Best US Bond Trading Brokers Compared

How do you buy bonds?

If you want to invest in bonds, read on for our guide to buying bonds and choosing a US bond broker.  There are many different types of bonds that offer investments for different objectives. All bonds, although considered a safer (than most other) forms of investing come with risk that varies from very risky to safe and steady).

There are a few different ways to buy bonds. They are slightly more complex than stocks as some require large minimum deal sizes and can have illiquid markets meaning they are difficult to sell if you want to cash in.

• Bond Brokers – A bond broker is the most common way to buy bonds. As with a US stock broker you simple, log on, choose the bond to buy and purchase as you would a stock on the stock market.
• As an ETF – ETFs or Exchange Traded Funds are diversified bond funds that are traded on the stock exchange. To buy a bond ETF you will need an American based ETF broker. Stock brokers usually give access to ETFs so a standard stock broking account should be enough. The advantage of bond ETFs is that as they contain a selection of bonds rather than just one, they are in theory a safer investment. Although, as there is more administration involved the costs of ownership and therefore performance are lower.
• Direct from the Government – You can buy bonds direct from the Government with their TreasuryDirect service.

What to look for when buying US bonds?

All bonds are risky, but what is the right risk for you? The principle price of bonds moves up and down, which means the less you pay the higher the yield you will get from interest payments. As a rule, the lower the price the higher the risk.

• How much debt does the company or country have? – Most companies fund their activities through debt in one way or other. If a new company has lots of debt relative to it’s revenue, that would be considered a higher risk bond investment than an established company with a small amount of bond debt.
• Has the bond been given a rating? – Companies like Standard and Poors and Moody’s provide credit rating on bonds. These financial institutions grade bonds on the companies ability to pay them back. Giving a guide (although not definitive) to how safe or risky a bond is.

When is the right time to buy bonds?

As with stocks picking the right time to buy US bonds is a gamble. Generally, bonds are considered longer term investments because the objective is to buy and sell at the same level and mainly earn income from the interest payments. However, with stocks, the objective is to invest mainly for growth.

All bond prices fluctuate in price and this depends on how healthy the underlying asset is, the economy in general and the sector performance relative to the overall stock market.

How do you trade bond futures online in America?

In order to trade bond futures online, you’re going to want to find a reputable US futures broker. Some will have a minimum amount threshold, meaning you could need $5000 to start investing. If you do, then you can expect access to a wide selection of markets and with plenty of data on offer as well as customisable tools and trading options, giving you everything you need to turn a profit at your fingertips.

For those on more of a budget and who are perhaps new to trading, it may be worth considering one of the several brokers where there’s no minimum amount required. Also look out for brokers who provide a two-week demo for those who are new to US futures brokers and want to try out the service before making a commitment. It’s a good idea to keep an eye out for brokers that offer generous fees as well, with many prices starting from just $0.59 per contract, per side commission as well as no inactivity fees.

How to decide what types of bonds to invest in?

Bonds are issued by many different types of organisations looking to raise money through debt. When you invest in a bond you are doing so in the hope that that organisation can pay it back along with the interest payments. Here’s a quick rundown of the types of bond available.

• Federal Government Bonds – These are backed by the US treasury and as such are deemed to be very safe. However, the safer a bond the lower the interest payment. There is also quite a large a market in speculating on Government bonds through US futures brokers and American options brokers.
• Municipal Bonds – These are similar to Government bonds, but issued by local government or US States. As they are also considered so safe the fixed income generated is low. Although this is offset by them being non-taxable, so depending on your tax structure could offer relatively higher yields.
• Investment Grade Corporate Bonds – Here you are buying bonds directly from companies who are borrowing money from investors. How safe the bonds are depends on the creditworthiness of the underlying companies and what the bond is guaranteed against. A well performing company would have a high priced bond paying relatively low interest coupons.
• Junk Bonds – These are corporate bonds that offer a high yield because the issuing company or country is considered a high risk. With junk bonds there is capital appreciation to be had from the principle price as well as the interest coupons that will pay a relatively high percentage. However, they are a risky form of bond investment.