Difference between equity trading & bond trading | Fullerton Financial (2024)

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Difference between equity trading & bond trading | Fullerton Financial? ›

Equities and bonds can both be traded in essentially the same way, but ownership of each entitles investors to do different things. A bond is a loan that you can trade. The valuation is based on the eventual repayment of the bond at maturity. Equities are little slices of ownership in a company.

Equity vs.

Corporations often issue equity to raise cash to expand operations, and in return, investors can benefit from the future growth and success of the company. Buying bonds involves issuing a debt that's repaid with interest.

What is the difference between trading on equity and equity trading? "Trading on equity" typically denotes a company's use of financial leverage, where it borrows funds to finance its operations or investments. The focus is on the financial structure, emphasising the relationship between equity and debt.

The difference is the taken as interest and is booked pro-rata basis. Interest rates on loans are either fixed or variable rates linked with the base rate. Bonds are sold and purchased at the bond markets, and bond prices can move up and down like the stock prices.

Bonds are generally considered less volatile and lower risk compared to stocks, making them attractive to conservative investors seeking stability and reliable income. On the other hand, stocks represent ownership in a company, offering potential capital appreciation and dividends.

If you choose to invest in a company, there are two routes available to you – equity (also known as stocks or shares) and debt (also known as bonds). Shares are issued by firms, priced daily and listed on a stock exchange. Bonds, meanwhile, are effectively loans where the investor is the creditor.

Key Takeaways. The primary reason investors choose stocks is the vast top-end potential for Return on Investment. A corporate bond has a capped amount of returns, so even if you are a bondholder for a small company that hits it big, your ROI will not go up accordingly.

When options are better. Options can be a better choice when you want to limit risk to a certain amount. Options can allow you to earn a stock-like return while investing less money, so they can be a way to limit your risk within certain bounds. Options can be a useful strategy when you're an advanced investor.

In trading on thick equity, a company borrows a small amount close to its equity because the company's equity capital is higher than the debt capital. For example, if company X's equity capital amounts to Rs. 300 crores whereas the debt capital amounts to Rs. 50 crores, company X is said to be trading on thick equity.

Why do bond traders make so much money? ›

Investors can profit by trading bonds to pick up yield (trading up to a higher-yielding bond) or benefit from a credit upgrade (bond price increases following an upgrade).

Bond trading is one way of making profit from fluctuations in the value of corporate or government bonds. Many view it as an essential part of a diversified trading portfolio, alongside stocks and cash.

Stocks are ownership shares in a company, while bonds are a kind of loan from investors to a company or government.

Cons. Bonds are sensitive to interest rate changes. Bonds have an inverse relationship with the Fed's interest rate. When interest rates rise, bond prices fall.

While bonds have less risk than stocks, investors should also consider the opportunity cost. The money you put into a bond cannot go into a stock that can produce higher returns. Taking a guaranteed 3% return prevents you from using the same capital to buy a stock that goes up by 10%.

It may be the most appropriate for younger people or those who have substantial income from other sources. A model that allocates 60% to stocks, 30% to bonds, and 10% to cash is generally described as moderate, and one that allocates 40% to stocks, 40% to bonds, and 20% to cash can be described as conservative.

Bond trading is one way of making profit from fluctuations in the value of corporate or government bonds. Many view it as an essential part of a diversified trading portfolio, alongside stocks and cash.

Corporate bonds are often seen as the "yin" to stocks' "yang", and are a key component of a diversified portfolio. Corporate bonds are far less volatile than stocks but they provide generally lower returns over time. They are less risky than stocks but they aren't risk-free.

An equity trader is someone who participates in the buying and selling of company shares on the equity market. Similar to someone who invests in the debt capital markets, an equity trader invests in the equity capital markets and exchanges their money for company stocks instead of bonds.