Well-known to only a small amount of people worldwide, the field of bond trading has been a source of confusion to a lot of retail traders. Adding the idea of trading bonds used as binary options only increases the confusion more.

Utilized by the government and a number of large corporations, bonds are basically debt instruments for borrowing money from public entities. Due to excessive interest rates, there are times when the government and big corporations are quite reluctant to borrow money from financial institutions. As a result, bonds offer a low-priced method of borrowing money on such institutions. With a fixed percentage compensated by the borrower, bonds also offer a money making opportunity for those who would buy bond instruments.

And it just keeps getting better – bond exchanges make it possible for buyers to trade bonds with one another. Profiting from bonds is possible by three simple ways:

  • The first way to profit is through investment. When a bond buyer chooses to allow a bond’s tenure to expire, he gets back his capital as well paid as interest.
  • Speculation, where bond prices are put up for market conjecture, is another way to gain profit.
  • Lastly, due to adjustments in bond yields, traders get profit through the buying and the selling of bonds.

Moody, Fitch and other credit rating organizations generally rate bonds so that bond traders get a chance to evaluate its value before purchasing. Getting the highest ratings are Federal Government bonds. Following them in order are the state bonds, the municipal bonds. The corporate bonds have the lowest ratings.

As often as not, the more matured the bond is the greater its interest yield because long term bonds have larger uncertainty compared to short term ones. Thus, if you want less interest yields, you should go for short term bonds.

Focusing on trading bonds on binary option markets, you would only find few brokers offering bond binary options; you can check out GTOptions bonus trades if you’re interested.

How to decide what bonds to trade

Trading differentials which appear in the bond prices is what makes up bond trading on the binary options market. But what does affect the bond prices and how does it make a difference?

Interest rate levels. As the bond price goes up, the interest goes down and vice versa. The inverse relationships with the bonds are mainly influenced by economic as well as financial considerations. This causes the central bank to find an interest rate system that would be agreed upon by everyone.

Credit mark of Issuers. The financial condition of the issuers establishes the difference in the earnings of an issuer’s bonds versus a risk-free asset like US government bonds. Their difference is known as the Credit Spread. Basically, credit spread is higher for bad quality issuers and long maturity bonds.

Length of Bond Maturity. In general, the longer the bond’s maturity , the higher yield it attracts.

Other factors include the economic data, economic and political events, as well as the tremendous differences of prices in the stock market. Every time factor changes, expect that the bond prices would fluctuate. As a result, it opens up trading possibilities in markets for binary options.

How to Buy/Sell Bonds

The key to having an effective bond trade on the market is having a firm understanding of the market essentials. Noting the events that took place in the past two years in Spain, Portugal, Greece, Ireland and Italy, technical analysis lay only a small role here.

Keeping updated on what’s going on in the market is a must. With bond yields always been shown on the news, you would find yourself at CNBC stations and Bloomberg TV most of the time. To make genuine trade calls accurately, you must truly understand and comprehend what are binary options and the relationships among the basic factors enumerated above and bond yields/prices. Things like Rise/Fall and Touch/No Touch can also be of great help.