What is Bond Broker? A beginner's guide in 2024

Understanding Bond Broker

A bond broker executes bond trades, both OTC and listed, for investors. They act as intermediaries, maintaining anonymity and earning commissions. Brokers communicate with traders to get quotes for trades.

Investors can buy Treasury securities directly through Treasury Direct, bypassing the need for a bond broker. However, municipal and corporate bonds require a broker. These brokers act as intermediaries, trading bonds on exchanges or OTC markets for commissions. They profit from the spread between buying and selling prices, usually without holding positions in bonds. For instance, buying a bond at $98 and selling at $99 earns them a $1 spread.

Factors to think about in the Bond market

Bond prices lack transparency compared to equity prices, allowing brokers to mark them up and profit from the spread between buying and selling. While a 1%-2% markup is standard, higher spreads can create conflicts of interest. Investors should be informed about fair prices to avoid overpaying due to hidden costs and markups.

While bond brokers historically ensured anonymity in bond trades, technological advancements have made some of their tasks redundant. However, human involvement remains crucial in many aspects of bond trading despite these changes.

Certifications for Bond Brokers

To become a bond broker, individuals must pass the General Securities Representative Exam, also known as the Series 7 exam, administered by FINRA. This allows brokers to trade securities after being sponsored by a brokerage firm. Starting in October 2018, candidates must also pass the Securities Industry Essentials exam before taking the Series 7. Furthermore, many states mandate brokers to pass the Uniform Securities Agent State Law Examination, or Series 63, covering state-specific securities laws and regulations.