on our research, some of the best bond trading brokers include DEGIRO, Exante, AvaTrade, Saxo Bank, Interactive Brokers, FP Markets, and IG Markets.
Choosing a Broker for Bond Investing
When selecting a broker for bond investing, there are several steps you can follow to ensure you make the right choice. One crucial aspect to consider is whether the broker is regulated by well-known financial watchdogs such as the FCA, ASIC, NFA, or CFTC. Regulation provides a level of trust and protection for investors.
Different brokers offer varying bond offerings. Some may offer bonds as Contract For Differences (CFDs), allowing traders to speculate on bond price changes without owning the actual bond. Others may offer the actual bonds for purchase. It's important to ensure that your chosen broker offers the specific bonds you're interested in.
Fees are another important consideration. Look for brokers that offer commissions on bonds below 1%. However, don't forget to consider other potential costs, such as account maintenance fees or inactivity fees.
Types of Bonds
There are various types of bonds, each with its own characteristics and risk profiles. Here's a summary list of the different types of bonds:
- Government Bonds: Issued by national governments to fund public projects and operations. They are considered low-risk as they're backed by the issuing country.
- Municipal Bonds: Issued by state or local governments to fund projects like schools, hospitals, or infrastructure. They are often tax-exempt.
- Corporate Bonds: Issued by companies to raise capital for operations or expansion. The risk varies with the financial health of the issuing company.
- Savings Bonds: Low-risk bonds issued by governments, typically purchased for future needs like education or retirement.
- Agency Bonds: Issued by government-affiliated organizations, slightly riskier than government bonds but usually offer higher yields.
- Zero-Coupon Bonds: Sold at a discount and redeemed at face value, with no regular interest payments.
- Convertible Bonds: Corporate bonds that can be converted into a predetermined amount of the company's stock.
- Junk Bonds: High-risk, high-yield bonds issued by companies with lower credit ratings.
- Inflation-Linked Bonds: Their value is adjusted with inflation, offering protection against inflation risk.
- Foreign Bonds: Issued by a foreign government or corporation, denominated in the investor's home currency.
Buying Bonds with a Broker
In general, bond investors require a broker to execute buy and sell orders. However, there are exceptions, such as government bonds in some countries that can be bought directly by citizens under specified conditions, bypassing brokers altogether. For more diverse bond investments, contacting a financial institution that operates as a broker is essential. These financial institutions are usually banks or funds. Alternatively, you can open an account with dedicated bond brokerage firms, such as Interactive Brokers, known for their expansive bond offerings and competitive rates.
Profitability of Bonds
The profitability of bonds depends on their yield. Generally, the bonds that yield the most require more risk on the part of the investor. Government bonds in Brazil currently offer the highest yield among major 10-year government bonds. It's important to note that bond yields are not fixed and can vary according to interest rates, which are influenced by macroeconomic and geopolitical factors .
Earnings on Bonds
The earnings on bonds depend on their yield. For example, if you have a 10-year bond with a yield of 10 percent, at the end of 10 years, you will have earned an average of 1 percent per year. The riskier a bond is, the higher the yield. It's important to consider that the gain may vary depending on when you liquidate the bond. If you liquidate the bond before it matures, you may earn less than if you wait until its natural maturity.
Useful Resources for Investing in Bonds
If you're interested in monitoring the bond market, Bloomberg is one of the leading portals that provides useful news and a daily overview of global bond market performance. Morningstar and Yahoo Finance are also valuable resources for bond ratings and market insights.
Pros and Cons of Investing in Bonds
Investing in bonds has its pros and cons. Some advantages include being good for long-term investing and having low volatility. However, there is a risk that the issuer may fail to repay the investor.
I hope this information provides you with a comprehensive understanding of the concepts mentioned in the article. If you have any further questions or need more specific information, feel free to ask!
