Bonds

A bond is a fixed-income financial instrument that represents a loan made by an investor to a borrower, typically a government or corporation. In exchange for the loan, the borrower agrees to pay periodic interest and return the principal at a set maturity date. Bonds are commonly used as lower-risk investments compared to stocks.

A trader allocating capital across asset classes might include government bonds in their portfolio to offset the volatility of futures or CFD positions. For example, during periods of economic uncertainty, bond prices often rise as investors seek safety, providing a hedge against losses in riskier assets. In a prop trading environment, understanding how bond markets move can also help traders anticipate shifts in broader market sentiment, as rising bond yields often signal tightening financial conditions that can impact equities and commodities.