What is Fixed-Income Trading?

What is Fixed-Income Trading?

Issuers, investors and intermediaries all play a vital role in the fixed income securities market. Fixed income trading involves the buying and selling of fixed income securities by fixed income investors. Fixed income securities include bonds such as investment-grade or high-yield corporate bonds, government bonds and inflation-linked bonds.

Loans, interest rate swaps and asset-backed securities including mortgage-backed securities are also considered as types of fixed income securities.

Our solutions help fixed income traders on both the buy-side and sell-side to manage credit risk, interest rate risk and liquidity risk for their fixed income securities.

Advantages of Fixed Income Trading?

Here are the advantages of fixed-income trading instruments:

  • Steady Returns: Fixed-Income trading instruments earn investors a steady stream of income because of the regular predetermined interest or dividend payouts. As the payouts are predetermined, investors know how much they can earn and at what time.
  • Repayment: Almost all fixed-income trading instruments come with the option of repayment where the investors are repaid in full, what they invested initially to buy the instrument.
  • Diversification: Fixed-income trading instruments make one of the most effective ways to diversify and manage the risk-return factor in their investment portfolio. Furthermore, investors can increase their overall risk appetite and invest in other high-risk assets by investing in fixed-income trading instruments to increase profit potential.
  • Negligible Volatility: Unlike equities, currencies, and commodities, fixed-income trading instruments do not fluctuate and experience volatility. These instruments come with a predetermined interest rate which does not change depending on the market factors. As the issuer is legally bound to pay, investors are guaranteed the interest payments.
  • No risk: One of the best advantages of fixed-income trading instruments is their capability to reduce the risk to a negligible level. As many of these fixed-income trading instruments are backed by the government, it makes them one of the safest financial instruments an investor can buy and earn guaranteed returns.
See also :  What is a Mortgage-Backed Security (MBS)?

What are the risks associated with fixed income?

There are four major risks associated with fixed income:

Interest rate risk

When interest rates rise, bond prices fall, meaning the bonds you hold lose value. Interest rate movements are the major cause of price volatility in bond markets.

Inflation risk

Inflation is another source of risk for bond investors. Bonds provide a fixed amount of income at regular intervals. But if the rate of inflation outpaces this fixed amount of income, the investor loses purchasing power.

Credit risk

If you invest in corporate bonds, you take on credit risk in addition to interest rate risk. Credit risk (also known as business risk or financial risk) is the possibility that an issuer could default on its debt obligation. If this happens, the investor may not receive the full value of their principal investment.

Liquidity risk

Liquidity risk is the chance that an investor might want to sell a fixed income asset, but they’re unable to find a buyer.


There are a variety of fixed-income investments and investment strategies available. The investor should make sure to research any fixed income opportunity before investing thoroughly. Many bonds have long maturity dates such as ten years or more.

Investing in a bond means tying up a substantial amount of your investment capital for a long period; the investor has to make sure to the best use of money with his choice of investments.

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