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 the Positions overview. 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.