Buying And Selling Bonds-71

Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds

Page 71

When you trade bonds through your broker, you need to place an order. Your broker would require some specific information from you before your order can be accepted. Depending on your broker you may have to provide various specs for your order, but the following items are a good representation of what you would need to provide:

Type Of Trade — This is either buy or sell.
Quantity — You need to specify how many bonds you want to trade. Depending on the bond and your broker’s rules, there maybe a minimum requirement for the number of bonds in your order. Also in some cases there are discounts for quantity orders.
CUSIP Number — Obviously you would need to specify what bond you are trading. You do that by giving the CUSIP number of the bond. In most cases you can give your broker the name of the bond and they would handle it for you. If you trade online, most likely you would be able to do a lookup for the CUSIP number of the bond you want to trade.
Price — here you generally have several options. They are:

Market Price — By choosing market price (sometimes referred to as best price), you agree that your broker buy or sell your order at the going price, whatever that may be. Market price orders have the advantage of immediate execution in most cases. The disadvantage however is that you have no control over the price. For example, your buy order may get executed for a much higher price than you had anticipated. If you choose market price, you let the market decide the price for you.
Limit Price — Rather than going along with the market’s mood, you can request a certain price for your order. In this case your order cannot be executed at a worse price, but it may get executed for a better price. For example, if you set a limit price of $100 to buy 30-year T-bonds, your order will not be filled until the T-bond’s price is at or below $100. The advantage of a …