Summary: This Quick Guide will lead you through the process of accessing Saxo’s extensive bond offering, available from the Saxo Investor platform. The guide offers a few explanatory notes along the way if you are new to investing in bonds and refers to our comprehensive introduction to what bonds can offer, whether providing added income or portfolio diversification.
Please note that this article only offers instructions on how to trade bonds in the Saxo Investor platform together with a few explanatory notes. If you are new to bond trading, you might want to first read our introductory guide to trading bonds: Adding bonds to your portfolio: why and how. Your account must be enabled to trade bonds if you wish to buy bonds. To enable your account for bond trading, click on the My Profile icon (upper right of the screen when you have logged in), click on Platform Settings and then select Trading Products. Scroll down to Bonds and press to Enable. It is highly recommended that you take the Appropriateness Test before proceeding.
Disclaimer: This guide is for explanatory purposes only and does not encourage any specific course of action. It is very important to understand the risks of any investment before committing your capital to that investment. Bonds are no exception, even if many bonds are bought for their assumed safety and income generating potential. Especially longer maturity bonds and bonds with lower credit ratings and high yields can see very large swings in their market value as market conditions and/or credit ratings change. Any yield indications are “implied yields” given the current market price and are not guaranteed as price fluctuations are inevitable as interest rates rise and fall and default risk is never zero.
How to find and trade bonds in Saxo Investor
1) At the top of the page, place the cursor in the Instrument Search field and select Bonds as shown below.
2) Then select the “Explore in screener” button at the bottom of the next window to launch the bond screener.
3) This will launch the Bond screener. To apply filters, click on the grey, Filter list Bonds area above the list
4) The Add filter window appears. Select the filters relevant for your search in the Add filter window – the number of matches shows in parentheses next to the Done () button at the bottom of the Filter window.
5) After pressing Done, Select the bond of interest from the list that displays as a result of your screening. The information will appear in the Product Overview pane on the right side of the screen.
7) In the Trading Conditions window, you can find the Trading Rates (commission to trade the bond, the conversion rate (in this case to AUD because the account is in Australian dollars) and the “spread cost”, which is the difference of the bid versus offer prices, not an amount charged to the account.
8) Also in the Trading Conditions window, you can click on the Instrument tab for more information on the chosen bond, such as the minimum trade size and the Trading times when the bond is tradable.
9) Once satisfied that you have chosen the correct bond to trade, close the Trading Conditions window then click on the Buy button (no transaction will occur until at this point, this will merely open a Trade Ticket window from which the actual order to buy is sent).
10) In the Trade Ticket window, note the Bid and Ask prices (the bid/ask difference is called the bid/ask spread and can narrow and widen depending on changing market liquidity of the bond. You may want to place a limit order between the two prices if hoping to improve the execution price, with the risk that yields drop and the limit order isn’t filled. The most liquid government bonds have the tightest bid-ask spreads due to their liquidity) The Accrued Interest is the interest the seller of the bond has earned since the last coupon date and is a part of the actual market value of the bond. It will be zero until you select an amount to buy. See more below on accrued interest.
11) Select the amount to buy – this is the face amount of the bond and does not include accrued interest as noted above. If the bond trades above par, the size of the position will be higher than the face amount. If the bond trades below par, the position size will be lower than the face amount, again not including accrued interest. The position size/cost is shown both in the currency of the bond and the currency of the account.
12) Once you have bought the bond, you can find the position in your Portfolio overview under Bonds. The position P/L (profit-or-loss) will initially show a negative value, due to the bid-ask spread (reflecting the cost to close the bond position again) and to reflect the trade commission costs of entering the position and exiting it. Note that the accrued interest calculations and coupon payments are not a part of the P/L as noted above.
Accrued interest: a basic overview of the mechanics.
The accrued interest is added to the “clean price” you see in the bid-ask spread when buying the bond – so the actual cost of the bond purchase is that clean price plus the accrued interest. Once you buy the bond, that accrued interest remains with the bond and rises as the coupon date nears. If you own the bond as the holder of record on the date of the next coupon payment, you receive the full coupon value regardless of how many days you have owned the bond. But the accrued interest resets to zero. This does not affect the “clean” market price of the bond. If you sell a bond before the coupon date, you will receive the clean price plus the new level of accrued interest. Note below that accrued interest and coupon payments are not shown as part of the P/L (profit or loss) of the “clean price” of your bond position in your account’s Position list.
For example, if you buy EUR 10,000 of face value of a bond trading at 97 and the accrued interest is EUR 90, you will pay EUR 9,790 to acquire the position (9,700 plus the 90 of accrued interest). If the coupon payable a few weeks later is 100, your account will be credited the coupon amount of 100. If you then sell the position a few days after the coupon date, and the accrued interest is, for example 5 dollars, while the price received is once again 97, you will receive 9,705 for the bond, the clean price plus the accrued interest on the next coupon.
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