Bond traders keep up with current prices using electronic display terminals that track secondary market activity. A buyer looking for a particular issue searches for a seller offering the best price and calls to negotiate the trade. Transactions may also be handled entirely online, though that's less common with bonds than with stocks.
Brokerage firms that
make a market
in particular bonds keep inventories on hand to sell to their own clients or to brokers from other firms who are trying to fill an order. At the same time, dealers working for these firms try to amass a supply of bonds at the lowest possible prices.
If you buy bonds on the
secondary market,
you'll have to pay your broker the costs of buying as well as the principal. The amount you pay depends on the
commission
and the
markup
that the broker charges. A markup is the difference between what it cost the broker to buy the bond and the amount you pay for it, and it fluctuates for many reasons, including supply and demand.
Keep in mind that markups aren't officially regulated or reported as a separate charge on your confirmation order. The price you pay includes the markup. The way to figure out how much you're being charged is to compare the prices offered by different brokers for the same bond. If one is higher, that broker's fees are higher.
When you decide what type of bonds you're interested in, it may be smart to ask what your broker has in stock. If the sale is from the firm's inventory, the fees may be smaller.
Alexandra Lebenthal, President and Chief
Executive Officer of
Alexandra &
James, Inc.
While some experts recommend more, in my experience, $25,000 is enough to build a portfolio of individual bonds. With less, you may not be able to achieve adequate diversification in your bond portfolio, and you might be better off investing in a bond fund.
If you buy bonds on the
Alexandra Lebenthal, President and Chief