Trading in bonds is done in a way very similar to stocks although they are not traded on the stock exchange for the most part. Although, there are a few company issued bonds listed on the NYSE, the major proportion of bond trading takes place over-the-counter or in what is called the OTC market. The OTC market includes brokers, dealers, security firms, banks and agents who trade in bonds. Trading in bonds is easy and there are several options available to investors.
Buying Through Brokerages
If you are looking to buy a particular bond, you would usually need a brokerage to carry out the transaction on your behalf. Remember that these dealings will come at a price. The broker will charge you a commission or fee for his assistance and this will be added to your trading costs.
Direct Investment
Some banks also facilitate bond purchase for their customers so that they can buy from the issuers
directly without requiring a broker. The buyer saves on the brokerage fee in such transactions.
US Government bonds can be purchased from the Treasury directly using their online Treasury Direct service. You can purchase Treasury notes, bills, bonds, Treasury Inflation Protected Securities (TIPS) etc through this service. The site also allows you to manage your bond portfolio online with latest security features to protect your privacy and investment.
Bond Funds
You can invest in a bond fund, which is a kind of mutual fund but with diversified investments in bond and debt instruments. These are similar to equity-based mutual funds in that they are selected and managed by investment professionals. This relieves you of the anxiety and effort of tracking bond prices and analyzing market trends. These expert investment managers buy and sell the bonds as and when the conditions are right. They help you stay insulated from volatility in bond prices while giving you the assurance of a good return.
Money Market Funds
These are short-term debt funds which invest in a wide range of debt securities. The investments include Treasury bonds, munis, and other debt instruments. Money market funds are highly liquid and include only those securities that have maturity terms less than three months. Most of them allow the investor to withdraw his funds at a short notice.
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