Par Value: Also known as the face value of a bond, it represents the principal amount that is returned to bondholder at the end of maturity period. Coupon Rate: The coupon rate is the rate at which bond issuer promises to pay the bondholder on a periodic basis. For a bond with a par value $100, an annual coupon rate of 5% and maturity 10 years, the bondholder is paid $5 every year for 10 years as coupon payment. At the end of 10 years, the bond matures to pay off the face value of $100. Discount: Bonds do not trade at their par value, they may trade above or below it. If a bond trades at a value below its par value, it is said to be trading at a discount. A bond with a par value of $100 trading at $95 can be considered to be trading at a $5 discount. Premium: Bonds trading at a value greater than their par value are said to be trading at a premium. A bond with a par value of $100 trading at $105 can be considered to be trading at a $5 premium. Bond Credit Rating: The credit rating of a bond is the opinion of an independent rating agency regarding the ability of the issuer to pay the regular interest on the bond and finally repay the principal at maturity. If the payments are not made in full or in time then the issuer is said to have defaulted. Major credit rating agencies such as Standard & Poor’s, Moody’s, and Fitch provide ratings for these bonds which range from the highest down to the ‘junk’ category. As the quality of a bond reduces, the interest on it typically goes up to compensate the trader for the higher risk.

Best Forex Brokers for Trading Bonds

Written by BrokerNotes.co

August 29, 2023

What are Bonds?

A bond represents a loan that a bondholder makes to the issuer of the bond. It embodies the bond issuer’s promise to repay the principal amount on a certain date in the future with periodic interest payments. While stocks represent ownership of an organization, a bond is an IOU agreement that obligates the borrower to make interest payments and repay the principal at maturity. In terms of ownership privilege, a bondholder’s claim is secondary to a stock holder’s claim, however, the risk associated with bonds is lower than with stocks as the issuer has a legal obligation to pay interest and repay the principal.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74% and 89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.