What are some bond trading basics that beginners need to know? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Answer by Gurinder Ahluwalia, Co-Founder & CEO of 280 CapMarkets, on Quora: 카지노사이트
I think a basic tenant of investing is to not put all your eggs in one basket. Whether we are talking about diversification among the various asset classes (stocks, bonds, cash, real estate, etc.) or individual securities. While this is the most basic of principals, there are others as well. For instance, emotional investing and overreacting to market swings or news. In most cases, by the time you see or read the news, it’s generally been priced into the market.
At the very core, a bond is a loan to the issuer, whether that is a corporation, a municipality (like a city or state) or the Federal Government. In that regard, when you make a loan, you have to consider the ability for the borrower to repay that loan and under the terms that you want. Investing in bonds really isn’t much different and you should “get to know” the issuer the same way you would a borrower.
For the purposes of this answer, we’ll talk in generalities, since bonds can come in a variety of flavors, but be aware that the attributes discussed may not be found in every bond. Bonds usually trade in $1,000 increments, or Par Value and generally have stated interest rate and maturity, where the interest rate is the periodic payment you will receive in exchange for borrowing your money and maturity is the date at which the loan will be repaid in full. Bonds commonly have call features, which allows the issuer to “pre-pay” a bond at a specified price. This is particularly important when you pay a premium for a bond (more about that in risks).
Yield is another important term that is you need to understand as you examine a bond. The yield is a function of the interest rate, the price you paid, maturity, call features, but thought of another way, it is basically the return of a bond (beyond the principal) over the projected life of the bond. 안전한카지노사이트
Bonds are exposed to a variety of risks not commonly associated with stocks. As we mentioned above, one major risk you take on when you lend money is the borrowers ability to repay that loan or its creditworthiness. Various factors go into this and as you examine a bond’s creditworthiness, you may come across its ratings. Not all bonds are rated, but if they are, they are usually rated by one of the three rating agencies. The rating agency attempts to take into account the various risks and synthesize this into one easy to digest classification. Rated bonds generally fall into two categories, Investment Grade and Non-Investment Grade (aka, High Yield or “junk bonds”). For Standard and Poors and Fitch, the cutoff is BBB and for Moody’s the cutoff is Baa. For more on this you can visit their respective websites.
Other risks associated with bonds and other fixed return instruments is interest rate risk. As the general interest rate environment increases, the relative value of your fixed return is less, so the yield of the bonds goes down. The bonds will continue to pay that fixed return, but if you were to try to sell that bond in the market, they would look less attractive to other instruments with the current interest rate. For more information on bond risks, you should visit FINRA or MSRB’s investor education center.
With these risks mentioned in mind, a positive in the case of bonds, is that it is ahead of equity as it relates to the “capital stack” and in case of liquidation preference, is generally ahead of the equity holders.
Make sure you understand the strength of the obligation, which translates to the borrower’s ability to make interest payments and return principal. Make sure you are comfortable with the duration of when you’re principal is returned. Your bond portfolio should be one of the last places an investor looks for liquidity.
Finally, just as we consult with specialists for our personal healthcare and legal matters, it’s useful to see a qualified financial advisor about our personal financial situation. 카지노사이트 추천
This question originally appeared on Quora – the place to gain and share knowledge, empowering people to learn from others and better understand the world. You can follow Quora on Twitter and Facebook. More questions: