Workable Indication (Bonds) - Explained
What is a Workable Indication?
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Table of ContentsWhat is a Workable Indication?How Does a Workable Indication Work?Bond Trading and Workable Indication
What is a Workable Indication?
A workable indication refers to a nominal quote used in the municipal bond market specifying the price at which a trader is desirous of either buying or selling a specific security. It is different from a firm quote as one can make alterations to the offer in a given period of time, that is generally one hour. A nominal quote stated as workable indication can be inferred as an approximation or initial offer, or sometimes, a beginning point that can help them in arriving at a mutual agreement. On the other side, a firm quote asks the dealer to stick to the deal at a price decided at the time of accepting the offer. Municipal bond dealers can also provide firm-with-recall quotes that work in favor for around the next hour, and are then recalled.
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How Does a Workable Indication Work?
The workable indication, mostly stated as a range, offers a sense of flexibility to the seller to make adjustments. It involves more of a casual approach, and the range helps both parties to make negotiations until they arrive at certain figures. Flexible ranges are effective when the broker or intermediary is still in the first stage of making a deal, and is still trying to ascertain the preferences and interests of prospective buyers. By using the workable indication, the seller can calculate several price levels, and the impact they will have on investors. One can convey it in informal or vague terms like I guess it would possibly be approximately near.
Bond Trading and Workable Indication
At the time of trading bonds, a workable indication strategy can be very useful, provided if one knows the circumstances in which such activity occurs. Municipal bonds are traded within a secondary market where inter-dealing takes place. In the secondary market, also known as interdealer market, financial institutions, institutional investors, small firms, small investors, insurance firms, etc. will be the ones purchasing the bonds. However, stock market is more based on a fast-paced environment where there are lots of fluctuations going every now and then, and the traders need to be fast in making decisions. As compared to the stock market, the municipal bond market is more calmer, and offers more time to take sound decisions. Hence, the traders can utilize this flexibility in negotiating and reaching at the most feasible deals. But, it will always be possible that some other prospective buyer will make a sudden entry and start showing interest in the deal. This can make the situation more competitive, and purchasers may have to increase their offer, and act quickly.