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Bond Trading

Go long or short on interest rate trends by speculating on the prices of government and corporate bonds.

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What is Bond Trading?

What is Bond trading?

A bond is a fixed income debt financial instrument issued by companies or governments to raise capital. Bonds help businesses and states repay their debt and finance their operations. There are two types of bonds: Coupon and Zero-coupon bonds. Coupon bonds offer periodic interest payments, suitable for investors seeking regular income streams. Zero-coupon bonds are usually purchased at a deep discount, and do not pay interest during their term; however, investors receive full value at maturity.

Bonds are traded in both the primary market (new issues) and secondary market (resales). Bondholders receive interest payments and the principal amount at maturity. Bond trading is considered suitable for portfolio diversification as it provides more steady returns compared to shares.

Types of Bond markets:

  • Emerging Market Bonds
  • Mortgage-Backed Bonds (MBS)
  • Municipal Bonds (Munis)
  • Government Bonds (US10Y, GILT)
  • Corporate Bonds (High-yield, Investment-grade, Guaranteed & Secured)
  • Bond Indices
  • Convertible Bonds

Which factors can affect Bond trading?

Bond trading can be impacted by a series of factors that traders should consider before developing their trading plan. Traders should keep in mind that the price of a bond always moves in the opposite direction of its yield.

  • Interest rates: Borrowing costs are probably the most significant drivers of bond prices. Rising interest rates mean falling bond yields due to the inverse price-yield relationship.
  • Credit risk: Whether it’s a government or corporate bond, the issuer’s credit rating plays a role in shaping bond yields.
  • Supply and demand: New bond issuance increases supply; if demand does not match supply, bond prices can be affected.
  • Inflation Expectations: High inflation levels tend to diminish returns making bond trading less appealing.
  • Liquidity: Bonds with high liquidity, such as US Treasuries, are easier to trade, especially during market downturns.
  • Currency Risk: Sometimes bonds may be denominated in foreign currencies; exchange rates may affect returns.

Bonds are split into various categories:

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Short-term bonds (1 - 5 years)

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Intermediate-term bonds (5 - 12 years)

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Long-term bonds (12 - 30 years)

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High bond yields / Low bond prices

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Low bond yields / high bond prices

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Why trade Bond CFDs?

Investors purchase government or corporation bonds as part of their diversification strategy. Traders can do the same with Bond CFDs as these derivatives track the price movements of the underlying asset.



Trading CFDs on Bonds gives traders exposure to global fixed income markets without the need to own bonds themselves. They can speculate on price fluctuations in both directions and find short-term trading opportunities. Bond CFDs are also used to hedge against interest rate movements thanks to their inverse relationship.



As with all CFDs, high leverage and low margin help traders build their portfolios with less capital when compared to investing in actual bonds.

Bond trading example

Suppose you want to trade CFDs, where the underlying asset is the US10YR, known as ‘US 10yr T-Note’. Let us suppose that the US10YR is trading at Bid 130.62 / Ask 131.76.

You decide to buy 100 contracts of US10YR because you think that the US10YR price will rise in the future. Your margin rate is 1%. This means that you need to deposit 1% of the total position value into your margin account.

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Bond trading example

In the next hour, if the bond price moves to 132.3/133.2, you have a winning trade. You could close your position by selling at the current (bid) price of US10YR, which is 132.3.



Instead, imagine that in the next hour after opening your long position, the market moves against you. The US10YR drops to Bid 129.80 / Ask 130.90.

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You decide to cut your losses and close the position. To do so, you must sell at the current bid price of 129.80.



Since you bought at 131.76 and sold at 129.80, your loss per contract is 1.96 points.

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Advantages of Bond CFD trading

  • Exposure to fixed income markets
  • Access to bond markets with low capital through leverage
  • Trading on price movements on both directions
  • Portfolio diversification potential
  • Ability to resell bond CFDs before the bond’s maturity date

Bonds spreads

Symbol Product Standard A/c
Min Avg
GILT UK Long Gilt vs Great Britain Pound Future - 0.06
US10YR US 10yr T-Note vs US Dollar Future - 0.07

Bonds trading - FAQ

What is a Bond CFD?

CFDs (Contracts for Difference) on bonds are derivative financial instruments that allow traders to speculate on the price movements of bond instruments without owning the underlying bond itself. Depending on the broker and financial plan, traders can add different types of Bond CFDs to their portfolio.

How does bond trading work?

Governments, corporations and other institutions issue bonds (debt obligations) in the public debt markets for a fixed period of time to finance their projects and honour other liabilities. Bonds are issued in the primary market and subsequently traded in the secondary market through brokerage firms.

Traders aim to profit from bond price movements due to inflation fluctuations, interest rate changes and credit ratings shifts.

While bond holders may receive the face value at maturity and periodic coupon payments depending on the bond type, bond traders seek to capitalise on short and medium market opportunities.

What are the risks of bond trading?

Bond trading comes with risks that traders should be familiar with.

Trading CFDs on bonds involves leverage that may amplify profits but can also magnify losses when markets move against your trading plan.

Market volatility is a factor that is important in Bond CFD trading. Bond prices are sensitive to a series of economic data reports such as interest rate decisions, inflation figures, etc., which can in turn cause price swings in CFD values.

Low liquidity can be a risk if CFDs are tied to government or corporate bonds with low trading volume. Low liquidity could result in wider spreads and slippage that could derail a trading plan.

Is Bond trading profitable?

Bond trading, just like any other type of investment, can be profitable depending on circumstances. Trading bonds allows traders to purchase or resell a bond before its maturity date. This provides flexibility if markets move against their forecasts. Nevertheless, lack of knowledge on macroeconomic indicators and fixed-income markets as well as low liquidity periods could be obstacles on the road to profitability.

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