Convertible Bond Quotes Key Terms

The terms you need to know when reviewing convertible bond quoting services

By Ann Starr

A convertible bond is one that can be converted into stock at a company. It has both equity and debt-like qualities. Holders like them because they can convert the bond to common stock usually at a discount. Another feature is that they yield lower returns than a normal bond. When they are included in a portfolio, they are less risky than hedge funds. There are quite a few online services that provide convertible quotes where you can compare prices. If you decide you want to invest in these types of bonds it would be helpful to understand some of the terms you might run across as you explore them.

Multiple option strategy

A multiple option strategy is a plan for using securities so that risk is spread across stocks, bonds or markets. Multiple option strategies are often used by convertible bond traders.
Try: For an in depth description of these strategies you can find one at Scribd. For methods on evaluating a multiple option strategy go to Hoadley Trading and Investment Tools.

Spread trade

When spread trading, convertible bond investors buy one security and sell another related one in the hopes of profiting from the change in price difference that might occur.
Try: For more information on how to do spread trades go to Street Authority.

Algorithmic trading

Algorithmic trading is also referred to as robo trading, automated trading or algo trading. It is a computer program that allows for the entering of orders with the computer algorithm determining things such as the quantity, price or timing of the order.
Try: Find a definition of algorithmic trading at Automated Trader. For more in-depth discussion on this type of trading go to Waters.

Baby bond

A bond that is issued with a par or nominal dollar amount of less than $1,000. Convertible bond investors find these types of bonds attractive because they are so affordable. They might be a good investment for a new trader or small investor.
Try: For a more complete definition go to Investopedia.

Basis points

A basis point is used to convey point changes of less than 1%. Convertible bond investors know that basis points are used to indicate a rate change in a security.
Try: For a more descriptive definition you can find one at RupeeTimes.com.

LIBOR

LIBOR stands for London Interbank Offered Rate, and is a daily rate that is based on the interest rates that banks pay to borrow unsecured funds from other banks in the London markets. It is similar to the U.S Federal funds rate. Convertible bond investors know that it is a common benchmark that is often compared to bond buyers indexes.
Try: To see a comparison of LIBOR to other interest rate indexes check out Bankrate.