Buy On-Exchange Bonds, How to Read the Order Book and Place Orders

TL;DR

• On-exchange bonds trade through your brokerage account, and you should first check the order book, remaining maturity, and coupon details.
• Learn order types, fees, and settlement dates, then test with small trades to observe the order book response.

1. Preparation: Account and Product Checks

1) Open a brokerage account: You need a CMA or a regular brokerage account that supports bond trading. Check your mobile app for a bond trading menu.
2) Understand available products: Review on-exchange bonds such as government, municipal, special, and corporate bonds. Confirm each bond's remaining maturity, coupon payment method, and credit rating.
3) Check fees, taxes, and settlement terms: Brokerage fees, exchange and KSD charges, and interest income tax can change, so verify current rules with your broker or tax authorities.

2. Order Book Structure and How to Read It

1) Order book basics: It displays ask and bid levels, last trade price, and trade volume. Asks are usually shown above, bids below.
2) Price units and tick sizes: Bonds are quoted relative to face value (for example in 100 won units), so learn your app's display units. Tick sizes may vary by product.
3) Remaining size and level depth: Check remaining quantities at each price level to anticipate price moves if large orders hit. On-exchange liquidity differs widely by issue.
4) Order book tips: Use the bid-ask spread and cumulative depth to gauge immediate fill probability and market preference. Beginners should experience multiple scenarios with small amounts.

3. Order Types and Execution Steps

1) Limit order: Enter a desired price directly. To increase fill probability, set price close to current quotes.
2) Market order: Use for immediate execution, but in low-liquidity bonds it can fill at an unintended price.
3) Quantity and minimum units: Each bond has a minimum trading unit, so check your app. Some bonds trade by face value.
4) Order confirmation: After placing an order, verify execution status and price, and save the trade record.

4. Post-Trade Settlement and Holding Management

1) Settlement date and transfers: Bonds settle on scheduled settlement dates following the trade date. Ensure funds are available in your account before settlement.
2) Interest receipt and entitlements: Confirm interim coupon payment methods and ex-rights dates to know when interest payments will be received.
3) Maturity and secondary selling: If you sell the bond on-exchange before maturity, check the order book for market price before placing the order. Remember that holding to maturity returns principal and interest.

5. Risk Management and Practical Tips

• Liquidity risk: Corporate bonds and some special bonds may trade infrequently, making timely sales difficult.
• Interest rate moves: Market rate shifts directly affect bond prices, so monitor rate conditions periodically.
• Small-scale testing: Start with small amounts across issues and order types, and use brokerage demo or practice features if available.

For additional chart-based analysis, see Chart Technical Analysis. Confirm current fees, tax rates, and settlement rules with your broker or tax authorities.

This article is for informational purposes and not investment advice.