Bond brokers act as intermediaries between buyers and sellers of debt securities, keeping the identities of both parties at the end of the transaction anonymous, and earning a commission for their services. Brokers often communicate with traders online or over the telephone in order to obtain quotes from counter parties to a trade.
• A bond broker is a financial intermediary that executes buy and sell orders in the fixed income market, on behalf of their clients.
• Bond brokers often engage in over-the-counter transactions, which may include larger commissions or mark-ups than more liquid listed products.
• Bond markets are often more complex and opaque than stock markets, making the role of a broker for information and price discovery more crucial.
There is a lack of price transparency for bonds, compared to the prices for equity securities. Bond brokers may take advantage of this fact by marking up the bond’s price. A markup is when a broker buys a bond at a low price, then shortly thereafter resells it to a customer at a higher price. The broker makes his money from the spread of the buy and sell transaction. While bond brokers are entitled to a markup for their trading services and discretion, the spread might be too excessive, creating a conflict of interest between a bond broker who wants to sell bonds at a high price and a client who wants to buy them at a low price. Since commission costs and the size of the markup are hidden, an investor must ensure that s/he is informed and knowledgeable about the bond and the price range in which the bonds should be trading.