What You Need To Know About Bonds

Regardless of whether ‘s the Dax, Dow Jones, or MSCI World: When it comes to stock market reporting, the focus is usually on the stock markets. The bond markets are also interesting. Some private investors are also interested in bonds (bonds UK) because they are generally suitable as a relatively safe investment for long periods of time. On average, bond prices fluctuate less than stocks. Bonds that are traded on an exchange can be resold by investors. This is a key advantage compared to fixed deposits, where you are tied to your bank.

What You Need To Know About Bonds

At its most basic, a bond is a security that promises you regular, fixed interest payments. However, many new types of bonds have been developed and introduced to the market in recent decades. At first glance, bonds appear to be complicated securities. On closer inspection, however, they can be easily understood if you know the most important properties:

Yield – The most important indicator is the expected annual yield, which results from the term, the specified interest payments, the purchase price, and the repurchase price of the bond. The return is given as a percentage. It is the annual interest that an investor can expect if he keeps the bond in his portfolio until the end of the term. The most important factors affecting returns are market interest rates, the remaining life of the bond, and the financial strength of the issuing government or company. The longer the term and the lower the credit rating, the higher the return you can expect.

Coupon – Most bonds pay out periodic interest payments, also known as a coupon. However, coupons and yield are not the same. While the coupon is fixed, the yield on bonds fluctuates daily with their prices. When bond prices go up, yields go down, and when they go down, they go up.

Face Value – The face value is the amount written on the bond and at which it will usually be redeemed. Bonds that are also to be sold to private investors often have a nominal value of EUR 1,000.

Market Value – Bonds are priced as a percentage of their face value. A price of 100 percent corresponds exactly to the face value. A price of 110 means that the bond’s value is about 10 percent higher than its face value.

Remaining term – The remaining term indicates when the bond will be repaid.

Price Fluctuations – Bond prices fluctuate. This is because the yield adjusts according to the current interest rate level. When interest rates fall, bond prices rise. When interest rates rise, they fall. Interest rates are influenced by many factors. The most important are economic growth, expectations about inflation, and the monetary policy of the central banks. If the central banks lend money cheaply, this usually pushes down interest rates.

Trading – You can buy and sell bonds on the stock market. Bonds are traded at different rates. In technical jargon one also speaks of liquidity. If the securities are traded less frequently – i.e. are less liquid – you can expect a higher return. In the event of a possible resale, however, you must expect deductions, since it is not so easy to find a new buyer.

Single purchase or fund – You can buy bonds either individually or as a fund. A fund has the advantage that you invest in several bonds. This reduces the risk of loss due to non-payment. However, the fund manager charges an annual fee for this. We prefer the fund solution, especially for riskier bonds, since you spread the risk over a large number of individual securities.

Currency fluctuations – With bonds that are not issued in euros but, for example, in US dollars, you run a currency risk. This can be higher than the interest in the security itself. So be aware that possible currency fluctuations can significantly affect your profit or loss – even if you buy a safe bond.

Read also: Financing Options For Start-Up Business

Final Thoughts

At present, however, interest rates on bonds are low. The expected return on a ten-year federal bond was even negative for a long time and was still a good 1 percent per year in the summer of 2022. You currently get similar returns for good one-year time deposits.

Diversifying with Derivatives as Stock Markets Remain Volatile

Diversifying one’s investment portfolio by trading with derivatives has become the most repeated financial advice in light of the volatile stock market conditions. There are numerous trading platforms that offer a wide range of investment assets, many of them licensed and offering practice trading platforms to those wading into derivative investment for the first times.

Checking out reviews is only the initial step in finding out which trading platform to select. Yet the best way to truly find out if diversifying with derivatives is sound advice, is to try out several demo or practice trading platforms and compare outcomes using the features, functionalities and tools of brokers.

If there is one broker who has received mostly favorable reviews for its trading platform,we can say for sure that it is IQ Option. The positive feedback gathered on every IQ option review we’ve read, mentioned that the unique, yet easy-to-use technical analysis tools make this broker’s trading platform different from the rest.

That only proves that not all online trading platforms are the same. The availability of functional tools that a financial trader can use in analyzing the different investment assets and in formulating strategies in their trade is a rare find.

IQ Options Technical Analysis Tools

While trading platforms create charts and diagrams, the key to a successful trading is still the ability of the trader to analyze and interpret data. IQ Option helps clients in performing the processes efficiently, by incorporating the following technical analysis tools:

First off, there is a drawing board that comes complete with markers, serving as handy tools for creating and placing markers on graphical analysis and in locating chart patterns. Together with the related indicators appearing in the trading platform, the drawing tools are great to use in working out strategies and analyzing patterns.

Another excellent feature are the indicators that can assist traders in making accurate predictions about price movements. IQ Option actually offer four indicators:

Bollinger Bands – Seasoned financial traders are familiar with this type of indicator, which works by creating borders within which prices move; whilst using data gathered from standard deviations and moving averages. Within those borders, traders can look for signals that indicate Call or Put options; depending where the price breaks, either at the lower or top limit.

Moving Averages – Through this platform, newbies to derivatives can have a clear perception of how moving averages work and of its indication in relation to the diagram. Based on the average price of an asset for a pre-set time interval, a diagram crossing the moving average signifies a call option. Financial trading experts say that the longer the time interval set for the moving average, the greater the potential of signal accuracy. . .

Relative Strength Index (RSI) This indicator is applicable only in analyzing candlestick charts. Still, it’s one of the most popular worldwide because this indicator reflects both the robustness and the size of price changes. However, the RSI appears in a separate window just beneath the chart, instead of appearing on the analysis chart.

Alligator This indicator comprises three (3) moving averages of three different time frames. Traders take note when all three indicators start moving in a single direction because it means a trend has started, which they need to follow.

Having all those functional analysis tools in a trading platform that tracks assets, commodities and indexes, will enable any newbie to gain confidence when giving derivatives trading a try.