Radical Guide to Online Bond Investing: 2 Other Features You Should Want from Your Online Bond Broker

We can think of two other features that you should want.   These are more subtle and vary greatly among all the brokers.

  • You want your broker to watch the order flow.  Don’t expect a high-powered trader watching your order; a junior trader suffices.

The trader will check on bond orders, delays in fills, and --- if so motivated by a compliance interest --- may also verify if your trade is a good execution.  The trader will also check outside the marketplace for you.  For example, good traders will use broker’s brokers and other Street dealer contacts to find bond product. 

It is stupefying the amount of manual order matching that goes on behind the front-end curtain!  Don’t believe that the salt mine has vanished; it hasn’t.

  • You should demand direct access to the multidealer marketplace.  Some brokers will create access for their brokers, not for their customers.  Other brokers may limit the bond product seen by their customers to only investment-grade bonds. 

In turn, as a customer, you are forced to trade through a broker.  The broker is looking at the trading screens on your behalf. This setup defeats the purposes --- the competition and cost reductions --- of the online multidealer marketplace. 

It also opens a way for the firms to charge an additional fee --- say, a “broker-assisted” fee or a “solicited” fee, as they are called.  It is to be avoided. You don’t want to be routed to a broker to pay additional costs, especially as the broker won’t likely add anything to your trade.

We now turn to price checking.  It is essential that every self-directed bond investor do some amount of price checking, before the trade. 

Read on to see how it gets done.

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June 3, 2005 | Permalink

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