Contributor, Benzinga
August 7, 2023

Even if you don’t consider yourself an investor, you’ve probably heard of bonds. Bonds are a relatively simple product to trade. Casual investors, and even those who don’t trade any other product, can buy bonds.

If you’re interested in the bond market, check out Benzinga’s guide and learn the ins and outs of how to trade bonds and use this activity to make the most of your investment portfolio.

What is a Bond?

A bond is a debt security issued by corporations and governments to raise funds. It is like borrowing money from someone, but instead of lending cash directly, the borrower issues a bond that obligates them to pay back the loan amount plus interest at a specified date in the future. Bonds are typically issued with maturities of more than one year. Interest payments on bonds are usually paid twice per year (semi-annually) until the bond matures.

Types of Bonds to Trade

Four main types of bonds are available. Here's a quick rundown of each.

1. Treasury

These bonds are the highest-quality securities issued by the U.S. Department of the Treasury. Treasury bonds, also known as Treasury bills, have a maturity date that can range anywhere from 10 to 30 years. Once your bond reaches maturity, it will stop earning interest, and the principal investment will be repaid to you. You don’t need to pay taxes on the interest, and there is little risk of default because Treasury bonds are backed by the U.S. government.

2. Sovereign Bonds

Sovereign bonds are also issued by the federal government. The difference is that these bonds can be denominated in the U.S. dollar or in global reserve currencies. National governments use sovereign bonds to finance government spending programs. The types of sovereign bonds you may encounter include agency bonds and savings bonds. Risks of sovereign bonds depend on the current exchange rate as well as the overall economy.

3. Municipal Bonds

Municipal bonds (often known as munis) are issued by state and local governments to fund the construction of necessary public projects like schools, housing, highways and sewer systems. The two types of municipal bonds are general obligation bonds and revenue bonds.

Usually, these bonds are exempt from federal income tax, meaning the bond investor gets a tax advantage out of each interest payment. If you live in the jurisdiction where your bond is issued, it may also be exempt from state and local taxes. The bond may be subject to federal, state and local alternative minimum tax.

Municipal bonds come with some risk because local governments are more likely to declare bankruptcy than the federal government. Their face value may be appealing, but there’s a history of small municipalities going under, taking every savings bond with them.

4. Corporate Bonds

Corporate bonds are issued by corporations to fund a large capital investment or a business expansion, differing from corporate bonds in their sourcing but not their intent. The risk depends on the reputation and financial outlook of the issuing company.

These bonds generally come with higher risk but offer higher reward. In some cases, you may see a convertible bond. This is a corporate bond that may be able to be converted into company stock. A debt security in a company with a high upside is enticing but remember that your bond portfolio must remain diverse if you want to protect yourself.

Where to Buy and Sell Bonds

You can use two basic ways to buy and sell bonds.

  • To buy a newly-issued bond from the U.S. government, set up a brokerage account with TreasuryDirect to get started.
  • Find a brokerage. You can work with a specialized broker who handles bonds exclusively or work through an online brokerage to begin trading online. You can also buy Treasury bonds through brokers, and some will allow you to do this without paying them a commission.

If you work with a broker, you’ll receive information regarding the bond. Go in with an understanding of common terms to help you make a smart trade. Here’s a quick look at some of the basics:

Bond Issuer: Government entity or corporation that issues the bond.

Price: Dollar amount at which the bond was last traded. This is often presented to you as a percentage of the bond’s par value — the price at which the bond was issued.

Coupon: Bond’s payment.

Yield: Coupon divided by the bond’s price. Look at the yield curve to figure out what return you can expect from your investment.

Duration or maturity: Set number of years until your bond is fully paid and stops accruing interest.

Yield to maturity: Yield you can expect if you hold your bond to maturity.

Bond rating: Provided by private rating services, these letter grades indicate the credit quality of the bond.

Best Bond Brokers

Ready to get serious about bonds? From the bond’s market value to a range of Treasury securities, you want investment options and a broker that support your goals. See Benzinga’s top picks for the best bond brokers.

Best for Most Available Bonds: Interactive Brokers

  • Securely through Interactive Brokers’ website
    Securely through Interactive Brokers’ website
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Interactive Brokers is a comprehensive trading platform that gives you access to a massive range of securities at affordable prices. You can buy assets from all around the world from the comfort of your home or office with access to over 150 global markets.

Options, futures, forex and fund trading are also available, and most traders won’t pay a commission on any purchase or sale. IBKR is geared primarily toward experienced traders and investors, but with the availability of free trades with IBKR Lite, casual traders can also benefit from IBKR’s offerings.

With 41,000+ corporate bonds, 1,000,000+ municipal securities and 20,000+ CDs available through Interactive Brokers, the brokerage is one of the best in the industry for fixed-income securities. Interactive Brokers offers a comprehensive bond screening tool that allows you to browse by industry, yield, ratings and country.


  • There are multiple account options
  • You can invest in a range of markets to add to your bond portfolio


  • IBKR can seem too big and complex for some traders

Best for Futures Trading: TradeStation

TradeStation is an online brokerage that offers a wide variety of investment products, including bonds. You can trade government, corporate and municipal bonds for a commission of $14.95 plus an additional $5 per bond.

It recommends bond trading to diversify your portfolio and manage the effects of swings during volatile markets. It also promotes the use of bond trading as a way to earn regular income.


  • You can use this platform to further diversify your portfolio
  • You can use bond trading to earn a consistent income


  • Commissions could add up if you are trading often

Best for Retirement Savers: TD Ameritrade

TD Ameritrade offers a variety of fixed-income securities. It has competitive pricing with a $1 bond transaction fee on secondary bond trades through its online platform. The company provides more than 40,000 offerings, some of which are commission-free.

It also offers tools such as ready-made bond ladders or a program to help you create your own. You can set bond alerts to stay updated on new offerings, ratings and status changes. If you want help with your investment strategy, get a personalized portfolio review from one of TD Ameritrade’s fixed-income specialists.


  • There are bond ladders ready for you to copy
  • You can easily manage your portfolio in the app or on the website


  • While pricing is competitive, the platform now falls under the Schwab umbrella, and that could be problematic for some traders

Best for Mobile Traders: E*TRADE

E*TRADE offers access to more than 50,000 offerings from over 200 leading liquidity providers. It charges no commissions on U.S. Treasury and new issue bond trades. For other bonds, E*TRADE charges a $1 commission per bond. The online secondary market requires a $10 minimum and $250 maximum commission charge.

E*TRADE offers easy-to-use bond tools and the support of its fixed-income specialists. When you open an account, you’ll receive access to its comprehensive bond resource center. You can quickly find bonds that match your investment objectives by using its basic and advanced screeners. You’ll also have access to the latest bond yields and market tools.

Like TD Ameritrade, E*TRADE offers a bond ladder builder to help you manage risk.


  • You can earn money on a savings account while trading
  • The commissions are low and there’s access to all the markets you could need
  • The bond ladder builder is very helpful for any type of trader


  • This platform may not be robust enough for more advanced traders

Best Bond Trading Strategies

Trading bonds can be as passive or active as you like. No matter your approach to this type of investment, here are three tiers of strategies to get you started.

1. Buy and Hold

If you’re looking for a passive strategy, start with buy and hold. You buy a bond and hold onto it until it reaches maturity. Holding a debt instrument until maturity can be a good way to maximize the income generated while minimizing costs.

2. Bond Laddering

If you want to be more active, bond laddering is a good place to begin. With this strategy, you’ll own multiple bonds with various maturities. When a shorter-term bond matures, use the proceeds to buy a longer-term bond. This process can provide an income stream while you maintain a low-cost strategy.

3. Swapping

This more-active approach is popular among more experienced traders. You sell a losing bond to get a tax write-off for the loss and reinvest that money in another bond. You get rid of a bond that isn’t likely to recover and buy higher-yielding ones to build a stronger bond portfolio.

Differences Between Trading Stocks and Bonds

Stocks and bonds are two of the most traded items on the market. The difference between them starts with basic definitions:

  • Stocks are shares ― or equity — in a publicly-traded company.
  • Bonds are a fixed-income loan to a government or corporate entity.

The two products are traded on separate markets as well. Stock markets are where investors go to trade equity securities like common stocks, options and futures. When you buy a stock, you are buying a small ownership in the company. If the company does well, the value of the shares you purchase will increase.

Of the two components in the stock market, the first is the primary market where initial public offerings (IPOs) are issued. It is facilitated by underwriters who set the initial price for the securities. Then the stocks are opened up on the secondary market, which is where most of the trading activity happens.

The bond market is where you go to trade debt securities issued by government entities or corporations. When you buy a bond, you are lending money to the issuer for a set period of time and charging interest. Bonds are often used as a way to save for long-term goals such as retirement or a child’s education.

Like the stock market, there is a primary and secondary bond market. The new securities show up for sale on the primary market — then they go to the secondary market. The secondary market is where you buy and trade bonds that are already owned.

Is Trading Bonds Right for You?

Bond trading is an investment strategy that can serve many purposes. Even the most passive investors can use bonds as a way to save for a long-term goal. And if you’re a more active investor, bonds can allow you to build and diversify your portfolio.

If you’re interested in bond trading, do your research and identify your goals. Check out a brokerage and find the right type of bond for your long-term investment.

Frequently Asked Questions


Are bonds safer than stocks?


Bonds tend to be less risky and less volatile than stocks.


How do you buy foreign bonds?


To buy foreign bonds, you typically need to go through a broker or financial institution that offers international bond trading. It will have access to foreign bond markets and can assist you in purchasing the bonds. It is important to research and understand the specific requirements and regulations of the foreign bond market you are interested in investing in, as each country may have different rules and procedures. Additionally, consider consulting with a financial adviser or expert to ensure you make informed investment decisions.


Is trading bonds right for you?


Trading bonds can be a good option for those looking for more stable and predictable investments. However, it requires knowledge of the bond market and interest rates, as well as considering your investment goals and risk tolerance. Consulting a financial adviser can help determine if trading bonds is right for you.