Bond Trading – How to Trade Bonds Electronically

bond tradingBond trading is not like trading stocks.  Bond trading technology and access has not developed as quickly as other markets. Electronic platforms with real time quotes which are the standard in other markets are the exception in the bond market.

What are the other differences between bond trading and stock trading?

  1. Bonds have wider spreads.
  2. Execution is not instantaneous
  3. Not all bonds are available for trading.  A company might have 20 bond issues however, there might only be prices available for 10.

You can learn more about the differences between bonds and stocks here.

Things are slowly changing from a technology standpoint, and individual investors do now have the ability to place certain types of bond trades online.  As a rule of thumb the more liquid the bond is, the easier it will be to trade online.  To see how electronic bond trading works let’s take a look at the new E*Trade bond center.

After clicking the bonds tab from the E*Trade 360 Platform, or going to the bond center under the research tab of the site, I am taken to the bond center.  Once you are there you can click the “investment grade corporates” tab, which is a good place to start learning how to place a bond trade.

E*Trade Bond Center Investment Grade Corporates Screen

This will take you to a page with a lot of different info on the most actively traded bonds.  The section we are going to look at is towards the bottom of the page, where it says “Market Snapshot”.  In the “most active buys” tab of this window, we can see a list of the most actively traded bonds by retail traders over the last 24 hours.

This is a good place to start, as the more actively traded the bond the lower the spreads are going to be.  The prices of actively traded bonds are more likely to reflect the bond’s underlying value.

The window looks like the below:

E*Trade Bond Center Market Snapshot Section

In this window you can see the 10 most actively traded bonds by retail clients including:

  • CUSIPS – Many companies have more than 1 bond issue and some have hundreds.  Each issue has its own CUSIP Number.  As you can see from the above table, Morgan Stanley has had 130 different bond issues trade on the day this guide was written.
  • Trades – this is the number of individual bond trades placed.
  • Par Value – The total dollar amount of bonds traded
  • Median Yield – the median yield of the bonds traded.  Keep in mind that this is the median for all maturities.  The yields on specific bonds will vary greatly.

If you click on MS it takes you to a page where you can see all of the Morgan Stanley Bonds which are available for trading.  That screen looks like the below:

E*Trade Bond Center Quote Screen

You’ll notice that each bond has two lines.  A green line, which is the information for those looking to buy the bond and the bottom red line for those looking to sell the bond.  Lets over each column:

Quantity: This is the number of bonds available to buy (top line) or to sell (bottom line). 1 Bond = $1000 in face value.  If it reads 500, that means $500,000 in face value available.

Minimum: This is the minimum number of bonds that you can buy or sell.

Increment: How many bonds you can buy once you have crossed the minimum.  For example, if the minimum number of bonds is 10 and the Incr. is 1 then you can buy 11 bonds or any amount greater than 10. However, if the increment was 5, then you could buy 10, 15, 20, 25 etc.

Execution Type:  Firm means that if you place an order and the trade can be done it will be executed.  This is in contrast to a soft order which is a request for a quote that you can then accept or reject before execution.

Once you click the buy button you will be taken to a window where you can specify the number of bonds that you want to trade, along with some other information.  It looks like the below:

E*Trade Bond Trading Screen

Much of the information on this screen such as CUSIP, Moody’s Report, Coupon, Product Type, Maturity and pricing you can see in the other windows we have outlined above as well but there are a few things you can’t.

Trade History: This is where you can see a list of the trade date, time, and price for the last several trades in the bond.  This is how you know if you are getting a good price or not.  If you are trading on a platform that does not have this capability you can see this same information by taking the CUSIP number and entering into FINRA’s system here.

Order Type: On the E*Trade platform only fill or kill orders are allowed.  This means that if the order cannot be done at the price specified in the pricing section of the window, it will be cancelled.

After entering in the trade amount and clicking preview order you get the below window:

E*Trade Bond Trading Order Verification Screen

As you can see in this window although I am trading $1000 worth of bonds in terms of face value, the actual price I am paying for this trade is $1,095.00.  The difference in price comes from the following areas:

  • Premium – Since this bond was originally issued, interest rates have fallen, so the bond is trading at a premium, 105.583.  This accounts for $1055.83 worth of the $1095.00 price you see in the net money line.
  • Accrued Interest – When purchasing a bond, you have to pay the interest that has “accrued” on the bond since the last coupon payment.  This is money that you technically “get back” because you receive the next coupon payment in full, regardless of how long you have held the bond for when it is paid.  This is where the rest of the $1095.00 price you are paying comes from.
  • Commission – Just as with stocks you normally pay a commission to trade a bond.  In the case of E Trade their commissions for corporate bond trades are $1 per bond, with a minimum of $10 and a maximum of $250.

Once you click to place the trade, you can then see the trade in the “orders” tab, where it will sit until the bond desk executes or rejects the trade.  The window looks like this

E*Trade Bond Center Open Order Screen

Unlike most other markets where execution time is measured in seconds, even with electronic bond trading it will generally take at least a couple of minutes for the trade to execute.  Once it has executed it will show up in the portfolio section of your account as well as under the “Holdings” tab.

Should you want to close out of the bond before maturity, you can click the “holdings” link in the upper right hand corner of the screen. This will bring up a window with all your open bond positions and a sell button. I looks like the below:

E*Trade Bond Center Close Trade Screen


After clicking the sell button if there are bonds to be sold at that quantity currently, you will be presented with the order entry screen. This screen will have the price where you can sell. If there are not currently bonds for sale electronically, then you have to request a quote from the bond desk.

The best way to do this is by calling the desk, however it can also be done electronically. If you choose to request the quote electronically then after clicking to request the quote you have to monitor the screen. Once the desk comes back with a price you will have the opportunity to either accept and do the trade or reject.

This lesson is part of our Free Guide to Investing in Corporate Bonds. For this and other free guides go here.

    Want to learn how to generate more income from your portfolio so you can live better?  Get our free guide to income investing here.
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