Before going through the article let us first know what exactly electronic bond trading and high yield bond mean? Let us start with the:
Electric bond trading: Electronic bond trading also refers to online trading. It is a computer program or we can say a website that is used to trade financial assets via an electronic communication network. Electronic trading typically provides trading tools such as market data, news, account management, etc.
Electronic bond trading has two types:
Direct access trading: It allows for direct trading with a market maker or a specialist through an electronic communication network.
Single dealer platform: This type of trading is commonly used in the foreign exchange market. It is a type of portal by which traders are granted access to prices from one dealer.
Now moving on to High yield bond:
High yield bond is a type of high paying bond with a lower credit rating. These bonds pay a higher yield than an investment grade because of the higher risk of default. Performance of high yield bond central banks around the world, such as Federal Reserve, Bank of Japan has taken certain measures to inject liquidity into their economies and keep their credit readily available.
But as every coin has two sides there are some grey features to the high yield bonds as well; before getting into these bonds you should know the in and out of it so that while you trade, you have confidence. Before finding the grey let’s get into white of the bond which shall clear your vision for such an investment
Advantages:
Offer a higher payout: They offer a higher payout as compared to traditional investment grade bonds. It has a simply put because the companies issuing these bonds do not have an investment-grade rating. They must offer a higher rate of interest. These non-traditional approaches will lead you to book higher end profit on a longer scale
Appreciation of bond: The Company who issues a bond improves the credit standing; the bond may appreciate as well. If a company is clear about doing the right thing to improve their credit standing, investing in high yield bond before they reach investment-grade can be an excellent way to increase the return while enjoying the security of an investment-grade bond.
Bondholders get paid out: When a company fails bondholders are paid out before stockholders. If a business is risky and you still want to invest in it, then the bondholders will get paid out before stockholders during the liquidation of the assets. All in all, if you plan to invest in such a risky venture, go ahead, as in any case if they wrap up their entity they shall pay the bondholders and the queue to claim will be settled off after you.
Some advantages of electronic bond trading:
Lower fees: Reduction in transaction costs and high fees is one of the clearest advantages of online trading associated with traditional brick-and-mortar brokerage firms.
More control and flexibility: The speed of using online trading portals is a benefit to many investors as time is often the essence when you trade stocks.
When you have more returns than risk, you should try these once for sure. Happy BONDING!