How to Trade Bonds

Contributor, Benzinga

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Even if you don’t consider yourself an investor, you’ve probably heard of bonds. Bonds are a relatively simple product to trade. In fact, 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.

Types of Bonds to Trade

There are 4 main types of bonds 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 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 are issued by state and local governments to fund the construction of necessary public projects like schools, housing, highways and sewer systems. There are 2 types of municipal bonds — general obligations bonds and revenue bonds. 

Usually, these bonds are exempt from federal income tax. If you live in the jurisdiction where your bond is issued, it may also be exempt from state and local taxes. Keep in mind, 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. 

Corporate Bonds:

Corporate bonds are issued by corporations to fund a large capital investment or a business expansion. 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. 

Where to Buy and Sell Bonds

There are 2 basic ways you can buy and sell bonds. 

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

If you work with a broker, you’ll receive a bulk 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:

Issuer: the government entity or corporation that issues the bond.

Price: the 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: this is the bond’s payment — not a discount for you. 

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

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

Yield to maturity: the 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 Bonds Brokers

Ready to get serious about bonds? See our top picks for the best bond brokers. 

Best For
  • Advisors
  • Retirement programs

Interactive Brokers

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 135 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 now with the availability of free trades with IBKR Lite, casual traders can also acclimate to IBKR’s offerings.

With 28,617 corporate bonds, 850,260 municipal securities and 31,606 CDs available through Interactive Brokers, the brokerage is 1 of the best in the industry for fixed-income securities. Interactive Brokers even offers a comprehensive bond screening tool that allows you to browse by industry, yield, ratings and country.

Best For
Futures Trading


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. 

Best For
Options Trading

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.

Best For
Desktop Trading


E-Trade offers access to more than 50,000 offerings from over 200 leading liquidity providers. There are 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. 

Best Bond Trading Strategies 

Trading bonds can be as passive or active as you like. No matter your approach to this investment, there are 3 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 simply buy a bond and hold onto it until it reaches maturity. Holding the bond until maturity is 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 can provide an income stream while you maintain a low-cost strategy. 

3. Swapping

This is a more active approach popular among more experienced traders. You must 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 bonds to build a stronger portfolio. 

Differences Between Trading Stocks and Bonds

Stocks and bonds are 2 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 essentially a fixed-income loan to a government or corporate entity.

The 2 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. 

There are 2 components to the stock market. 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 securities 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.