In Hong Kong, there are several US bond exchange-traded funds (ETFs), which new investors can trade like a stock through your broker. These ETFs pay a fixed income stream to their investors, and they track the moves in the underlying index that they follow.
When you trade an ETF, you’re buying securities whose price is determined by supply and demand for those stocks. That’s why it’s essential to consider what factors influence supply and demand, notably interest rates, yields on other investments and confidence in the market. Learning how all these factors influence demand for çertain types of bonds is crucial to know how much money will flow into or out from the market during specific timeframes.
Below are some considerations for bond trading:
Exchange-Traded Funds (ETFs)
ETFs prices are based on supply and demand, making them very flexible ways of trading bonds quickly. They’re also cheap to buy and hold, with only 0.25% per year in fees, which is far lower than what traders would pay in transaction fees when trading bonds. You can trade ETFs on the US and European markets via Hong Kong ETF brokers.
Bond prices go up or down depending on supply and demand, which is influenced by interest rates. When an economy starts to recover from a recession, for example, this will cause bond prices to rise because more people start spending money and investing in stocks again (creating demand). At the same time, there’s less investment money floating around (which makes less supply). Low or high-interest rates depend on banks’ capacity to extend loans, foreign investments, economic conditions, etc.
Yields on other investments
When interest rates are low, the yield on bonds rises. This creates opportunities for people to make money by selling their high-yielding bond ETF stock before it declines in value again. Since many investors still prefer buying stocks over bonds, the yields of corporate bonds tend to rise when corporate profits go up, causing dividends to be paid out to shareholders rather than reinvested, increasing supply.
This results in reduced demand for stocks and increased demand for bonds, which means that stock prices decline while bond prices rise (and thus yields fall). When there’s bad economic news (e.g., high unemployment figures), industrial companies find themselves less able to pay dividends because their profits are lower – increasing supply. This will result in decreased demand for stocks and increased demand for bonds, which means that stock prices decline while bond prices rise (and thus yields fall).
Economic factors influence the market
When economic news is released, it almost always affects where investors want to invest their money, and more investment money flows into or out of the bond ETFs. For example, suppose property values go down after good jobs numbers are announced. In that case, people investing in property might switch to buying up bonds instead (demand for bonds goes up), pushing their prices up until they offer higher yields. When you’re trading this kind of asset class, it’s crucial that your timing is correct about buying your ETF stocks.
Competition among brokers can influence profits
In addition, competition between brokers means that it’s possible to find the cheapest deals for buying and selling these types of assets. In Hong Kong, many brokers offer competitive pricing and excellent customer service designed specifically for people who want to buy and hold foreign securities such as bond ETFs. This can be especially useful to ensure that you get the hang of things quickly when you’re just starting.
The process of buying and selling ETFs is easier than it looks. Choose which market you want to trade in, select the asset class, determine how much money you want to invest and what time horizon. Remember that trading bonds aren’t any different from trading stocks. It’s all about analysing the market and making good decisions at the right time. If you are a new investor and want to trade ETFs, contact a reputable online broker from Saxo Bank and start your demo account today.