Bond investing has become popular in the UK and many individuals are using it to build their nest egg rather than investing in stocks. This is because bonds have lower volatility and regular returns. In addition, you can easily be exposed to bonds through bond funds either as ETFs or mutual funds.
If you are a beginner, this guide takes you through the necessary steps of buying bonds using online brokers. As experts at TradingGuide, we also list the best three brokers for buying bonds that we have thoroughly researched and are confident will help you potentially succeed. More information about bond investing is also included to help you decide whether the assets are worth giving a shot.
Top Bonds Brokers in the UK
To potentially succeed in buying bonds, you need an online broker that meets your trading needs. Unfortunately, such brokers are challenging to find since the research procedures involved can be lengthy and overwhelming. For this reason, we decided to do all the legwork and below, we have listed the top bond brokers in the UK based on our findings.
1. Interactive Brokers
Interactive Brokers has been existing for decades, and its outstanding services makes it one of the most trusted stock brokers in the UK. IBKR hosts quality research and analysis tools on its intuitive design platform. You will get access to over one million bonds, which you can trade or buy at low commission. What’s more, the broker allows you to trade directly with other clients and offers a bond search tool to help in comparing the available yields.
Note that Interactive Brokers doesn’t have a minimum deposit requirement, meaning that you can trade bonds with any amount. Transactions are also free of charge and it hosts other financial instruments for portfolio diversification, including stocks, forex, cryptocurrencies, futures, etc. However, this broker’s platform may be challenging to navigate for newbies, so ensure you have tested its performance before committing.
2. CMC Markets
CMC Markets has a Next Generation trading platform that is known to be user-friendly with an intuitive design. There is also an MT4 trading platform that suits advanced traders. Trading bonds with CMC Markets require no minimum deposit and you get access to over 50 government bonds and interest rate instruments. The broker also has minimal slippage, allowing you to potentially make profits from arising short-term opportunities.
CMC Markets charges low spreads for bonds trading starting from one point. To support your activities, the broker hosts plenty of resources for market analysis. On top of that you have the opportunity to try other financial markets like shares, forex, commodities, and cryptocurrencies. Unfortunately, you can only trade bonds as CFDs. The broker also has limited products for portfolio diversification.
3. Hargreaves Lansdown
This UK-based broker has a user-friendly platform with a modern design to give you the best trading experience. You will buy or trade bonds and gilts, which are issued to finance public spending. What’s more, Hargreaves Lansdown doesn’t have a minimum deposit requirement, allowing you to purchase the asset with as little as £1. There are also additional asset offerings to maximise your success potential, including stocks, funds, and ETFs.
Unfortunately, trading bonds as derivatives (CFDs) is not allowed at Hargreaves Lansdown. In addition, there is no demo account for testing the broker, but this shouldn’t be a determining factor considering that the broker has no minimum deposit requirement and charges low fees. On top of that, you can only contact Hargreaves Lansdown customer service during weekdays.
How to Buy Bonds With Interactive Brokers (IBKR)
You may think that buying bonds is a daunting task, but it is easy when you understand all the processes involved. The above brokers for investing in bonds have the same procedures for buying bonds since they all have the Financial Conduct Authority (FCA) overseeing their activities.
That being said, let’s take a look below at the steps involved in buying bonds with Interactive Brokers as an example.
To visit Interactive Brokers’ website, you can either google the broker and open a link from your search engine or simply click on the links we have shared on this page. Remember that IBKR is reliable since it also has a trading app. This shows that you manage your positions anywhere and never miss out on arising opportunities. Therefore, ensure you download the app from Google Play or the App Store so that it will be easier for you to alternate from desktop to mobile if need be.
You will then be required to complete the account registration process to buy or trade bonds. With Interactive Brokers, you will share your personal details, including full names, date of birth, email, phone number, address, etc. You will also provide information regarding your income and tax residency, trading experience and objectives, and bank account.
To keep the online trading environment safe, brokers in the UK are required by the FCA to verify the identities of all traders. For this reason, Interactive Brokers will request you to share your documents, including a copy of your ID card, passport or driving license.
On top of that, IBKR will verify your location and to do so, a copy of your recent utility bill or bank statement will be required.
Account verification may take upto two days, and once a confirmation email is sent, you will make a deposit. Interactive Brokers doesn’t have a minimum deposit requirement, meaning that with any amount you can afford, this broker will show you all its bond listings to choose from.
Interactive Brokers will confirm your deposit and provide access to where bonds are listed. You will then choose a bond you can afford and complete your purchase. IBKR also allows you to trade bonds as CFDs or indices, thus increasing your chances of succeeding in this activity.
Note that you need to be well-versed in how bonds investing works and are willing to thoroughly analyse the markets before taking the plunge. With the brokers recommended above, you are guaranteed quality tools to support your market analysis. Therefore, choose a suitable one and start your bond investment venture.
Tips on How to Choose the Best Broker to Invest in Bonds
It’s a no-brainer that finding the best broker to buy bonds online is a daunting task. For this reason, we have recommended the top three brokers above to begin your bonds investment venture with. However, should you fail to identify a suitable broker from our recommendations, here are factors to consider when looking for the best broker for investing in bonds in the UK.
Always make sure you find a broker that is licensed and regulated by the FCA to buy or trade bonds. This is because with many fraudulent brokers dominating the market, you are guaranteed your funds safety with regulated brokers. Most importantly, the only legal way to trade bonds in the UK is by using licensed and regulated brokers. This way, it is easier for you to take legal actions in case they violate your broker-client agreement.
It is advisable that when trading or investing, you should also explore other options that can potentially earn you good profits. Therefore, choose a broker with a wide array of offerings, whether plenty of bonds or additional financial assets.
The best broker for buying or trading bonds should be fast in executing trades so that it will be easier for you to enter and exit a position while an opportunity is still open. In addition, it should host all the necessary tools that are helpful in developing the best strategy. On top of that, consider a broker with a demo account so that you can test drive it and practice how bonds trading or investing works before you dive into the real market.
It is crucial to choose a broker you can afford to have the best investment experience. As a beginner, we also advise you to start your bonds investment venture with small amounts of money. Once you are confident in your capabilities, you will risk a more significant amount. Therefore, set aside a budget and find a broker for buying bonds that fits in it.
Traders and investors benefit from bonds trading and investing, but the process involved is not as easy as some individuals may think. You will encounter trading challenges along the way, which can affect your investments when not attended to on time. In this regard, find a broker with reliable customer service. It should also be responsive and available during your trading hours to help you handle all trading issues fast.
Even though many traders and investors may overlook this element, payment methods may affect your activities if you are not keen. Do not choose a payment method you have no experience with since some have extra transaction charges. So simply stick to a familiar payment method to quickly make your deposits and withdrawal, thus maximising your potential for profits.
What is a Bond?
A bond is a loan taken out by a company, sovereign entities, government or government agencies, banks and non-financial institutions. Also known as borrowers or bond issuers, these companies or government agencies seek money from investors (bondholders/lenders) willing to buy their bonds.
Bonds are also known as fixed-income security since investors are guaranteed regular or fixed returns. These include interest payments, commonly referred to as coupons at scheduled intervals. You will also receive your capital or the initial principal amount at an agreed future date.
There are different types of bonds that are differentiated by their payment features. They include fixed-rate, floating-rate, subordinated, convertible, Treasury Inflation-Protected Securities, and zero-coupon bonds.
The easiest way to buy bonds in the UK is through an online broker with bond listings. Also, learn how bond investing works and use a broker’s demo account to practise and build your skill level. You will then create a trading account and purchase bonds per the broker’s requirements.
To purchase a single bond, you need at least a £1,000 minimum investment though they are usually sold in £5,000 increments. Through brokers, you can buy bonds from the government, companies, sovereign entities, banks and non-financial institutions. Investors on a low budget can also trade bonds as CFDs using smaller amounts of money.
With bonds, a company or government borrows money from investors. Bonds are also priced at a fixed rate, have semi-annual repayment conditions, and the terms attached are longer than loans. In addition, bonds are more expensive and allow bond issuers to sell even before they mature.
Bonds are one way to increase your nest egg, and you are guaranteed fixed or regular returns. In addition, bonds are less volatile than investing in other assets like stocks, allowing you to invest long-term.
The best bond to invest in will depend on several factors, including income requirement, tax conditions and how well you understand the asset and can tolerate the risks.
Many new investors think that bond investing is complex but is not once you become familiar with how it works. However, the activity is risky, and you are not guaranteed profits. That is why we always advise our readers to thoroughly conduct their market analysis before opening a position to increase their chances of succeeding.
In addition, find a broker with features that align with your trading needs. For example, they should also have a trading app to help you monitor your open positions on the go, thus making the best investment decisions. Most importantly, the broker should be regulated by the FCA.