Corporate Social Responsibility (CSR), Explained

Corporate social responsibility, or CSR, is a type of self-regulation that a business uses to enhance the well-being of communities and society through ethical, environmental, and social measures.

By investing in companies that practice CSR, investors have the opportunity to use their own wealth-building strategies to make a positive impact on the world.

What is Corporate Social Responsibility?

Corporate social responsibility (CSR) refers to a company’s dedication to establishing business decisions that positively impact society. Usually, these business decisions support socially responsible movements, like environmental sustainability, ethical labor practices, and social justice initiatives.

Ideally, CSR strategies work in tandem with the traditional business objectives of hitting revenue and profit goals, and other metrics investors may find on a financial statement.

There is no codified set of standards that explain corporate social responsibility. Companies choose to enact CSR policies on their own initiative. It can take many forms depending on a company or an industry, but generally, CSR policies promote economic, social, and environmental sustainability.

However, the International Organization for Standardization (ISO) released guidelines for corporate social responsibility in 2010. Known as ISO 26000:2010 , these guidelines are suggestions, not requirements, that can help put companies on track to further CSR principles.

Why CSR Is Important

Corporate social responsibility is important because companies can use their financial position and operations to build more ethical business models and a better world. When the companies enact socially responsible policies prosper, those practices become more commonplace and widespread.

Additionally, investors increasingly focus on more than traditional business valuation methods when making investment decisions. Investors want to put money into companies that support socially responsible movements, so they may be attracted to companies with CSR policies.

In other words, investing in companies that practice corporate social responsibility gives investors the chance to vote with their wallets on how they want the companies around them to behave.

Recommended: What is ESG Investing?

4 Types of Corporate Social Responsibility

Corporate social responsibility is an umbrella term that captures a wide array of policies that a company can enact. CSR-focused companies may target their efforts on one or more specific social, economic, or environmental areas of concern. The following are some of the most common areas of CSR:

1. Environmental Sustainability

Companies are increasingly focusing on environmental sustainability when making business decisions. With climate change threatening to cause severe impacts worldwide, companies are committing to creating sustainable production methods, distribution, and overall business practices to reduce carbon footprints.

For investors, sustainable investing could mean seeking out companies that promise to hold to sustainable business practices—and doing the research to ensure they’re keeping that promise in real life. Additionally, it could mean focusing on companies that are specifically involved in creating the products that allow for environmental sustainability in the long term, such as renewable energy, biofuels, or hybrid cars.

Recommended: How to Invest in EV Stocks

2. Philanthropy

One of the ways large companies might align themselves with CSR values is by supporting philanthropic efforts. By donating money, products, or services to nonprofit organizations and social causes, a company can show the public what it values and how its furthering causes.

Recommended: How to Make End-of-Year Donations

3. Ethical Labor Practices

Corporations that commit to ethical labor practices, such as focusing on diversity and inclusion or having a zero-tolerance policy on sexual harassment, may garner more favor among investors looking to support a socially responsible company.

Recommended: How to Combine Financial Well-Being and Diversity and Inclusion Initiatives

4. Volunteering

Another way almost any business can get in on CSR might be to support local volunteering efforts by sending out their representatives or fundraising for other volunteering organizations and movements.

Companies might also support volunteerism by offering their employees paid time off specifically for that activity. Some companies provide employees several days off per year, which they can use to participate in any volunteering effort they choose.

Recommended: 34 Charities To Support This Year

Examples of CSR

Many companies have enacted corporate social responsibility initiatives, and the trend is growing. According to one study, 92% of companies in the S&P 500 published sustainability in 2020, up from 20% in 2011. Here are a few examples of CSR policies at large corporations:

•   Starbucks (SBUX): The coffee giant has committed to hiring a diversified workforce, including hiring thousands of veterans, refugees, and disadvantaged youth.

•   Levi Strauss (LEVI): The apparel maker launched the Levi’s® Music Project, an initiative that looks to provide young people with music education and community resources.

•   Ford Motor Company (F): The carmaker is pushing to have 50% of its global sales be electric vehicles (EV) by 2030 to help address climate change.

•   Salesforce (CRM): The software company says it has given about $240 million in grants, 3.5 million hours of community service, and provided donations to more than 39,000 nonprofits and education institutions.

•   The Coca-Cola Company (KO): The beverage company is focusing on water conservation, saying it will push to responsibly use water in its production process and advocate for smart water policies.

Benefits of Corporate Social Responsibility

There are many reasons for a company to adopt and execute corporate social responsibility policies. First and foremost, CSR practices help promote a relatively better society and environment. By following socially responsible protocols, companies could have the opportunity to make significant social, economic, and ecological changes. As noted above, investors are increasingly looking to put money into companies that adhere to CSR.

Beyond these direct positives, CSR policies can also boost a company’s competitiveness by benefiting the firm in the following ways:

•   Stronger brand image: Corporate social responsibility policies can help create a positive image for a company, attracting consumers, employees, and other stakeholders.

•   Employee retention: Talented employees may stay with a company longer when they feel they are working for a business that has strong CSR policies. Additionally, this reputation can help attract new employees.

•   Reduced regulatory burden: A comprehensive CSR policy can help a company navigate relationships with regulatory bodies, especially as governments establish more rules around sustainability.

The Takeaway

Corporate social responsibility is one of several business models companies are using to navigate a changing world. By investing in companies that support those practices, investors could have the opportunity to positively impact the world while also potentially building their nest eggs.

However, it can take a lot of work for investors to determine what companies have the best CSR policies and what companies are truly adhering to their initiatives. So if you want to invest in companies that support CSR policies, it may be best to start small rather than build a whole portfolio around CSR stocks.

SoFi Invest® allows you to start investing today and build a portfolio with whatever strategy you desire. With active investing, you can trade stocks of brands you know and believe in and discover new opportunities based on your interests along the way.

Get started today with SoFi Invest.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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What Is Bond Valuation?

Bond valuation is a way of determining the fair value of a bond. Bond valuation involves calculating the present value of the bond’s future coupon payments, its cash flow, and the bond’s value at maturity (or par value), to determine its current fair value or price. The price of a bond is what investors are willing to pay for it on the secondary market.

When an investor buys a bond from the issuing company or institution, they typically buy it at its face value. But when an investor purchases a bond on the open market, they need to know its current value. Because a bond’s face value and interest payments are fixed, the valuation process helps investors decide what rate of return would make that bond worth the cost.

Here’s a step-by-step explanation of how bond valuation works, and why it’s important for investors to understand.

How Bond Valuation Works

First, it’s important to remember that bonds are generally long-term investments, where the par value or face value is fixed and so are the coupon payments (the bond’s rate of return over time) — but interest rates are not, and that impacts the present or fair value of a bond at any given moment.

To determine the present or fair value of a bond, the investor must calculate the current value of the bond’s future payments using a discount rate, as well as the bond’s value at maturity to make sure the bond you’re buying is worth it.

Some terms to know when calculating bond valuation:

•   Coupon rate/Cash flow: The coupon rate refers to the interest payments the investor receives; usually it’s a fixed percentage of the bond’s face value and typically investors get annual or semi-annual payments. For example, a $1,000 bond with a 10-year term and a 3% annual coupon would pay the investor $30 per year for 10 years ($1,000 x 0.03 = $30 per year).

•   Maturity: This is when the bond’s principal is scheduled to be repaid to the bondholder (i.e. in one year, five years, 10 years, and so on). When a bond reaches maturity, the corporation or government that issued the bond must repay the full amount of the face value (in this example, $1,000).

•   Current price: The current price is different from the bond’s face value or par value, which is fixed: i.e. a $1,000 bond is a $1,000 bond. The current price is what people mean when they talk about bond valuation: What is the bond currently worth, today?

The face value is not necessarily the amount you pay to purchase the bond, since you might buy a bond at a price above or below par value. A bond that trades at a price below its face value is called a discount bond. A bond price above par value is called a premium bond.

How to Calculate Bond Valuation

Bond valuation can seem like a daunting task to new investors, but it is not that onerous once you break it down into steps. This process helps investors know how to calculate bond valuation.

Bond Valuation Formula

The bond valuation formula uses a discounting process for all future cash flows to determine the present fair value of the bond, sometimes called the theoretical fair value of the bond (since it’s calculated using certain assumptions).

The following steps explain each part of the formula and how to calculate a bond’s price.

Step 1: Determine the cash flow and remaining payments.

A bond’s cash flow is determined by calculating the coupon rate multiplied by the face value. A $1,000 corporate bond with a 3.0% coupon has an annual cash flow of $30. If it’s a 10-year bond that has five years left until maturity, there would be five coupon payments remaining.

Payment 1 = $30; Payment 2 = $30; and so on.

The final payment would include the face value: $1,000 + $30 = $1,030.

This is important because the closer the bond is to maturity, the higher its value may be.

Step 2: Determine a realistic discount rate.

The coupon payments are based on future values and thus the bond’s cash flow must be discounted back to the present (thanks to the time value of money theory, a future dollar is worth less than a dollar in the present).

To determine a discount rate, you can check the current rates for 10-year corporate bonds. For this example, let’s go with 2.5% (or 0.025 as a decimal).

Step 3: Calculate the present value of the remaining payments.

Calculate the present value of future cash flows including the principal repayment at maturity. In other words, divide the yearly coupon payment by (1 + r)t, where r equals the discount rate and t is the remaining payment number.

$30 / (1 + .025)1 = $29.26

$30 / (1 + .025)2 = 28.55

$30 / (1 + .025)3 = 27.85

$30 / (1 + .025)4 = 27.17

$1030 / (1 + .025)5 = 1,004.87

Step 4: Sum all future cash flows.

Sum all future cash flows to arrive at the present market value of the bond : $1,117.70

Understanding Bond Pricing

In this example, the price of the bond is $1,117.70, or $117.70 above par. A bond’s face or par value will often differ from its market value — and in this case its current fair value (market value) is higher. There are a number of factors that come into play, including the company’s credit rating, the time to maturity (the closer the bond is to maturity the closer the price comes to its face value), and of course changes to interest rates.

Remember that a bond’s price tends to move in the opposite direction of interest rates. If prevailing interest rates are higher than when the bond was issued, its price will generally fall. That’s because, as interest rates rise, new bonds are likely to be issued with higher coupon rates, making the new bonds more attractive. So bonds with lower coupon payments would be less attractive, and likely sell for a lower price. So, higher rates generally mean lower prices for existing bonds.

The same logic applies when interest rates are lower; the price of existing bonds tends to increase, because their higher coupons are now more attractive and investors may be willing to pay a premium for bonds with those higher interest payments.

Is Investing in Bonds Right for You?

Investing in bonds can help diversify a stock portfolio since stocks and bonds trade differently. In general, bonds are seen as less risky than equities since they often provide a predictable stream of income. All investors should at least consider bonds as an investment, and those with a lower risk tolerance might be better served with a portfolio weighted highly in bonds.

Performing proper bond valuation can be part of a solid research and due diligence process when attempting to find securities for your portfolio. Moreover, different bonds have different risk and return profiles. Some bonds — such as junk bonds and fixed-income securities offered in emerging markets — feature higher potential rates of return with greater risk. “Junk” is a term used to describe high-yield bonds. You can take on higher risk with long-duration bonds and convertible bonds. Some of the safest bonds are short-term Treasury securities.

You can also purchase bond exchange-traded funds (ETFs) and bond mutual funds that own a diversified basket of fixed-income securities.

The Takeaway

Bond valuation is the process of determining the fair value of a bond after it’s been issued. In order to price a bond, you must calculate the present value of a bond’s future interest payments using a reasonable discount rate. By adding the discounted coupon payments, and the bond’s face value, you can arrive at the theoretical fair value of the bond. A bond can be priced at a discount to its par value or at a premium depending on market conditions and how traders view the issuing company’s prospects.

Owning bonds can help add diversification to your portfolio. Many investors also find bonds appealing because of their steady payments (one reason that bonds are considered fixed-income assets). When you open an online brokerage account with SoFi Invest, you can build a diversified portfolio of individual stocks as well as exchange-traded bond funds (bond ETFs). You can also invest in a range of other securities, including fractional shares, IPOs, crypto, and more. Also, SoFi members have access to complimentary professional advice. Get started today!


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.

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15 Technical Indicators for Stock Trading

Using technical analysis to research stocks is a common strategy to profit from short-term movements in security prices. While some stock analysis tools are fundamental in nature, technical stock indicators typically seek patterns in past price and volume data to give investors and traders insights about how a stock might move in the future.

Naturally, every stock indicator has its pros and cons. Technical indicators can be used by traders to analyze supply and demand forces on stock price, to help investors to understand market psychology, or to manage risk. But while stock indicators and trading tools can help with buy and sell points, false signals can also occur.

For that reason, although technical indicators can assist with trend identification, it’s best to combine different indicators when conducting your stock analysis.

Learn more about the pros and cons of using the following 15 trading tools in your strategy.

Table of Contents

How Do Stock Technical Indicators Work?

Technical analysis uses various sets of data and indicators, such as price and volume, to identify patterns and trends. It does not use fundamental analysis to look at the underlying companies, their industries, or any macroeconomic trends that might drive their success or failure.

Rather, technical analysis solely analyzes a stock’s performance. Technical indicators are often rendered as a pattern that can overlay a stock’s price chart to predict the market trend, and whether the stock would be considered “overbought” or “oversold.”

One of the basic tenets of technical analysis is that history tends to repeat itself. By examining certain patterns in light of past outcomes, analysts can make an educated guess about where stock prices might be headed. That said, past performance is never a guarantee of future stock price movements, so traders must bear this in mind.

Knowing many of the most popular trading tools might benefit your investing strategy with easier to spot buy and sell signals. You don’t have to know every single technical indicator, and there are many ways to analyze stocks, but using multiple stock indicators may improve trading results. You can also use these stock indicators to help you manage risk when you are actively trading.

Trend indicators are some of the most important technical trading tools since identifying a security price’s trend is often a first step to forming a strategy. Long positions are often initiated during uptrends, while short sale ideas can occur when prices are in an established downtrend.

Volume technical indicators are also helpful to gauge the power or conviction of an asset’s price move. Some believe that the higher the stock volume on a bullish breakout or bearish breakdown, the more confident the move is. Higher volume could signal a lengthier trend continuation.

Two Types of Technical Indicators

Technical indicators generally come in two flavors: overlay indicators and oscillators.

Overlay Indicators

An overlay indicator typically overlays one trend onto another on a stock chart, often using different colors to distinguish between the lines.

Oscillator Indicators

On a technical analysis chart, an oscillator tracks the distance between two points in order to gauge momentum. The moving average is a common oscillator; it’s considered a lagging indicator as it measures specific intervals in the past.

An oscillator indicator can help traders determine support and resistance in certain price trends, so they can decide whether to sell or buy.

Oscillator indicators can be leading or lagging:

•   A leading indicator tracks current market movements to anticipate where the trend is headed next.

•   A lagging indicator is based on recent history and seeks patterns that will indicate potential price movements.

Top 15 Stock Indicators for Technical Analysis

It’s important to remember that these trading tools were developed based on the belief that mathematically derived patterns may be valuable as predictors of stock movements. Past performance, however, is not a guarantee of future results. So while it can be useful to employ stock technical indicators, they are best used in combination before deciding on a potential trade.

Also, many of these trading tools are lagging indicators, which can lead to an inaccurate reflection of current and future market conditions.

Following are 15 of the most common technical stock indicators, along with their advantages and disadvantages.

1. Moving Averages (MA)

A moving average (MA) is the average value of a security over a given time. The MA can be Simple Moving Average (SMA), Exponential Moving Average (EMA), and Weighted Moving Average (WMA).

A moving average smooths price volatility and is taken as an indicator of the direction a price may be headed. If the price is above the moving average, it’s considered an uptrend versus when the price moves below the MA, which can signal a downtrend. Moving averages are typically used in combination with each other, or other stock indicators, to identify trends.

Pros

•   Using moving averages can filter out the noise that comes from price fluctuations and focus on the overall trend.

•   Moving average crossovers are commonly used to pinpoint trend changes.

•   You can customize moving average periods: common time frames include 20-day, 30-day, 50-day, 100-day, 200-day.

Cons

•   A simple moving average may not help some traders as much as an exponential moving average (EMA), which puts more weight on recent price changes.

•   Market turbulence can make the MA less informative.

•   Moving averages can be simple, exponential, or weighted, which might be confusing to new traders.

2. Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (MACD) also helps investors gauge whether a security’s movement is bullish or bearish, but it uses two different MAs to do so. Often, a 26-period exponential moving average is subtracted from a 12-period EMA to spot trading signals. Then a signal line, based on a shorter period EMA, is plotted on top of the MACD to help reveal buy and sell entry points.

Traders use the convergence or divergence of these lines to identify when bullish or bearish momentum is high.

Pros

•   The MACD, used in combination with the relative strength index (below) can help identify overbought or oversold conditions.

•   The MACD can be used to indicate a trend and also momentum.

•   Can help spot reversals.

Cons

•   May provide false reversal signals.

•   Responds mainly to the speed of price movements; less accurate in gauging the direction of a trend.

3. Relative Strength Index (RSI)

RSI is a tool that identifies bullish vs. bearish price momentum. The relative strength index is an oscillator — a tool that builds a trend indicator based on the price movement between two extreme values. It ranges from 0 to 100. Generally, above 70 is considered overbought and under 30 is thought to be oversold.

Pros

•   Can help investors spot buy or sell signals.

•   May also help detect bull market or bear market trends.

•   Can be combined with moving average indicators to spot breakout trends or reversals.

Cons

•   The RSI can move without exhibiting a clear trend.

•   The RSI can remain at an overbought or oversold level for a long time, making this tool less useful.

•   It does not give clues as to volume trends.

4. Stochastic Oscillator

The stochastic oscillator has two moving lines, or stochastics, that oscillate between and around two horizontal lines: The primary “fast” moving line is called the %K, while the other “slow” line is a three-period moving average of the %K line.

A signal is generated when the “fast” %K line diverges above the “slow” line or vice versa. The stochastic oscillator uses a 0 to 100 value range.The two horizontal lines are often pre-set at 30 and 70, indicating oversold and overbought levels, respectively, but can be modified.

Pros

•   Since it’s plotted on a 0 to 100 scale, it’s possible to gauge overbought and oversold levels.

•   Traders can adjust time frame and range of prices to reduce market fluctuation sensitivity.

•   Can be used by day traders.

Cons

•   A security can remain overbought or oversold for long periods as the range of oscillations is not always proportionate to a security’s price action.

•   It can be useful for implementing an overall strategy, but not for gauging the overall market sentiment or trend direction.

5. Williams %R

Similar to the stochastic oscillator, above, the Williams %R (a.k.a. the Williams Percent Range) is also a momentum indicator — but in this case it moves between 0 and -100 to identify overbought and oversold levels and find entry and exit points in the market. The Williams %R compares a stock’s closing price to the high-low range over a specific period, typically 14 days.

Readings between 0 and -20, which are in the top 20% of price during the look-back period, are considered overbought. Readings between -80 and -100, which are in the lowest 20% of price during the look-back, are considered to be oversold.

Pros

•   You can combine different short and long time periods to compare trends.

•   Identifies overbought and oversold levels.

Cons

•   False signals can happen if price strength or weakness leads to a brief movement in the Williams %R above 70% or below 30%.

•   There is no volume analysis with the Williams %R.

6. Bollinger Bands

Bollinger Bands are a set of three lines that help measure the relative high or low of a security’s price in relation to previous trades. The center line is the Simple Moving Average (SMA) of the stock price. The other two trendlines are plotted two standard deviations away from the SMA (one positively, one negatively). These can be adjusted.

The upper and lower lines show the high and low boundaries of the security’s expected price movement (90% of the time). The middle line shows real-time price action moving between those bounds as it fluctuates day-to-day.

Pros

•   Helps traders identify volatility.

•   Can help point to trading opportunities.

Cons

•   Large losses are possible when volatility surges unexpectedly.

•   Does not identify cycle turns quickly enough at times.

7. On-Balance Volume (OBV)

OBV is a little different from the other indicators mentioned. It primarily uses volume flow to gauge future price action on a security or market. When there’s a new OBV peak, it generally indicates that buyers are strong, sellers are weak, and the price of the security will likely increase. Similarly, a new OBV low is taken to mean that sellers are strong and buyers are weak, and the price is trending down.

The numerical value of the OBV isn’t important — it’s the direction that matters. Declining volume tends to indicate declining momentum and price weakness, while increasing volume tends to indicate rising momentum and price strength.

Pros

•   Volume-based indicator gauges market sentiment to predict a bullish or bearish outcome.

•   OBV can be used to confirm price action and identify divergences.

Cons

•   Hard to find definitive buy and sell price levels.

•   False signals can happen when divergences and confirmations fail.

•   Volume surges can distort the indicator for short-term traders.

8. Accumulation / Distribution Line (ADL)

The ADL is a momentum indicator that traders use to detect tops and bottoms and thus predict reversales. It does this by using volume versus price data to identify divergences and thereby show how strong a trend might be. For example: If the price rises but the ADL indicator is falling, then the accumulation volume may not actually support a true price increase and a decline could follow.

Pros

•   Traders can use the AD Line to spot divergences in price compared with volume that can confirm price trends or signal reversals.

•   The ADL can be used as an indicator of the flow of cash in the market.

Cons

•   Doesn’t capture trading gaps or factor in their impact.

•   Smaller changes in volume are hard to detect.

9. Average Directional Index (ADX)

The Average Directional Index (ADX) also helps investors spot asset price trends and to quantify the strength of those trends. ADX shows an average of price range values that indicate expansion or contraction of prices over time — typically 14 days, but it may be calculated for shorter or longer periods. Shorter periods may respond quicker to pricing movements but may also have more false signals. Longer periods tend to generate fewer false signals but may cause the indicator to lag the market.

The ADX uses positive and negative Directional Movement Indicators (DMI+ and DMI-). ADX is calculated as the sum of the differences between DMI+ and DMI- over time. These three indicators are often charted together.

Pros

•   Can help identify when price breakouts reflect a solid trend.

•   Can send signals to traders to watch the price and manage risk (e.g. thru divergences).

Cons

•   Can generate false signals if used to analyze shorter periods.

•   Can’t be used as a standalone indicator.

10. Price Relative / Relative Strength

Relative Strength should not be confused with the Relative Strength Index (above). Relative Strength is more of an investment strategy than a specific indicator. It involves comparing one asset to another or the broader market and helps traders find securities that are trending on a relative, not absolute, basis.

Pros

•   A stock indicator that helps compare one security’s price to another to find which is outperforming.

•   Can plot one stock versus a competitor or market benchmark.

Cons

•   Does not provide exact buy and sell levels.

•   False breakouts and breakdowns can happen.

•   Mean reversion can lead to losses for momentum traders.

11. Relative Volume (RVOL)

RVOL relays to traders how near-term volume compares to historical volume. The higher RVOL is, the more other traders might be paying attention to and trading the asset. Think of it as the stock being “in play.” Stocks that have a lot of volume have more liquidity and tend to trade better than stocks with low relative volume. The RVOL is displayed as a ratio.

So if it is showing 2.5 relative volume, that means it is trading at 3.5 times its normal volume for that time period.

Pros

•   Can offer clues to identify unusually powerful price moves.

•   High and low volume is easily detected by use of being above or below a value of one (1).

Cons

•   While volume is important, it does not give exact buy and sell price levels.

•   Volume surges can be fickle — like around an earnings date.

12. Rate of Change (ROC) and Momentum

ROC is just what it sounds like — the speed at which a stock is moving compared to its trend. The indicator measures a stock’s percentage price change compared to how it moved in recent periods. Like many of the tools mentioned, it can be used to spot divergences.

Pros

•   Works better in trending markets.

•   When used with other trading tools can help traders spot strong momentum.

•   A technical trading tool that can identify overbought and oversold levels.

•   Ideal for spotting divergences.

Cons

•   False signals can happen when the indicator suggests a price trend reversal will take place.

•   Does not give higher weight to more recent price action.

13. Standard Deviation

An asset’s standard deviation is a fundamental statistical tool to get a sense of volatility. It uses historical volatility to arrive at a percentage that is used to reflect how much a security moves. While volatility can indicate potential risk, it can also signal the potential for opportunity.

Pros

•   Mathematically captures the volatility of a stock’s movements, i.e. how far the prices moves from the mean.

•   Provides technicians with an estimate for expected price movements.

•   Can be used to measure expected risk and return.

Cons

•   Does not provide precise buy and sell signals.

•   Must be used in conjunction with other indicators.

14. Ichimoku Cloud

Ichimoku clouds are used to show support and resistance areas on a price chart in an extra-illustrative manner. An Ichimoku Cloud is comprised of five separate calculations that examine multiple averages, and uses the difference between two of the lines to create a shaded area (the cloud) that aims to predict support and resistance levels. It is also employed to identify momentum and trend. It is thought to provide more data than a simple candlestick chart.

Pros

•   A leading indicator of price.

•   Indicates support and resistance areas.

•   Useful for gauging the direction and intensity of a price trend.

Cons

•   Can give many false signals in trendless markets.

•   Can be confusing to traders given its complexity.

15. Fibonacci Retracements

Fibonacci Retracements are based on the golden ratio discovered by mathematician Leonardo Pisano in the 13th century. At its core, a Fibonacci retracement is a mathematical measurement of a particular pattern. The Fibonacci sequence and ratio are used to form support and resistance lines on a price chart.

Pros

•   Offers clues about where a stock might find support and resistance.

•   Helps define exit and entry levels.

•   Can be used to place stop-loss orders.

Cons

•   The use is subjective.

•   Some say Fibonacci Retracements are simply a self-fulfilling prophecy: if many traders are using these ratios, then outcomes will reflect this.

•   No logical proof of why it should work.

The Takeaway

Technical analysts use past price and volume data to help traders identify price trends and make buy and sell decisions. It’s important to know that technical analysis does not use fundamentals to assess the underlying companies, their industries, or any macroeconomic trends that might drive their success or failure. Rather, technical analysis solely analyzes a stock’s performance.

Technical indicators are often rendered as a pattern that can overlay a stock’s price chart to predict the market trend, and whether the stock would be considered “overbought” or “oversold.” There are countless stock technical indicators in existence, and it can quickly become overwhelming to learn them all. It might be more useful to focus on a handful of the most popular trading tools so you can execute a strategy that works for you.

To start trading stocks and gain a hands-on understanding of how technical indicators work, you can open a brokerage account online with SoFi Invest®. You can trade stocks, fractional shares, exchange-traded funds (ETFs), IPO shares, and cryptocurrencies right from your laptop or phone. As a SoFi member, you will have access to many online resources — including financial professionals who can guide you in your financial journey. Get started now!


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.

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Source: sofi.com

How to Invest in Agriculture

Many people think of investing in agriculture as owning farmland and operating a farm. Many investors overlook this business area when deciding where to put their money because they don’t see themselves toiling the land. But there are various options to invest in agriculture without being a farmer.

Farmland investing is just one way to invest in agriculture. Additionally, investors can invest in farming-related exchange-traded funds (ETFs) and real estate investment trusts (REITs) or trade commodities to take advantage of the agricultural markets.

What Are Agriculture Investments?

Investing in agriculture is more than just owning some farmland and working the land. Agriculture can be an alternative investment that diversifies an investor’s portfolio. Investors can get exposure to agriculture and farming by investing in businesses involved in the whole farming process, from the seeds in the ground to the distribution of products to grocery stores.

4 Ways to Invest in Agriculture

1. Agriculture Stocks

Investors can put money into various publicly-traded companies that provide services in the farming industry. These agribusiness firms range from those involved in actual crop production — though many crop producers are privately held — to companies in the farming support businesses. The farming support businesses include companies that make fertilizer and seeds, manufacture farming equipment, and process and distribute crops.

Companies in the agriculture industry include, but are not limited to:

•   Archer Daniels Midland Company (ADM): A large food processing and commodities trading firm

•   Deere & Company (DE): Known as John Deere, this company manufactures agricultural machinery and heavy equipment

•   Corteva, Inc. (CTVA): An agricultural chemical, fertilizer, and seed company

•   The Mosaic Company (MOS): A large company that produces fertilizer and seeds

•   AppHarvest Inc (APPH): A small-cap company involved in indoor farms and crop production

2. Agriculture ETFs and Mutual Funds

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to the agricultural industry. Agriculture-focused mutual funds and ETFs invest in a basket of farming stocks, commodities, and related assets, allowing investors to diversify farming exposure.

3. Farm REITs

Farm and agricultural real estate investment trusts (REITs) own farmland and lease it to tenants who do the actual farming. REITs that invest in farmland can be a good option for investors who want exposure to farmland without actually owning a farm.

This type of investment can provide investors with various benefits. For example, a REIT is a type of liquid asset, meaning an investor can quickly sell the investment on the stock market. In contrast, if an investor were actually to own farmland, trying to sell the land could be a drawn-out and complex process. Other benefits include regular dividend payments and geographical and crop diversification.

Recommended: Pros and Cons of Investing in REITs

4. Commodities

Agricultural commodities are the products produced by farms, like corn, soybeans, and wheat.

Trading commodities can be a profitable, though risky, endeavor. Investors who trade commodities look to take advantage of the market’s volatility for short-term gains. Usually, this is done by trading futures contracts, though large investors may actually purchase and sell the physical commodities.

Commodity trading can be risky, especially for a novice investor. ETFs with exposure to commodities may be better for investors with lower risk tolerance.

Recommended: Why Is It Risky to Invest in Commodities?

Benefits and Risks of Investing in Agriculture

Benefits

One of the significant benefits of agriculture investments is that people always need to eat, so there will usually be some demand support for businesses in the industry. Because of this, some investors view the sector as somewhat recession-proof and a good way to diversify a portfolio.

Another benefit is that farmland REITs and certain agriculture stocks can provide passive income through regular dividend payouts. Additionally, farmland investments can provide a hedge against rising inflation.

Risks

The agricultural and farming sector can be fickle, as it’s subject to various risk factors that can impact investments. Uncertainties stemming from weather to government policies to the global commodities markets can cause volatile swings in prices and income that affect investments in the sector.

Here are some risks facing agricultural investments:

•   Production risk: Major weather events, crop diseases, and other factors can affect the quantity and quality of commodities produced.

•   Market risk: The global markets for commodities can affect farming and agricultural business as prices can swing wildly, making crop production and agribusiness demand uncertain.

•   Financial risk: Farms and related businesses often use debt to fund operations, so rising interest rates and credit tightening can hinder companies in the industry.

•   Regulatory risk: Changes in taxes, regulations, subsidies, and other government actions can impact agricultural businesses and investments.

Are Agriculture Investments Right for You?

It might seem like agriculture investments are risky, but with that risk comes reward. If an investor’s risk tolerance allows for it, agricultural investments can provide diversification in a portfolio.

The Takeaway

Fortunately for investors who want to put money into the agriculture sector, they don’t necessarily need to buy a farm. Several investment vehicles can fit their needs to get exposure to farming. Farmland REITs, agribusiness stocks, and farming and commodity ETFs can be options to build wealth in the farm business.

Investing in agriculture doesn’t have to be as hard as owning a farm and working the land. Investors can start investing in agriculture by trading stocks and ETFs for as little as $5 with SoFi Invest®.

Check out how to start investing with SoFi today.

FAQ

Is agriculture worth investing in?

Agricultural investments can help diversify a portfolio. Depending on what areas of the agriculture business you invest in, the assets can produce steady income and long-term capital gains.

How much should I invest in agriculture?

Determining how much you should invest in any asset class depends on your financial goals and personal risk tolerance. It would be best if you didn’t put too much of your money into the agriculture sector; you want a diversified portfolio.

How do I invest in a farm?

Buying a farm can be difficult; you would need a lot of capital for a down payment, just like any other piece of real estate. If you want exposure to farmland, agriculture and farm-related REITs can be a good option, especially for retail investors.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.

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Source: sofi.com

Margin Trading vs Futures: Compared and Explained

Trading crypto on margin in the spot market is different from using futures to control crypto positions. Margin trading involves using money borrowed from a broker to go long or short crypto. With futures, traders can post margin as collateral to take on large long or short positions on contracts with a specific delivery date. Another type of crypto futures contract, perpetual futures, does not come with a delivery date, but it comes with daily fees.

It’s important for crypto investors to understand the fundamental concept of margin vs. futures. Though there are key differences between trading margin vs. futures, there are also similarities between them, and pros and cons to consider. If you recognize how futures vs. margin trading operates, then you can better decide which of these investing strategies — margin vs. futures — to use when building a cryptocurrency portfolio.

Margin vs Futures

Margin vs. futures feature many similarities, but there are also differences to consider. Analyzing both can help you know if these trading techniques could work with your investing style and tolerance for risk. You might decide to have a margin or a futures account, one of each, or neither.

Similarities

Futures vs. margin trading share some characteristics. For one thing, both methods would allow you to control more of a crypto position than would trading the cash, or spot market, using only your equity. The futures market and a margin account simply go about it differently. Both might entice prospective market participants with potentially big quick gains, but losses can be dramatic too.

It is important to remember that cryptocurrencies are usually much more volatile than stock market indexes. So if you trade with margin or futures, you could expect to see fast movements (either up or down) in your profit and loss numbers.

Differences

As we said earlier, identifying the differences between trading with margin vs. futures could help determine the best investing strategy for your risk tolerance and return objectives. For starters, futures trading requires a good faith deposit to access contracts, often with quarterly maturity, while a crypto margin account lets you leverage the spot market. The futures market might require that you pay closer attention to liquidity — that is, how easily you can trade while still receiving a competitive price.

With a crypto margin account, liquidity is generally not a problem in the spot market; knowing how much you can borrow might be the greater issue to consider. Because the spot market is perpetual, you also must determine for how long you want to own a coin. With futures, by contrast, expiring contracts set a limit on how long you can hold a position; however, you may bypass this by using perpetual futures.

It’s also important to analyze is the premium over the spot price that you are paying or are being paid. Further, trading on an unregulated platform or one with a sketchy reputation could result in possible liquidity failures or liquidation.

Similarities Differences
Margin and futures offer the chance to trade large positions with a small amount of capital Using margin requires paying a broker interest on your loan
Both can result in large and fast losses Futures trading requires a good-faith deposit
With perpetual futures, you can keep an open position indefinitely, similar to how the spot market works, but you also might owe The futures crypto market can experience premiums to spot prices

Margin vs Futures Trading in Crypto

Knowing the differences between margin and futures, as well as the similarities, goes a long way toward protecting yourself from unforeseen risks when trading crypto. You can find out more about crypto trading specifically in SoFi’s Guide to Crypto for Beginners. What’s more, you can learn about other ways that margin trading and futures differ and overlap in the crypto world. For now, here are several key points to consider:

Trading Crypto With Margin Trading Crypto With Futures
Incurs daily expenses via interest owed on borrowed funds Quarterly futures contracts can avoid fees and might be better for long-term holders
Liquid spot prices help ensure a fair price when buying and selling Futures’ basis can fluctuate
It is common to trade with between 3x-to-0x leverage Often higher leverage is employed than with margin trading

Investing and Trading Crypto With SoFi

Trading cryptocurrency on margin, and using futures contracts (including perpetual futures) to control crypto positions are commonly used, through advanced, trading methods.

Each has its own advantages and risks. While crypto margin trading offers exposure to the spot market using borrowed funds, trading with crypto futures lets investors deposit margin as collateral to control large positions for future delivery.

All it takes is at least $10 to buy and sell crypto on SoFi. You can earn a bonus of $10 in Bitcoin by doing so. A benefit of cryptocurrencies is that you can trade outside of standard stock market hours, as the crypto market is open 24/7. SoFi takes security seriously and uses a variety of tools to keep investors’ crypto assets safe.

Start trading crypto today on SoFi Invest.

FAQ

Are margin trading and futures the same?

Margin trading and futures trading are two different trading techniques. It’s key to understand both approaches before using them because they are considered advanced. Margin accounts usually involve traders opening crypto positions with borrowed money. You can control more capital with your portfolio, which allows you to leverage positions. You can experience amplified gains and losses with margin trading, so it is riskier than trading without leverage.

Futures contracts work differently in that they are binding agreements where you agree to buy or sell an underlying asset at a pre-specified price in the future. You can go long or short futures depending on your directional wager. With crypto trading, futures are often quarterly or perpetual contracts.

Do you need margin to trade futures?

You need margin to trade futures. Margin in futures trading refers to a good faith deposit used as collateral to open positions. It does not involve borrowing money from a broker, so there is nothing to repay, but you might owe funding rate fees when you own perpetual futures. Your futures account collateral also represents your maintenance margin — a minimum amount of equity needed to continue trading.

What are futures contracts and how do they work?

While margin traders participate in the spot crypto market, futures traders place trades on assets to be delivered in the future. You can think of futures vs. margin as a difference in the price of crypto in the spot market versus futures prices at some point later. Participants in the crypto futures market speculate on the future price of a coin.

You can use leverage in the futures market — some exchanges allow a leverage ratio of as much as 125:1 — using margin as collateral to open positions. Crypto futures might trade at a large premium to the spot market, and it might take a long time to exit a futures position at a competitive price.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
*Borrow at 2.5% through 5/31/22 and 5% starting 6/1/22. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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Source: sofi.com

Why Are Bitcoin and Other Cryptos So Volatile?

Bitcoin’s most defining feature might well be that its price always seems to be rising.

In reality, however, the price of Bitcoin doesn’t always go up. To get these screaming vertical price increases, there needs to be some death-defying falls as well. Bitcoin’s very volatility makes this popular crypto a tempting investment for some, and a quite dangerous one for others. Trading in cryptocurrencies might not be for all investors — especially those with a low tolerance for risk.

Bitcoin Price Volatility

There’s no denying that cryptocurrencies, including Bitcoin, are volatile. For instance, in the first half of 2021, Bitcoin doubled in value, reaching a record-breaking high price of $64,000. But it tumbled back to less than $30,000 during the summer months. Then in November, Bitcoin’s price soared again; this time to $68,000 (for another all-time high) only to slip to below $35,000 in January 2022.

And this is just one example. Since its launch in 2009, Bitcoin has posted an impressive price history, and experienced more than a few conspicuous crashes.

Volatility is essentially a given across all types of cryptocurrencies, given the general air of legal, political, institutional, and technological uncertainty that floats around them. But it’s more noticeable with Bitcoin. Bitcoin was the very first cryptocurrency created. Not only is it the most expensive crypto, but likely the most visible, and has become a flagship for the entire crypto/blockchain space. Arguably, Bitcoin could be the coin that led the government, the public, and traditional financial services companies to take cryptocurrencies seriously. Increasingly, millions of ordinary people view Bitcoin as a vehicle for investing, trading, and saving. But before investing in cryptocurrency, an investor would want to consider its volatility seriously.

Why Does Cryptocurrency Volatility Matter?

There’s a reason that nearly anyone who’s well-versed in cryptocurrency would caution novice investors to invest no more than you’re willing to lose. With a highly volatile asset like cryptocurrency, an investor’s overall portfolio value could suddenly shoot much higher or much lower than they would expect, or are prepared for, based on big changes in its price.

Bitcoin is not the only cryptocurrency to experience big price swings that can lead to large gains or losses for investors. Volatility does not play favorites, and most crypto coins, even more familiar assets, like plain vanilla stocks, can experience the phenomenon of volatility. From the second-largest crypto, Ethereum — and popular established coins like Dogecoin, Uniswap, and Filecoin — to crypto projects you might not know, all have experienced price volatility.

Is Bitcoin Particularly Volatile?

There are at least a few reasons why Bitcoin’s price is so unstable.

Liquidity

In financial markets, liquidity is a concept that relates how much a given purchase or sale of an asset will move its overall price. Liquidity, in general, supports overall asset values. Say you have an item that costs $500 but when you go to sell it, there’s no one to buy it; In that case, the $500 price tag is not very meaningful. Low liquidity may be rendering the price of Bitcoin unstable.

A particular concern with Bitcoin is that a huge portion of all the Bitcoin circulating in the world — at this writing, more than 18.5 million bitcoin — will never be bought or sold by anyone. This could be because the coin is stranded in wallets for which the private keys have been forgotten or because they’re held by investors who will never sell, no matter the price. Moreover, Bitcoin’s existence is finite; no more than 21 bitcoin will ever be mined.

By shrinking the amount of Bitcoin in circulation beyond the limits built into the system, Bitcoin’s liquidity could dry up. This means that movements to buy or sell could quickly influence its price, driving it up or down violently.

Speculation

One of the biggest debates surrounding cryptocurrencies is, what’s it for, exactly? Why are people buying it? For individuals who live in countries with unstable or despotic governments, Bitcoin can be a lifeline of stable value. But for many, it is not an especially convenient payment mechanism compared to the fiat currency of existing banking systems.

And yet, many people are buying Bitcoin and willing to pay ever-higher prices for it. The main reason seems that they expect the price to get even higher in time. Some people think the price will go up because Bitcoin is protected against inflation because of its 21-million cap on coin. Some expect wider adoption of Bitcoin as a payment protocol. And some expect it to become widely used by financial services institutions as a store of value.

The FOMO Factor

Essentially, interest in Bitcoin is generated by the idea that other people are going to buy it in the future, at a higher price than it’s selling for today. This expectation is fed by regular headlines about a company or celebrity buying into Bitcoin and the massive profits people are generating from Bitcoin they bought years — or even weeks — ago. In the crypto community, this behavior is known as fear of missing out (FOMO). Speculative investing like this often leads to volatility, because the price can turn down as sharply as it turns up.

At this time, many analysts believe that the questions surrounding cryptocurrency, as well as FOMO, are precisely what are keeping Bitcoin’s prices high. An asset’s price likely would swing if a large portion of investors are trying to get in front of buyers who come in later. Those who buy a crypto immediately when it comes to market could dump the coin just as quickly. This could happen if an investor made a profit, or they no longer believe that more investors will buy into the crypto.

The Takeaway

Bitcoin’s volatility is based on at least two factors: its potentially low liquidity, and the plethora of unanswered questions about crypto, a still-new asset class. Investors and anyone who follows the news are aware of shocking highs and lows in Bitcoin’s value.

Interested in trading crypto? With SoFi Invest® crypto trading, members can buy and sell popular coins like Bitcoin, Filecoin, and Ethereum. With the convenient mobile app, you can trade crypto 24/7 – even on weekends, holidays, middle of the night.

Find out how to get started with SoFi Invest today.

FAQ

In general, are cryptocurrencies more volatile than stocks?

Yes. Investing in the stock market has been a mainstay of the U.S. economy since the late 1700s. Stocks are also regulated, subject to oversight by the SEC, and other government agencies. Cryptocurrencies as an asset class are quite new, not fully regulated, and do not yet have a proven track record in U.S. markets. As we discussed, crypto is considered a speculative investment. Complex assets — like high-yield bonds, options, mortgage-backed securities, and other derivatives, including crypto — are subject to greater volatility than are plain vanilla stocks.

Which cryptocurrency is the most volatile?

The answer: It changes every day. And, volatility is not selective. Popular coins, like Bitcoin (BTC) and Ethereum (ETH), take their turns at being “most-volatile” just as often as do the tiny cryptos you might not have heard of . Cryptocurrency’s volatility has spawned a number of reliable indexes that track and report its daily price fluctuations, including Yahoo Finance and Shufflup .

Is volatility a good thing for crypto?

Volatility is neither good nor bad. Rather, it’s a phenomenon that exists in all financial markets for a mix of reasons. Cryptocurrency skeptics might see crypto’s volatility as a danger sign, a reason to stay away. However, sometimes volatility can benefit a new fast-growing asset, like crypto.

This is happening currently, with profit-seeking traders and wealthy venture capitalists streaming toward crypto. Venture capital funding can help seed new start-ups and advance technical innovation. And new money flowing into a sector often brings heightened liquidity, which makes for healthy financial markets.

The FOMO factor, which we discussed above, and just plain curiosity also can have a positive effect on crypto. For example, some large traditional financial services (TradFi) institutions that were prior crypto-naysayers are now showing an interest in the crypto sector.


Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.

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5 Popular Investing Trends of 2022

Heading into 2022, many investors had a brighter outlook on the U.S. economy and financial markets. Both staged impressive rebounds in 2021 after Covid-19 quarantine measures triggered wild volatility. Vaccine breakthroughs and stimulus checks further stoked optimism that the finances of many businesses and individuals were on the mend.

However, rising inflation, higher interest rates, and geopolitical conflict have been several headwinds getting in the way of continued economic and financial market growth in 2022. Year-to-date, the benchmark S&P 500 Index is down about 7% through April 20, 2022, after rising nearly 27% in 2021.

Nonetheless, there are opportunities in some areas of the financial markets for investors looking beyond Covid-19. Here’s a look at five popular investment trends for 2022.

1. Looking Beyond Covid-19

Some of the success stories in the stock market in 2020 and 2021 were companies that benefited from coronavirus-related stay-at-home measures, like entertainment streaming businesses, video conferencing services, and at-home workout companies. But many companies in these sectors are losing their luster as the country reopens; investors are looking for other opportunities as the world returns to normal.

Investors have wagered that airline, cruise line, travel website operators, and other transportation stocks will benefit now that most Covid-19 restrictions are in the rearview mirror. While these sectors, like the rest of the economy, may be hindered by rising interest rates and inflation, many investors still see them poised to grow because of pent-up demand.

2. ESG Investing Movement

Financial advisors often tell clients to take their emotions out of investing. However, a new breed of ethically-minded investors has become increasingly interested in putting their money where their values are in recent years.

This strategy is known as environmental, social, and governance (ESG) investing. A Bloomberg study estimated that ESG investments may hit $41 trillion globally by the end of this year and $50 trillion by 2025, a third of global assets under management.

In early 2022, the Russian invasion of Ukraine set off global protests and pronouncements against the unprovoked conflict. Many American companies followed by pulling their business operations out of Russia and issuing statements on their commitment to Ukrainian democracy. This development is just one example of companies looking beyond the bottom line in their business decisions. Moreover, shareholder advocacy groups are applying pressure on some companies to back their pledges with transparency on diversity, equity, and inclusion issues.

3. Web 3.0

Bitcoin and other cryptocurrencies were among the most discussed investments in 2021, with wild swings in prices as investors put money into these digital assets. The prices of crypto assets cooled off in the early portion of 2022, but they are still in the front of the minds of a lot of investors.

Because of the success and attention paid to crypto over the past several years, investors are looking to put money into related investments: companies involved in what is known as Web 3.0, or the next phase of the internet. Web 3.0 companies include those involved with blockchain technology, decentralized finance (DeFi), the metaverse, and artificial intelligence.

4. Commodities Markets

After years of muted returns, commodity prices rebounded in 2021. Investors wagered that recovering economies would lead to more construction, energy usage, and food consumption. Tight supplies also boosted these markets.

Moving into 2022, the attention paid to the commodities market has only intensified, especially with the geopolitical turmoil in Ukraine and Russia affecting critical commodities like oil, natural gas, and wheat. Prices of these key commodities have spiked as the Russian-Ukrainian conflict constrains supplies.

Rising prices of agriculture, lumber, and industrial and precious metals have sparked a debate about whether commodities are going through a new supercycle. A supercycle is a sustained period, usually about a decade, where commodities trade above long-term price trends.

Recommended: Commodities Trading Guide for Beginners

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5. Hot Housing Market

The housing market will continue to be an area of focus for investors, policymakers, and potential homebuyers in 2022. During 2020 and 2021, rock-bottom mortgage rates, a shortage of housing supply, and homebuyers looking to purchase larger houses to accommodate working from home led to houses selling quickly and at high prices. Additionally, investors and real estate investment trusts (REITs) bought an increasing share of homes on the market.

During the first quarter of 2022, mortgage rates are rising at a record pace, with the average 30-year mortgage nearing 5% for the first time since 2018. Analysts are looking to see if rising mortgage rates will cool the hot housing market or if buyers will continue to purchase homes.

Recommended: Pros & Cons of Investing in REITs

The Takeaway

Putting hard-earned dollars into any investment — whether it’s trendy or traditional — can be daunting. Investors should be aware that, while momentum can feed investment fads for long periods, some market trends can become vulnerable because of frothy valuations and turn on a dime.

However, if investors still want to try their hand at choosing popular investment trends themselves, SoFi’s Active Investing platform makes it easy by making it easy to track their picks of stocks, ETFs and fractional shares. Investors can also make trades without incurring management fees from SoFi Invest®.

Open an Active Investing account with SoFi today.


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Source: sofi.com