limit order is that you are assured of the execution price. The
disadvantage however is that your order may not execute at all
and expire at the end of day if the bond's price never reaches
your limit. Also, limit orders are almost always executed after all
market orders have been satisfied.
- Limit Yield - Some brokers may allow you to specify your limit
price in terms of the bond's yield. Remember that a bond's price
and its yield are inversely related. So using limit price or limit
yield are really two ways of doing the same thing. It is up to your
taste which one you use. For example, if the 30-year T-bond is
selling for $100 with the yield of 6%, an order with the limit
price of $99 or an order with the limit yield of 6.06% are
identical, as this bond will have a 6.06% yield if its price goes to
- Quote Request - Some brokerages may allow you to place a sort
of a want ad on the wire asking for the best quotes on a bond.
So if you are selling a bond you could place a "bid wanted" order
to get the highest price someone would pay for your bond. If
you are buying a bond you could place an "offer wanted" order
to get the lowest price someone would accept to sell you the
bond. And in some instances you could ask for both quotes at
the same time. Once you get back the list of quotes, you could
choose the best one (if your broker hasn't already done so for
you) and proceed. One drawback to this type of order is the
time it takes to get the quotes back.
One important point is that bond prices are usually quoted on a
$100 basis. As most bonds have a face value of $1,000, the price quoted
must be multiplied by 10 to arrive at the actual price. For example, if
you are ordering one 30-year T-bond at a price of $99, your cost would
actually work out to $990 on that one bond (excluding commission).
Also keep in mind that if the bond has any accrued interest until the …