Bond trading may not be the most popular forms of trading that most people would like to get into and they have many reasons to offer. It usually may not offer the same excitement as the stock market. They are not being closely watched and covered even by the media that it seems to affect its appeal. But despite its lack of excitement and popularity as a chosen form of trading, bonds offer an advantage in that they are considered as one of the safest of investments.

Bond Definition

Bonds are basically forms of debt instruments that countries usually offer in order to obtain some much needed capital to fund government projects and programs. This is usually done in cases where the capital needed by a certain country may be quite large that any average commercial bank cannot provide. A government may have the option to offer and issue bonds in a public market in order to raise the much needed capital. Bonds can also be offered by some companies. Bonds can be considered as an IOU issued by a borrower, who gets the cash, to a lender, who provides it.

How A Bond Earns

A bond is considered as a fixed-income security because the bond investor already knows how much he or she will be getting in exchange for lending a certain amount to the bond issuer. Bonds come with a fixed interest rate usually payable at a pre-determined rate and schedule. The actual amount that a bond issuer borrows, which is known as the bond’s face value, is payable at a certain stated maturity date.

Bond Advantages And Disadvantages

Bonds may also have its own advantages as a form of investment. This type of security is considered as a debt instrument rather than as equity. This may have all the difference in the world in terms of investing. Since bonds are considered as debt, a bond investor usually gets paid first by a company in case it goes bankrupt, since debt is being settled first in such cases. This is an advantage that bond investors have. Bonds are relatively safe to invest in as compared to other forms of security.

A possible disadvantage of bonds is that they usually only provide a relatively low earnings through their fixed interest rates. As opposed to equity, bonds may not be able t take advantage of the advantages offered by changing markets because they offer only fixed income. In the form of company bonds, bond investors may not have the right to share in the profits that a company makes annually since they are not considered as an equity stake which gives its owners a share of the company.