A bond is a contract between an entity that borrows money and a creditor that lends it to the entity. When you purchase a bond, you are effectively giving a loan to the bond issuer. With government bonds, also known as sovereign bonds, a national government borrows money to fund its operations. The bond specifies what interest rate (coupon) will be paid and at which times during the life of the bond and when the principal funds, also known as face value, will be returned. This is called the maturity date. Bonds are an asset class by themselves that offers more stability than stocks.
The return on a bond is known in advance, which makes them low risk investments, although the risk is related to the credit rating of the bond issuer. If the coupon rate is higher than the prevailing interest rates, a bond becomes attractive so the demand for these bonds will increase, driving up their price. If the bond interest is lower than the prevailing interest rates, their price will drop, so bonds are inversely correlated to interest rates.

IC Broker Bond CFDs are based off fixed income debt securities that pay investors a regular coupon in exchange for their investment. We offer the bonds products as a CFD with flexible lot sizing, so you can speculate on the price of the Bond by going long or short.

There is no interest debited or credited on these Bonds CFDs, just like the underlying Futures markets that they’re based off. Again, this means you only have to worry about the price of the bond and whether you go long or short.

Bond CFDs provided by IC Broker are based off highly rated government issued debt securities, including governments of the United States, Japan and Europe. Bonds offer traders the opportunity to speculate on interest rates and risk on/off sentiment, diversify a portfolio or reduce risk and build defensive positions during periods of economic weakness or uncertainty.

How does Bonds Trading work?

Bonds are part of the fixed income asset class.

Bonds pay a regular fixed coupon to the bondholder and can be sold in secondary markets. Governments issue bonds to finance government spending on projects such as public infrastructure.

Traders generally trade bonds on the basis of future interest rate expectations.

If a central bank increases interest rates, bond prices will decline and yields will increase.

Bonds Trading Examples

Selling: 5-Year U.S Treasury Note

The gross profit on your trade is calculated as follows:

Opening Price

($120.25 x 10 contracts) x $200 = USD $240,500

Closing Price

($118.32 x 10 contracts) x $200 = USD $236,640

Gross Profit on Trade

$240,500 - $236,640 = USD $3,860

Opening the Position

You hold the view that the US Federal Reserve will increase Interest Rates and 5-Year Treasury yields will increase as a result. You sell 10 contracts of March 2017 5-Year US Treasury Note at 120.25.

Closing the Position

Your view is correct and March 2017 5-Year T-note prices decline.

Note: For Bonds with a contract size of 200, it means every 0.01 move in the Bond CFD is worth US$2.

Upcoming Expiring Futures

Futures expiry/roll process

IC Broker Futures CFDs are set to expire on the day the contract expires on the underlying market. When a Futures CFD contract expires, all open positions will be closed at the futures settlement price; as reported by the futures exchange. This process would usually take place on the day following the expiry. Open positions are not rolled to the next front month so any clients wishing to hold long term positions must reopen the trade on the next available contract.

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