FINPIPE.COM HOW BONDS TRADE Bonds generally can trade anywhere in the world that a buyer and seller can strike a deal. There is no central place or exchange for bond trading, as there is for publicly traded stocks. The bond market is known as an "over-the-counter" market, rather than an exchange market. There are some exceptions to this. For example, some corporate bonds in the United States are listed on an exchange. Also, bond futures, and some types of bond options, are traded on exchanges. But the overwhelming majority of bonds do not trade on exchanges. (This article refers to marketable bonds where trading is permitted. Trading is sometimes not permitted for government savings bonds.) BOND DEALERS While investors can trade marketable bonds among themselves whenever they want, trading is usually done with bond dealers, more specifically, the bond trading desks of major investment dealers. The dealers occupy centre stage in the vast network of telephone and computer links that connect the interested players. Bond dealers usually "make a market" for bonds. What this means is that the dealer has traders whose responsibility is to know all about a group of bonds and to be prepared to quote a price to buy or sell them. The role of the dealers is to provide "liquidity" for bond investors, thereby allowing investors to buy and sell bonds more easily and with a limited concession on the price. Dealers also buy and sell amongst themselves, either directly or anonymously via bond brokers. The name of the trading game is to take a spread between the price the bonds are bought at and the price they are sold at. This is the main way that bond dealers make (or lose) money. Dealers often have bond traders located in the major financial centers and are able to trade bonds 24 hours a day (although not usually on weekends). BOND INVESTORS The major bond investors are financial institutions, pension funds, mutual funds and governments, from around the world. These bond investors, along with the dealers, comprise the "institutional market", where large blocks of bonds are traded. A trade of $1-million-worth of bonds would be considered a small ticket. There is no size limit, and trades involving $500 million or $1 billion at a time can take place. There similarly is no size restriction in the "retail market," which essentially involves individual investors buying and selling
Bonds generally can trade anywhere in the world that a buyer and
seller can strike a deal. There is no central place or exchange for
bond trading, as there is for publicly traded stocks. The bond
market is known as an "over-the-counter" market, rather than an
exchange market. There are some exceptions to this. For example,
some corporate bonds in the United States are listed on an
exchange. Also, bond futures, and some types of bond options, are
traded on exchanges. But the overwhelming majority of bonds do not
trade on exchanges. (This article refers to marketable bonds where
trading is permitted. Trading is sometimes not permitted for
government savings bonds.)BOND DEALERSWhile investors can trade
marketable bonds among themselves whenever they want, trading is
usually done with bond dealers, more specifically, the bond trading
desks of major investment dealers. The dealers occupy centre stage
in the vast network of telephone and computer links that connect
the interested players. Bond dealers usually "make a market" for
bonds. What this means is that the dealer has traders whose
responsibility is to know all about a group of bonds and to be
prepared to quote a price to buy or sell them. The role of the
dealers is to provide "liquidity" for bond investors, thereby
allowing investors to buy and sell bonds more easily and with a
limited concession on the price. Dealers also buy and sell amongst
themselves, either directly or anonymously via bond brokers. The
name of the trading game is to take a spread between the price the
bonds are bought at and the price they are sold at. This is the
main way that bond dealers make (or lose) money. Dealers often have
bond traders located in the major financial centers and are able to
trade bonds 24 hours a day (although not usually on weekends).
BOND INVESTORSThe major bond investors are financial
institutions, pension funds, mutual funds and governments, from
around the world. These bond investors, along with the dealers,
comprise the "institutional market", where large blocks of bonds
are traded. A trade of $1-million-worth of bonds would be
considered a small ticket. There is no size limit, and trades
involving $500 million or $1 billion at a time can take place.
There similarly is no size restriction in the "retail market,"
which essentially involves individual investors buying and selling
bonds with the bond trading desks of investment dealers. However,
the size of trades is usually under $1 million.
