Finally it should be noted that just because a given security has a
corresponding CUSIP number, that fact should not be used as a
replacement for good judgment and careful research about the security,
since CUSIP numbers can be had for a nominal fee.
Buying And Selling Bonds
Generally there are two methods available to buy bonds: direct or
through secondary markets. For the direct method, the buyers go
directly to the source, the issuer. However many bond investors take the
second route and buy and sell bonds on the secondary markets (i.e.,
organized exchanges such as NYSE or AMEX). This is typically done
through a broker. Buying bonds through a broker has the advantage of
making the transactions easier to carry out and also allows an investor
to use one source for all investments (including stocks and options).
Moreover brokerages may also allow margin trading.Margins are funds
that can be borrowed from the broker to buy securities with. Margin
trading involves risk and comes with a number of associated rules,
regulations, and restrictions. For a more complete discussion of margin
see the chapters on futures and stocks.
In most cases when you use a broker to trade bonds, your orders are
routed to a secondary market where the bond prices are determined by
competitive auctions. This is very much a supply and demand game
where bond prices move lower as supplies are increased or demand is
decreased. Or bond prices move higher as supplies fall or demand rises.
Here you would notice two distinct types of prices: ask and bid. The ask
price is the most recent price requested by a seller, while the bid price is
the most recent price offered by a buyer.When a buyer and seller settle
on a price, that becomes the effective price of that bond at that point
until the next transaction. These concepts will be more explored in the
upcoming chapters. …