Why Buy Bonds in the Netherlands?
By Space Coast Daily // June 7, 2022
Bonds are a popular trading instrument and have been around for decades. Considered a form of fixed-income investment, the bond market is an active financial market and most bond trades are executed on the secondary market, ‘over the counter’ (or ‘OTC’).
What is a bond?
A bond is a type of security that is often considered a loan from an investor to a borrower such as a company or the government. Bond issuers owe bond holders a debt in the form of the bond and are obliged to repay the principal at its maturity date as well as any interest that develops over a specified period.
Many brokers out there offer bond trading, and investors buy bonds to profit off of fluctuations in the value of these bonds. As time goes by, usually they are expected to grow, in which case investors will be holding the equivalence of more and more money through time.
Differences between bonds and stocks
Novice traders may have heard of stocks but not of bonds – and that is because stocks are some of the most commonly traded assets in financial markets. However, they are not the same as bonds.
The difference between bonds and stocks is that unlike stocks, bonds mostly trade over-the-counter. Bonds are also technically only loans from the government or from an enterprise and will be repaid at a later set date. Stocks, on the other hand, are bought. Stockholders own the stocks they buy, and they will not be removed unless they sell them or a company declares bankruptcy and shuts down.
Another difference is the rights that come with buying stocks and bonds. While traders who buy stocks are also referred to as ‘shareholders’ sometimes (depending on the class of the stock they purchase), this ownership brings about responsibility and rights.
They may be able to participate in shareholder meetings (depending on how many shares they own) and they may be privy to information related to a company’s performance on a semi-regularly basis.
Those who purchase bonds, by contrast, are not considered shareholders. Rather, they are considered creditors, which means that when a company goes bankrupt, they get paid out first. They also do not have to hold any responsibility within the company or participate in shareholder meetings.
Benefits of trading bonds
■ Gaining a predictable income stream-By purchasing a bond, you will become entitled to interest pay-outs about twice a year, until a bond matures. When it does, bondholders will receive the entire principal and perhaps more. Therefore, bonds can be a lucrative investment.
■ Legal protection-Bondholders are legally protected in most countries. If a company goes bankrupt, shareholders may lose all their shares (or at least have them be rendered worthless). Bondholders, however, often receive a ‘recovery amount’. Bonds also come with indentures (debt agreements), in which the terms of the bonds being issued are clearly laid out before purchase.
■ High liquidity-Another advantage of buying bonds is that they are highly liquid most of the time. They are fairly easy for Dutch traders to buy and sell, and large quantities can be exchanged without great impact on the valuation of a certain bond.
■ Low volatility-Bonds are also relatively stable unlike stocks and foreign exchange. When investing, it is important to ensure that you do not take on risks that you cannot afford to take on. With low volatility, bonds are viewed as relatively safe investments.
Get started with buying bonds in the Netherlands
If you’re interested in using the services of a broker to purchase bonds, make sure you do your research and find a suitable and reputable broker. Saxo Netherlands is a popular choice among locals, as it originates close enough from home. Headquartered in Copenhagen, the investment bank offers bond purchasing. You can read more here.
After doing sufficient research, all you have to do is open an account, verify your identity, and deposit money before you begin trading.
