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Q: What Does 'In the Money' Mean?

In the money (ITM) describes a contract that would be profitable if its owner were to choose to exercise the option today. If this is the case, the option is said to have intrinsic value.

Q: What Does 'Out of the Money' Mean?

Out of the money (OTM) contracts do not have intrinsic value. If an option is out of the money at the time of expiration, the contract will expire worthless. Options are out of the money when the relation of their strike prices to the current market price of their securities are opposite that of in the money options.

Q: What’s the Difference Between In the Money and Out of the Money?

In the money (ITM) describes a contract that would be profitable if its owner were to choose to exercise the option today. Out of the money (OTM) contracts do not have intrinsic value. If an option is out of the money at the time of expiration, the contract will expire worthless.

Nov

2025

In the Money (ITM) vs Out of the Money (OTM) Options

In the Money vs Out of the Money Options: Main Differences

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Table of Contents

What Does “In the Money” Mean?
What Does “Out of the Money” Mean?
What’s the Difference Between In the Money and Out of the Money?
Should I Buy ITM or OTM Options?
Frequently Asked Questions

In options trading, knowing the difference between being “in the money” (ITM) and “out of the money” (OTM) allows the holder of a contract to know whether they might realize a profit from their option. The terms refer to the relationship between the option contract’s strike price and the market value of the underlying asset.

“In the money” refers to options that may be profitable if exercised today, while “out of the money” refers to those that lack intrinsic value. In the rare case that the market price of an underlying security reaches the strike price of an option exactly at the time of expiry, this is considered an “at the money option.”

Key Points

• Understanding the difference between “in the money” and “out of the money” options can help options traders gauge potential profitability.

• Options classified as “in the money” have intrinsic value and may be profitable if exercised, while “out of the money” options lack intrinsic value and may expire worthless.

• The potential for profit from options largely depends on the relationship between the strike price and the current market price of the underlying asset.

• Options based on assets with higher volatility are often written “out of the money,” which can appeal to speculators due to their typically lower premiums and the potential for larger price swings.

• Decisions to buy “in the money” or “out of the money” options should align with an investor’s goals, risk tolerance, and outlook for the underlying asset’s future performance.

What Does “In the Money” Mean?

In the money (ITM) describes a contract that may result in a profit if its owner were to choose to exercise the option today. If this is the case, the option is said to have intrinsic value.

A call option would be in the money if the strike price is lower than the current market price of the underlying security. An investor holding such a contract could exercise the option to buy the security at a discount and potentially sell it for a profit.

Put options, which are a way to speculate on a decline of a stock (known as shorting a stock), would be in the money if the strike price is higher than the current market price of the underlying security. A contract of this nature allows the holder to sell the security at a higher price than it currently trades for and potentially profit from the difference.

In either case, an in the money contract has intrinsic value, so the options trader may choose to exercise the option to profit from it, assuming the gains exceed the premiums paid to purchase the contract.

Example of In the Money

For example, say an options trader owns a call option with a strike price of $15 on a stock currently trading at $17 per share. This option would be in the money because its owner could exercise the option to realize a profit. The contract gives the holder the right to buy 100 shares of the stock at $15, even though the market price is currently $17.

The contract holder could take shares acquired through the contract for a total of $1,500 and potentially sell them for $1,700, hypothetically realizing a profit of $200 minus the premium paid for the contract and any associated trading fees or commissions.

While call options give the holder the right to buy a security, put options give holders the right to sell. For example, say an investor owns a put option with a strike price of $10 on a stock that is trading at $8 per share. This would be an in the money option. The holder could sell 100 shares of stock at a price of $10 for a total of $1,000, even though those shares are only worth $800 shares on the market. The contract holder would then realize that difference of $200 as profit, minus the premium and any fees.

What Does “Out of the Money” Mean?

Out of the money (OTM) is the opposite of being in the money. OTM contracts do not have intrinsic value. If an option is out of the money at the time of expiration, the contract expires worthless. Options are out of the money when the relation of their strike prices to the current market price of their securities is the opposite of in the money options: they have no intrinsic value but may still carry time value before expiration.

For calls, an option with a strike price higher than the current price of the underlying security would be out of the money. Exercising such an option through a brokerage (or online brokerage) would result in an investor buying a security for a price higher than its current market value.

For puts, an option with a strike price lower than the current price of its security would be out of the money. Exercising such an option would cause an investor to sell a security at a price lower than its current market value.

In either case, the contracts are out of the money because they don’t have intrinsic value – anyone exercising those contracts could incur a loss.

Example of Out of the Money

Say an investor buys a call option with a strike price of $15 on a stock currently trading at $13. This option would be out of the money. An investor might buy an option like this in the hopes that the stock may rise above the strike price before expiration, in which case a profit may be realized.

Another example would be an investor buying a put option with a strike price of $7 on a stock currently trading at $10. This would also be an out of the money option. An investor might buy this kind of option with the belief that the stock may fall below the strike price before expiration.

What’s the Difference Between In the Money and Out of the Money?

The premium of an options contract involves two different factors: intrinsic value and extrinsic value. Options that have intrinsic value at the time they are written have a strike price that is favorable relative to the current market price. In other words, such options are already in the money when written.

But not all options are written ITM. Those without intrinsic value rely instead on their extrinsic value. This value comes from speculative bets that investors make over a period of time. For this reason, options contracts based on assets with higher volatility are often written out of the money, as investors anticipate there may be bigger price swings. Lower options premiums could make these contracts appealing, despite possible lower probabilities of profit. Conversely, assets considered to be less volatile often have their options written in the money.

Options written out of the money may appeal to speculators because their contracts may come with lower premiums and offer a high potential payoff relative to cost, despite a lower chance of expiring in the money.

Should I Buy ITM or OTM Options?

The answer to this question depends on an investor’s goals and risk tolerance. Options that are further out of the money may offer higher potential rewards but can come with greater risk, uncertainty, and volatility. Whether an option is in or out of the money (and the extent that it’s out of the money), can impact the premium for that option, as can the amount of time before expiry and its level of implied volatility.

Whether to buy ITM or OTM options also depends on how confident an investor feels about the future of the underlying asset. If a trader believes that a particular stock may trade at a much higher price three months from now, then they might not hesitate to buy a call option with a very high strike price, which would be both deeply out of the money and likely lower cost.

Conversely, if an investor thinks a stock may decline in value, they might buy a put option with a very low strike price, which would also make the option out of the money and lower cost.

Beginning options traders and those with lower risk tolerance may prefer buying options that are only somewhat out of the money or those that are in the money. These options often have lower premiums than in-the-money contracts, and cost more than deeply out-of-the-money options, striking a balance between affordability and probability. There are also generally greater odds that the contract might end up in the money before expiration, as it requires a less dramatic move to make that happen.

Investors can also choose to combine multiple options legs into a spread strategy that attempts to take advantage of both possibilities.

Recommended: 10 Important Options Trading Strategies

Test your understanding of what you just read.

The Takeaway

In options trading, “in the money” refers to options that offer profit potential if exercised immediately (having extrinsic value), while “out of the money” refers to those that don’t (lacking intrinsic value). Options contracts don’t necessarily have to be exercised for a trader to realize a profit from them. Sometimes investors buy out-of-the-money contracts with the intent of selling them on the open market for a profit if they move into the money before expiration. Though, of course, they risk losing the premium paid if the option remains out of the money and expires worthless.

In either case, it’s important to consider if an option is in the money or out of the money when buying or writing options contracts, as well as when deciding when to execute them. Options trading is an advanced investing strategy, and investors may benefit from understanding the risks before participating or consulting a financial professional for guidance.

Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.

Explore SoFi’s user-friendly options trading platform.

Frequently Asked Questions

What is the difference between in the money and out of the money?

ITM options have intrinsic value because the strike price is favorable relative to the market price. OTM options have no intrinsic value and would not be profitable if exercised immediately. ITM options generally cost more, while OTM options tend to have lower premiums and rely on the price of the underlying asset moving in a favorable direction before expiration.

What is the difference between ITM and OTM options?

ITM options can be exercised at a price that’s better than the current market value, giving them intrinsic value. OTM options have strike prices that are not favorable relative to the market price and therefore have no intrinsic value. ITM options are more expensive but carry a higher probability of expiring with value, while OTM options are cheaper but more speculative.

What is the difference between an out-of-the-money and in-the-money put?

An ITM put has a strike price above the current market price of the underlying asset, which gives it intrinsic value. An OTM put has a strike price below the current market price, so it cannot currently be exercised for a profit. The difference lies in whether the put option would generate value if exercised immediately.

How can you tell if an option is in or out of the money?

Check the relationship between the option’s strike price and the current market price of the underlying asset. A call is in the money when the strike price is below the market price; it’s out of the money when the strike is above. For puts, it’s the opposite: the option is in the money when the strike is above the market price and out of the money when it’s below.

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SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q325-031

Nov

2025

What are Underlying Assets?

By Brian O'Connell | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is an Underlying Asset?
How Underlying Assets Work
5 Different Types of Underlying Assets
FAQ

Underlying assets are the financial instruments (stocks, bonds, and commodities) that help determine the value of derivatives (options, futures, and swaps). These assets serve as the foundation for many trading strategies, influencing how derivatives contracts are priced and how risk is managed in the market.

Here, we look at the role of underlying assets in derivatives trading, and outline the five of the most common types used by investors.

Key Points

• Underlying assets are the securities derivatives are based on, such as stocks, bonds, and commodities.

• Investors may trade derivatives to speculate and attempt to profit from the future price movements of underlying assets, or to hedge against risk.

• Derivatives prices are based on the price of the underlying asset, as well as potentially other factors, depending on the type of derivative.

• Derivatives carry high risk and are complex, often requiring advanced trading knowledge.

• These financial instruments may be used by investment firms, hedge funds, institutional investors, and retail investors.

What Is an Underlying Asset?

An underlying asset is a financial instrument, like a stock, bond, or commodity, that helps determine the value of a related derivative contract. Underlying assets can be individual securities (like stocks or bonds) or groups of securities (like in an index fund).

A derivative is a financial contract between two or more parties based on the current or future value of an underlying asset. Derivatives can take many forms, involving trading in widely used markets like futures, equity options, swaps, and warrants, among others.

These contracts can involve significant risk as investors speculate on the future price movements of an underlying asset. An investor may profit if the price of the underlying asset moves as they anticipated, but they could potentially face steep losses if the price moves in an adverse direction. Derivatives are also often used to hedge against potential losses in other investments.

How Underlying Assets Work

To illustrate how underlying assets work in the derivatives market, consider options trading as an example.

An option is a financial derivative that gives the contract holder the right, but not the obligation, to buy or sell an underlying security by or at a specific time and at a specific price. When an option is exercised by the contract holder, that means the holder has exercised the right to buy or sell an underlying asset.

Options come in two specific categories: puts and calls.

• Put options allow the options owner to sell an underlying asset (such as a stock or commodity) at a certain price and on or by a certain date (known as the expiration date).

• Call options enable the owner to buy an underlying asset (like a stock or a commodity) at a certain price and on or by a certain date.

The underlying asset first comes into play when that options contract is initiated.

Example of an Underlying Asset in Play

Suppose an investor believes the price of a company’s stock is going to rise. The stock is currently trading at $275 per share, and so they opt to purchase a call option with a strike price of $285. The contract is struck on September 1 and the options contract expiration date is November 30.

Now that the contract is up and running, the performance of the underlying asset (the stock) can determine whether the option becomes profitable or expires worthless.

In this scenario, the options owner now has the “option” (hence the name) to buy 100 shares of the stock at $285 per share on or before November 30. If the underlying stock, which is now trading at $275, moves above the $285 strike price, the options owner can exercise the contract and potentially profit from the difference between the strike price and the market price.

If, for example, the stock slides to $290 per share in the options contract timeframe, the call options owner can exercise the purchase of the stock at $285 per share, $5 below its current value of the stock (i.e., the underlying asset). With each contract typically representing 100 shares of stock, the profits can add up on the call option investment.

If, on the other hand, the stock remains below the $285 per share level, and the November 30 deadline has come and gone, the options owner would not exercise the contract, since the stock is now worth less than the $285 strike price. That’s also the price the options owner has to pay for the stock by the expiration date.

Keep in mind, too, that options buyers must also take into account the amount they spent to purchase the options contract, since this would detract from their potential profits. If for example, the premium for a contract was $1 per share, or $100 total, they would need the price of the underlying asset to rise above $286 (the breakeven point) to profit.

This scenario represents the importance of the underlying asset. The derivatives investment depends entirely on the performance of the underlying asset, with abundant risk for derivative speculators who’ve taken positions on the underlying asset moving in a certain direction over a certain period of time.

5 Different Types of Underlying Assets

Underlying assets come in myriad forms in the derivatives trading market, with certain assets being used more frequently due to their liquidity and price volatility.

Here’s a snapshot.

1. Stocks

One of the most widely used underlying assets is stocks, which is only natural given the pervasiveness of stocks in the investment world.

Derivatives traders rely on equities as benchmark assets when making market moves. Since stocks are so widely traded, it gives derivatives investors more options to speculate, hedge, and generally leverage stocks as an underlying asset.

2. Bonds and Fixed Income Instruments

Bonds, typified by Treasury, municipal, and corporate bonds, among others, are also used as derivative instruments. Since bond prices do fluctuate based on general economic and market conditions, derivative investors may try to leverage bonds as an underlying asset as both bond interest rates and prices fluctuate.

3. Index Funds

Derivative traders also use funds as underlying assets, especially exchange-traded funds (ETFs), which are widely traded in short-term (or intra-day) trading sessions. Besides being highly liquid and fairly easy to trade, exchange-traded funds are also tradeable on major global exchanges at any point during the trading day.

That’s not the case with mutual funds, which can only be traded after the day’s trading session comes to a close. The distinction is important to derivative traders, who have more opportunities for market movement with ETFs than they might with mutual funds.

ETFs also cover a wide variety of investment market sectors, such as stocks, bonds, commodities, international and emerging markets, and business sector funds (such as manufacturing, health care, and finance). That availability gives derivatives investors even more flexibility, which is a characteristic investors typically seek with underlying assets.

4. Currencies

Global currencies like the dollar or yen, among many others, are also frequently used by derivative investors as underlying assets. A primary reason is the typically fast-moving foreign currency (FX) market, where prices can change rapidly based on geopolitical, economic, and market conditions.

Currencies usually trade fast and often, which may make for a volatile market — and derivative investors tend to steer cash toward underlying assets that demonstrate volatility, as quick market movements may create short-term profit potential. Given that they move so quickly, currencies can also move in the wrong direction quickly, which is why some financial professionals caution that currency markets may be too volatile for most individual investors.

5. Commodities

Common global commodities like gold, silver, platinum, and oil and gas can also serve as the basis for derivatives contracts traded by investors.

Historically, commodities have been one of the most volatile and fast-moving investment markets. Like currencies, commodities are often highly desirable for derivative traders, but high volatility may lead to significant investment losses in the derivatives market if the investor lacks the experience and knowledge required to trade against underlying assets.

The Takeaway

Underlying assets are the fundamental financial instruments used to create derivatives contracts and strategies. Derivatives, such as options, futures, and swaps, can come with high risk — and trading against those assets requires a comprehensive knowledge of trading, position sizing, leverage, hedging, and speculation.

Explore SoFi’s user-friendly options trading platform.

FAQ

What are underlying assets?

Underlying assets are the foundation of derivatives contracts. They influence how a derivatives contract is priced and serve as the basis of a derivative buyer or seller’s trading strategy. Broadly, investors trade derivatives to try to profit from the future price movements of underlying assets, or to hedge against risk with other assets they own.

What are different types of underlying assets?

The different types of underlying assets may include stocks, bonds, index funds (especially ETFs), global currencies, and commodities like gold and oil. These assets are generally chosen for their liquidity, volatility, and their role as the foundation for various derivatives trading strategies.

Are gold and silver considered underlying assets?

Yes, gold, silver, and other precious metals may serve as underlying assets in derivatives contracts. Precious metals are considered commodities, and derivatives are frequently based on these and other types of commodities, such as oil, gas, and agricultural products. Due to their historical volatility, commodities like gold and silver are often desirable for derivative traders, though these trades entail significant risk.

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SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

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For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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.
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.

SOIN-Q325-032

Nov

2025

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Guide to Liquid Certificates of Deposit (CDs)

By Paulina Likos | Family Finances, Investing, money | Comments Off

Table of Contents

What Is a Liquid Certificate of Deposit?
Understanding a Liquid CD
How Do You Withdraw Money From a Liquid CD?
Liquid CD: Real World Example
Pros of a Liquid CD
Cons of a Liquid CD
Alternatives to a Liquid CD
The Takeaway
FAQ

If you’re in search of a low-risk way to grow your money, a liquid certificate of deposit (CD) might be worth a closer look. A liquid CD gives you a fixed, guaranteed rate of interest for a specific term, but unlike standard CDs, you don’t pay a penalty if you withdraw the funds before the maturity date.

Granted, the returns you earn on a liquid CD may not compete with stock market investments, but knowing that your money is earning interest and likely won’t incur any losses can be powerful benefits.

🛈 SoFi does not currently offer certificates of deposit.

Key Points

• Liquid CDs allow for flexible withdrawals without penalties.

• They offer guaranteed, fixed interest rates, generally lower than traditional CDs.

• Liquid CDs are safe, insured investments up to $250,000.

• Withdrawal rules can vary, impacting flexibility.

• Earnings from liquid CDs are federally taxable.

What Is a Liquid Certificate of Deposit?

Before you think about investing in a CD, here’s a look at definitions:

• A certificate of deposit, or CD, is a savings vehicle that usually gives you a bit of interest with virtually no risk, provided you keep the money in place for a certain term. If, however, you withdraw funds before the CD matures (or reaches the end of its term), you are usually penalized. You will likely lose some or all of the interest earned and perhaps even a bit of the principal. In other words, are certificates of deposit liquid? Usually not.

• A liquid certificate of deposit, on the other hand, gives you flexibility. It allows the account holder to withdraw money from their account prior to the maturity date without incurring penalties. This means you can access funds in the CD should you need them without penalty. However, the rates for liquid CDs tend to be lower than other kinds of CDs.

Understanding a Liquid CD

You may wonder what liquid assets are. In the realm of finance, the concept of “liquid” means that an asset (like money in a checking or savings account) can quickly be converted to cash. A liquid CD is a time-bound deposit account where you can earn interest for a specific period of time. Compared to traditional CD’s however, liquid CDs typically will not charge you early withdrawal penalties. This means you can easily liquidate (turn into cash) your CD without taking a hit in terms of its value.

As noted above, there’s a “but” to this proposition, which you may hear referred to as no-penalty CDs: Liquid CDs typically pay less than traditional CDs. Depending on which financial institution you go to, these products can offer various terms, either as little as a few months or up to several years or longer. Your fixed interest rate will vary according to the length of the term you’ve chosen. Typically, the longer you hold your money in the liquid CD, the higher the rate of return.

What can be a big plus about CD rates is that they are locked in during the full term. This means even if interest rates decrease, your rate would not change. Some financial institutions may require a minimum deposit for these CDs, and they can be significantly higher than traditional CDs; some are at the $10,000 and up level. What’s more, the minimum deposit may go up if you are seeking a higher interest rate, while others don’t have a minimum deposit requirement at all.

How Do You Withdraw Money From a Liquid CD?

If you have decided that you need to withdraw from your liquid CD, here’s what usually happens:

• Check with your bank about how long it will take to process a withdrawal and whether you need to withdraw a certain percentage at a time. (Some banks may require you to close the account entirely.)

• When ready, notify your bank of your withdrawal.

• You will likely have to wait about a week after opening the liquid CD before you can start withdrawing.

• Wait for your funds. Withdrawal is likely not as quick as withdrawing funds from a checking or savings account; your financial institution might require anywhere from a week to a month to process the transaction.

Liquid CD: Real World Example

Once you have decided a no-penalty CD is right for you, you will need to go to a bank or credit union that offers this account. Once you’ve opened an account, you have to fund it.

How it grows will depend on the principal, your APY (annual percentage yield), and how often the CD compounds the interest, which could be, say, daily or monthly.

• If you invested $10,000 in a liquid CD with a three-year at a rate of 4.00%, at the end of the three-year period with interest compounded monthly, you will have a total balance of about $11,248.64.

Pros of a Liquid CD

When evaluating liquid CDs, it’s worthwhile to review the benefits of these accounts. Some of the key upsides are:

• Liquidity. You can access and withdraw your funds prior to the term’s end. Perhaps you’re having an emergency that requires cash, or you decide to move around your money to better meet your financial goals. It’s possible!

• No penalties. If you dip into the account before it matures, you won’t be assessed a fee.

• Security. Liquid CDs are safe investments. These accounts are federally insured up to $250,000 per depositor, per account ownership category, per insured institution by the FDIC or NCUA. You’ll know your money is protected when you open a liquid CD with a bank or credit union. Even in the very rare situation of a bank failure, you’re covered as noted.

• Guaranteed returns. When you start a liquid CD account, you usually know the interest rate upfront. It may not be stratospheric, but it’s a sure thing.

Cons of a Liquid CD

Now that we’ve explored the good things about a liquid CD, we need to give equal time to the potential downsides:

• Lower rate of return. The interest rates are significantly lower compared to certificate of deposit rates.

• Withdrawal rules. Yes, these accounts are more accessible, but after your deposit has been in place for a week, your withdrawal guidelines may be quite specific. For instance, you may have to remove all your funds if you want to make a withdrawal, or the amount might be limited to a certain percentage that doesn’t suit your needs. Check before starting a liquid CD investment.

• Tax implications. Earnings on your liquid CD will be taxed at your federal rate, which is something to keep in mind as that will take your return down a notch.

Recommended: How to Make Money From Home

Alternatives to a Liquid CD

If the idea of a liquid CD doesn’t sound like an appealing low-risk investment option, there are alternatives to also consider.

Traditional CDs

Traditional certificates of deposit require you to stow your money away for a certain period of time. In exchange, you receive a return at the end of that period. The catch is, you are not able to withdraw your funds during this holding period. If you have a financial emergency, for example, and need the money from your CD, you will receive penalties for withdrawing your cash before the period of maturity.

However, this might be a gamble you are willing to take, especially if you have a nice, healthy emergency fund set aside. You’ll earn a better rate of return than with a liquid CD.

Laddering

CD laddering usually involves opening CDs of different term lengths. This strategy allows you to invest long-term CDs which provide higher rates of return, while having the ability to access your funds through a shorter-term CD maturing.

Money Market Account

Another CD alternative is a money market account, which is similar to a savings account with some added benefits. Money market accounts typically require minimum balances and offer rates comparable to savings accounts, which can change over time. While the rates may be lower than a CD, money market accounts typically allow you to withdraw and transfer your money six times per month or more.

Emergency Fund

An emergency fund, or a rainy-day fund, is a savings account that should only be used in times of financial emergencies or unexpected expenses. Depending on your financial position, you can have an emergency fund in a regular savings account, money market account, CD, or liquid CD. It depends on how much you plan to access your emergency fund and how much interest you want to earn in the account.

High-Yield Savings Account

A high-yield savings account can offer a competitive rate of interest, depending on the financial institution offering it (online banks tend to pay more than traditional ones). And you’ll have more liquidity than a CD because you can deposit and withdraw from the account more frequently, though the specifics may vary with each bank. If you want easy access to your funds plus interest, a high-yield bank account may be a good option.

The Takeaway

Liquid CDs are a financial product that offers the safety and guaranteed return of a traditional CD with the bonus of not being penalized if you make an early withdrawal. For those who are comfortable locking their money into a CD but worry an emergency or other need might pop up, this accessibility can be very attractive. Worth noting: Expect lower interest rates from a liquid CD than a standard one. Alternatives to a liquid CD can include a high-yield savings account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Are CDs liquid investments?

Traditional CDs are not liquid investments. Funds held in a CD cannot be accessed until the account term is reached. If you need to withdraw money from your CD prior to its maturity date, you will have to pay a penalty. A liquid CD, however, offers flexibility to withdraw money from your account prior to its term date without the usual fees.

What is a non-penalty CD?

A non-penalty CD, also known as a liquid CD, is a time deposit that offers interest on your money. However, the rate is usually somewhat lower than the rate for a typical CD (the kind with penalties). The longer the term you choose for your liquid CD, the more you usually can earn.

How much is the penalty for early withdrawal from a CD?

Each financial institution has its own way of calculating this, but it usually involves losing some of all of the interest you have accrued. If you have a two-year traditional CD and withdraw funds early, the fee could vary considerably; it might equal two months’ or a year’s’ worth of interest. If you have a liquid or no-penalty CD, you will of course avoid these fees.

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SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOBNK-Q425-020

Oct

2025

The 7 Main Types of Cryptocurrency

By Rebecca Lake | Cryptocurrency, Growing Wealth, invest, Investing | No Comments

Table of Contents

Understanding the Cryptocurrency Landscape: More Than Just Bitcoin
Type 1: Proof-of-Work (PoW) Cryptocurrencies – The Originals
Type 2: Proof-of-Stake (PoS) Cryptocurrencies – The Evolution
Type 3: Utility Tokens – The Keys to a Network
Type 4: Stablecoins – The Price Stability Anchor
Type 5: DeFi Service Providers – The Future of Finance
Type 6: Privacy Coins – The Anonymous Transactions
Type 7: Meme Coins – The High Risk, High Reward Speculation
The Critical Impact of Tax Treatment
FAQ

When Bitcoin launched in 2009, it was the only digital currency of its kind. By 2011, though, new types of cryptocurrency began to emerge as competitors adopted the blockchain technology Bitcoin was built on to launch their own platforms and currencies. Suddenly, the race to create more crypto was on.

Read on to learn more about the seven main types of cryptocurrency, from proof-of-work to proof-of-stake cryptocurrencies, to utility tokens, stablecoins, and more.

Key Points

• Proof-of-work (PoW) and proof-of-stake (PoS) are two main consensus mechanisms for validating transactions and adding new blocks to a blockchain.

• Utility tokens grant holders access to specific functions, features, or services within a blockchain network.

• Stablecoins are digital tokens whose value is pegged to another asset, such as the U.S. dollar, to help maintain price stability.

• DeFi service providers offer decentralized financial services through blockchain-based frameworks, enabling direct peer-to-peer transactions.

• Meme coins are cryptocurrencies whose popularity is driven by trends and memes, often exhibiting high volatility.

🛈 While SoFi members will soon be able to buy, sell, and hold a selection of cryptocurrencies, such as Bitcoin and Ethereum, other cryptocurrencies mentioned may not be offered by SoFi.

Understanding the Cryptocurrency Landscape: More Than Just Bitcoin

Bitcoin (BTC) may be the most recognized cryptocurrency, but it is one of thousands. It’s difficult to pin down an exact number for how many cryptocurrencies exist, since new coins continue to be developed while others become obsolete.

By some counts, close to 37 million unique cryptocurrencies have been created over time, with more on the way.1 While cryptocurrencies have been largely unregulated for much of their history, that’s been changing in recent years. A regulatory framework has begun to take shape as the Securities and Exchange Commission (SEC), U.S. Congress, and other agencies in the U.S. and abroad have passed crypto-related regulations and laws.

What Is Cryptocurrency and Why Do Different Types Exist?

Cryptocurrency is a type of digital asset that’s created, validated, and exchanged through the blockchain, without the need for any type of central clearing intermediary. What this means is that cryptocurrencies operate on decentralized networks that may be transmitted without having to go through a third party.

Transactions are publicly viewable on the blockchain, but the identities of those exchanging cryptocurrencies are not transparent (though not always untraceable), adding to its appeal for some.

Why are there so many different types of cryptocurrency? Innovation, a push towards decentralized finance, and increased market interest all play a part.

Developers have created different types of cryptocurrencies largely to support and expand the capabilities of blockchain networks. Cryptocurrencies such as Bitcoin and Litecoin were developed to support peer-to-peer payments, for example, while others, such as Ethereum and Solana, were designed to support blockchain-based decentralized apps (dApps).

Utility tokens were developed to provide access to services or functionalities on a blockchain network — governance tokens, for instance, allow users to vote on decisions being made by a certain network.

Blockchain technology is also being actively explored in areas outside of finance, such as health care, supply chain management, real estate, and art.

The Fundamental Difference: Coins vs Tokens

Although some people use the terms crypto, coins, and tokens interchangeably, they’re not the same. To gain a basic understanding of cryptocurrency, it’s important to understand how these terms differ from one another.

Cryptocurrency may broadly refer to coins or tokens, but the two have different meanings:

• Coins: Crypto coins are native to their own blockchain network, and provide a means of exchange. They’re strings of computer code that can represent an asset, concept, or project — whether tangible, virtual, or digital — intended for various uses and with varying valuations. Examples include Bitcoin and Ethereum.

• Tokens: Tokens are programmable assets that are created on an existing blockchain network, and allow users to access certain services or features. They’re usually created and distributed through an initial coin offering (ICO), much like an initial public offering (IPO) for stock.

While crypto coins operate on their own independent blockchain and offer a broader medium of exchange for that network, tokens are built on top of an existing blockchain and have any number of uses, such as representing an asset — a stake in a precious metal, for example — or facilitating a transaction on the blockchain. Both could potentially be bought or sold through a crypto exchange.

Crypto coins are created, tracked, and verified by their native blockchain network and essentially power the blockchain by serving as payment for the transactions that create and secure new blocks. While crypto coins are fundamentally different from fiat currencies, like the dollar, euro, or yen — fiat money is tangible, and it’s governed by central authorities — they also have some similarities, since both are designed to be a medium of exchange and a unit of value.

Tokens, meanwhile, can be used as part of a software application, such as granting access to an app, verifying identity, or tracking products moving through a supply chain. They can represent units of value, too, including for real-world items, like real estate, points, or commodities. They can also represent digital art — as with non-fungible tokens (NFTs). There have even been experiments using NFTs to represent physical assets, such as real-life art and real estate.

Numerous crypto coins and tokens have been introduced at a rapid pace since Bitcoin was launched in 2009, and while this can drive innovation, it’s important to remember that cryptocurrencies come with high risk, as well, such as from scammers counterfeiting tokens or from the high level of volatility these assets experience.

Type 1: Proof-of-Work (PoW) Cryptocurrencies – The Originals

Proof-of-work is the original framework Bitcoin was built upon, and it represents the mechanism by which new blocks are added to the blockchain. In a proof-of-work system, “miners” compete to solve complex mathematical puzzles and earn cryptocurrency.3

What Is Proof-of-Work?

Proof-of-work is a consensus mechanism, which is a standard that governs how cryptocurrency transactions are validated and information is added to a blockchain network. It allows crypto miners to compete for an opportunity to add a block to the blockchain, and receive a reward for their efforts.

With proof-of-work, crypto miners use powerful computer systems to race to solve an encryption puzzle. The winner creates a new block that contains transaction information, which is verified by the entire blockchain network as it’s added to the chain.

The rewards earned by winning miners are typically a certain number of newly minted coins, though that number varies between cryptocurrencies.

Examples of PoW Coins

Proof-of-work coins are represented by some of the most well-known types of cryptocurrency. Some of the most popular PoW coins by market cap include:

• Bitcoin (BTC)

• Dogecoin (DOGE)

• Bitcoin Cash (BCH)

• Litecoin (LTC)

• Ethereum Classic (ETC)

Bitcoin is the largest PoW coin by market cap, with $2.34 trillion worth of coins in circulation. As of August 2025, there were just over 19 million Bitcoins being held or exchanged, out of a total distribution cap of 21 million. The last Bitcoin is expected to be mined sometime in 2140.5,6

Type 2: Proof-of-Stake (PoS) Cryptocurrencies – The Evolution

Proof-of-stake cryptocurrencies were developed as an alternative to proof-of-work coins, which are viewed as having scalability limitations given the vast amounts of power required to mine them. A proof-of-stake system relies on crypto staking, rather than mining, but it serves a similar function.

What Is Proof-of-Stake?

Proof-of-stake is a consensus mechanism that’s used to reward participants who validate transactions that are added to the blockchain.

Here’s how it works:

• Stakers agree to lock away some of their cryptocurrency on a blockchain network through a process called staking.

• The blockchain network can use the holdings to create a new block and validate transactions.

• The staker with the largest “stake” has a higher probability of being chosen to validate transactions.

• Validated transactions earn the staker a reward; stakers who violate protocols, however, could face a penalty.

Proof-of-stake is considered by some to be an upgrade from proof-of-work. It requires much less computing power, reducing strain on the energy grid, and it also allows stakers an opportunity to potentially earn passive income while holding cryptocurrency. That said, stakers face the risk that their coins could lose value while they’re locked up for staking.

Examples of PoS Coins

Compared to Bitcoin, proof-of-stake coins claim a smaller share of the market. However, the numbers are growing, and these coins represent some of the biggest movers in terms of market cap:

• Ethereum (ETH)

• Solana (SOL)

• Cardano (ADA)

• Toncoin (TON)

• Algorand (ALGO)

Ethereum has the largest market cap overall of these, at $430.88 billion, as of August 2025. This coin has seen a 911% increase in the last five years.

Type 3: Utility Tokens – The Keys to a Network

Utility tokens, or user tokens, are a type of cryptocurrency that serves a specific purpose inside a decentralized network. They’re built on an existing blockchain and grant their holders access to distinct functions, features, or services.

What Are Utility Tokens?

A utility token is a digital asset that grants holders access to a certain product or service for a given cryptocurrency. They’re typically developed using smart contracts and may be programmed for a range of uses, such as to access storage space or to bring external data onto a blockchain network. Or, as with a governance token, they may give holders the option to vote on changes to a blockchain network.

More broadly, utility tokens can help encourage participation in and support of the crypto ecosystem they were designed for. They may serve as a loyalty bonus, for example, provide access to exclusive features, or other incentives for interacting with the network, all of which may help foster the growth of that crypto community.

Unlike other types of tokens that may confer a stake in an asset or a physical entity, utility tokens serve primarily as a key to various features offered by a cryptocurrency.

Examples of Utility Tokens

Utility tokens are designed with specific use-cases in mind. Their value is typically measured more in terms of what they allow you to do, versus what value they represent.

Here are some examples of utility tokens:

• Ether (ETH): Ether is the native token of Ethereum, which is the second-largest blockchain network. Ether is used to pay the Ethereum “gas fee” required to process transactions on the blockchain. Given its reach, however, it’s sometimes seen as a currency (having a store of value) in its own right.

• Chainlink (LINK): Chainlink is a decentralized oracle network that acts as a bridge between smart contracts and real-world data. Tokens are used to pay for data services and incentivize the production of accurate data feeds.

• Basic Attention Token (BAT): BAT is an Ethereum-based token that’s used within the Brave browser ecosystem. Browser users earn tokens by opting into ads; they can use their tokens to unlock premium content.

• Golem (GLM): Golem is a decentralized supercomputer that lets users rent their computing power to others. Tokens are used to pay for services through the platform.
9,10

• The Sandbox (SAND): SAND is the utility token for the community-driven blockchain gaming platform, The Sandbox. Players can earn SAND and use it to purchase virtual assets, access exclusive interactions, and take part in governance, among other things.

Type 4: Stablecoins – The Price Stability Anchor

Stablecoins are digital assets whose value is tied or “pegged” to another asset. Of the $250 billion in stablecoins currently in circulation, 99% of them are pegged to the U.S. dollar. Stablecoins are an alternative to Bitcoin and other cryptocurrencies whose value may fluctuate widely due to changes in supply and demand, or market sentiment.11

What Are Stablecoins?

Stablecoins are cryptocurrencies that are stored on the blockchain, but whose value is tied to an underlying currency or commodity. For example, stablecoins may be pegged to the U.S. dollar, the Euro, or gold. Because they’re tied to underlying assets, stablecoins can be redeemed for those assets.^[1]

Stablecoins are designed with the goal of maintaining a stable price relative to the asset they’re pegged to, and in comparison to the high price volatility of cryptocurrencies in general. That said, stablecoin stability may depend on a number of factors, such as the stablecoin’s level of liquidity, market volatility, and transparency around reserves.

The regulatory landscape for stablecoins is quickly evolving, such as with the recent passing of the 2025 Genius Act, which provides oversight for issuers of payment stablecoins and rules focused on consumer protection.^[2] The European Union’s Markets in Crypto-Assets (MiCA) regulation also went into effect in 2025. Under MiCA, stablecoins issuers are regulated like financial institutions and must meet certain EU reserve requirements. Some stablecoins are choosing not to seek EU compliance, however, such as Tether (USDT), which keeps much of its reserves in U.S. Treasurys.^[3]

As the industry shifts, there are still risks to be aware of, such as a stablecoin losing its peg value, technology or operational risks, or the potential for scams or fraud.

Common uses for stablecoins include:

• Paying for goods and services

• Making cross-border payments

• Offering potential protection against price instability in cryptocurrency markets

Crypto users may use stablecoins to buy other cryptocurrencies in lieu of cash, and more payment processors are allowing the use of these coins to pay for transactions online.

Examples of Stablecoins

Stablecoins represent a growing share of the total cryptocurrency market. Some of the most well-known stablecoins by market cap include:

• Tether (USDT)

• USDC (USDC)

• USDS (USDS)

• Dai (DAI)

• PayPal USD (PYUSD)

The total market cap of stablecoins was $268.27 billion as of August 2025. With a few exceptions, stablecoins have a relatively low price point compared to other types of cryptocurrency.

Type 5: DeFi Service Providers – The Future of Finance

DeFi service providers represent a subset of the cryptocurrency landscape. They operate on decentralized, blockchain-based frameworks in order to offer services that allow individuals to conduct transactions directly. For example, a DeFi coin is similar to a physical coin in that it transfers value, but it does so without going through a central intermediary.

What Is Decentralized Finance (DeFi)?

Decentralized finance, or DeFi, describes financial services that are executed through the blockchain. By allowing for direct, peer-to-peer transactions, DeFi advocates note that it could help reduce barriers to entry for those who traditionally have a harder time accessing financial services, and allow for potentially faster, cheaper transactions.

Some of the top providers building out the decentralized finance landscape are developing decentralized peer-to-peer exchanges, borrowing and lending protocols, data services through decentralized oral networks (DONs), and stablecoins, which may help provide a bridge between blockchain systems and traditional assets.

Most, though not all, DeFi protocols and applications are built on Ethereum. DeFi tokens can be used to access services and goods through decentralized apps. Though DeFi tokens represent a smaller share of the cryptocurrency market, their popularity is growing.

DeFi, of course, is in its early stages, and while the blockchain technology itself helps to safeguard information, the other apps, systems, and entities that interact with the network could pose risks. It’s important to be cautious when considering options, especially as crypto regulations continue to develop.

Examples of DeFi Tokens

Here are some of the largest DeFi tokens by market cap:

• Stellar (XLM)

• Hyperliquid (HYPE)

• Uniswap (UNI)

• Polkadot (DOT)

• Aave (AAVE)

The total DeFi token market was valued at $111.94 billion as of August 2025. It’s essential to distinguish between DeFi tokens and DeFi coins. The difference, again, between tokens and coins is how they relate to the blockchain.

Type 6: Privacy Coins – The Anonymous Transactions

Privacy coins offer anonymity by obscuring certain details about their users. These coins can be sent and received anonymously, without disclosing the location of the parties involved in the transaction.

What Are Privacy Coins?

Privacy coins enable the secure transfer of cryptocurrency without revealing either its origin or destination. This is a key departure from the more public nature of transactions conducted on the blockchain. Public blockchains were designed with the idea that information be transparent and immutable, allowing participants to view and validate the data. With Bitcoin, for example, Bitcoin users can access transaction data (though not identity information) through public Bitcoin addresses used to make payments.

A privacy coin blocks certain information from view through the use of different strategies, including:

• Protocols that generate stealth addresses

• Mixing of transactions to make the routing of coins more difficult to trace

• Tools that allow for the validation of transactions without requiring the disclosure of any identifying information

Privacy coins aren’t accessible in every country or crypto market. Some countries have banned them outright, while others have taken steps to remove some of the secrecy surrounding them.15
For example, recent anti-money laundering regulations passed by the European Union will, starting in 2027, ban financial and credit institutions as well as crypto-asset service providers from managing cryptocurrencies that offer anonymous accounts.

Examples of Privacy Coins

The market for privacy coins is smaller than other types of cryptocurrencies, and your ability to buy them may depend on where you live. Examples of popular privacy coins include:

• Monero (XMR)

• Zcash (ZEC)

• Beldex (BDX)

• Decred (DCR)

• Dash (DASH)

As of August 2025, the privacy coin market was valued at $7.16 billion. A glance at pricing charts shows that privacy coins have the potential to be exceptionally volatile.

Type 7: Meme Coins – The High Risk, High Reward Speculation

Meme coins are a type of cryptocurrency whose popularity is driven by memes or trends.

What Are Meme Coins?

Meme coins are coins that gain attention because they align with a trend or newsworthy event. Any coin can become a meme coin if someone or something pushes it into the spotlight. Some of the most popular meme coins can develop cult-like followings, which can help drive demand.

Compared to other types of cryptocurrency, meme coins tend to be more volatile because their value is often tied to their popularity. A coin that’s hot today may not be tomorrow, and its value could quickly fizzle if the trend dies down, or the meme that the coin is associated with loses popularity.

Examples of Meme Coins

Meme coins can sometimes be some of the most recognizable cryptocurrencies if they grab the attention of the broader population. Examples of popular meme coins include:

• Dogecoin (DOGE)

• Shiba Inu (SHIB)

• Pepe (PEPE)

• Pudgy Penguins (PENGU)

• Bonk (BONK)

Meme coins often have lower prices than other cryptocurrencies. As of August 2025, meme coins had a market cap of $76.2 billion.

The Critical Impact of Tax Treatment

The IRS treats cryptocurrency and other digital assets as property, meaning that any gains you generate from them are taxable. If you have digital asset transactions during the year, you’re required to report them on your tax return.

The sale of digital assets, including cryptocurrency, can trigger capital gains if you sell at a profit, or capital losses if you sell for less than the original purchase price. Selling off crypto assets after seeing huge gains in value could significantly increase your tax liability for the year.

You can offset gains with losses through a process known as tax loss harvesting. That can reduce what you owe in federal taxes for the current year.

Income earned through cryptocurrency activities, such as from mining rewards, is considered ordinary income. Depending on your circumstances, the tax rules applying to your digital assets could get complicated. You may want to talk to a certified public accountant (CPA) or another tax professional about how crypto assets could affect your overall tax picture.^[4]

The Takeaway

Cryptocurrencies are all digital assets built upon a distributed network and, likewise, upon the principle of decentralization. It’s important to remember, however, that there are several types of cryptocurrencies, and each one — be it proof-of-work, proof-of-stake, stablecoins, DeFi, or utility tokens — has myriad options within it.

Different cryptocurrencies have different goals, functionalities, markets, and prospects. By the same measure, cryptocurrencies are also not created equally in terms of risk, both in their own right, and in terms of how they may align with your financial goals. Understanding the different types of cryptocurrencies can help you better understand the role they may play in crypto markets and potentially in your portfolio.

Soon, SoFi members will be able to buy, sell, and hold cryptocurrencies, such as Bitcoin, Ethereum, and more, and manage them all seamlessly alongside their other finances. This, however, is just the first of an expanding list of crypto services SoFi aims to provide, giving members more control and more ways to manage their money.

Join the waitlist now, and be the first to know when crypto is available.

FAQ

How many types of cryptocurrencies are there?

Broadly speaking, cryptocurrencies can be grouped into coins and tokens. Beyond those two main types, there are millions of different types of crypto being exchanged, with new currencies entering the market regularly.

What is the most common type of cryptocurrency?

Bitcoin is likely the most common type of cryptocurrency, or at least the one people are most familiar with. It’s also the crypto asset that holds the lion’s share of market capitalization. As the first blockchain coin, Bitcoin opened the door for the introduction of other cryptocurrencies, including Ethereum and Litecoin.

What is the difference between a coin and a token?

The main difference between a coin and a token is their relationship to the blockchain. Coins are the native digital currency of their blockchain, while tokens sit on top of an existing blockchain. Tokens are often associated with digital currencies, but they can also represent other digital assets, like NFTs, or something intangible, like voting rights.

Are NFTs a type of cryptocurrency?

NFTs or non-fungible tokens are not a type of cryptocurrency, but they share space with crypto on the blockchain. An NFT represents ownership of a unique digital or physical asset, such as a drawing, image, or piece of artwork.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Article Sources

U.S. Securities and Exchange Commission. Statement on Stablecoins.
Congress.gov. S.1582 – GENIUS Act.
World Economic Forum. The GENIUS Act is designed to regulate stablecoins in the US, but how will it work?.
Intuit Turbotax. Your Crypto Tax Guide.

CRYPTOCURRENCY AND OTHER DIGITAL ASSETS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Cryptocurrency and other digital assets are highly speculative, involve significant risk, and may result in the complete loss of value. Cryptocurrency and other digital assets are not deposits, are not insured by the FDIC or SIPC, are not bank guaranteed, and may lose value.

All cryptocurrency transactions, once submitted to the blockchain, are final and irreversible. SoFi is not responsible for any failure or delay in processing a transaction resulting from factors beyond its reasonable control, including blockchain network congestion, protocol or network operations, or incorrect address information. Availability of specific digital assets, features, and services is subject to change and may be limited by applicable law and regulation.

SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. SoFi Bank does not provide investment, tax, or legal advice. Please refer to the SoFi Crypto account agreement for additional terms and conditions.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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SOCRYP-Q325-047

Oct

2025

5 Popular Investing Trends to Watch in 2025

By Michael Flannelly | Growing Wealth, Investing | Comments Off

Table of Contents

Investor Sentiment in 2025: A Shift in Strategy
1. The Rapid Advance of Artificial Intelligence
2. A Renewed Focus on Alternative Investments
3. The Implications of Greater Longevity
4. New Approaches to Portfolio Risk Management
5. Navigating a Shifting Real Estate Market
How to Approach These Investing Trends
FAQ

Due to advances in artificial intelligence (AI) technology, as well as significant economic shifts and demographic changes, there are five top investing trends to know about in 2025.

These include the proliferation of AI and digital infrastructure; the impact of longevity on health care and other sectors; a continued interest in alternative assets; the importance of risk management; and renewed signs of life in the real estate sector.

As the 2025 SoFi Investor survey reveals, investors may or may not follow these specific trends, but respondents seem optimistic about investing overall, and interested in developing aspects of their own long-term strategies.

Key Points

• Five top investing trends for 2025 include AI, longevity-related industries, alternative assets, risk management, and real estate.

• Despite geopolitical turmoil, investors surveyed for the 2025 SoFi Investor Survey show optimism and a willingness to adapt their strategies.

• The rapid advancement of AI presents opportunities and challenges, with AI funds reaching record highs but also raising concerns about volatility.

• Alternative investments are gaining renewed focus among investors due to their potential for diversification and higher returns, despite being higher risk.

• Investment trends are not guarantees of seeing a profit. Investors must research trends and consider them in light of their own financial goals and risk tolerance.

Investor Sentiment in 2025: A Shift in Strategy

In the last few years, investors have faced geopolitical turmoil, higher-than-average inflation and interest rates — and more recently, global trade and tariff issues. Nonetheless, the investors who responded to the 2025 SoFi Investor survey revealed a sense of optimism, and an ability to manage stress in light of these volatile times.

Investor Confidence

Of the 1,000 individuals surveyed, over two-thirds (68%) plan to expand or shift their investing strategies in the coming months, and 65% feel optimistic or content about their strategies — both signals of investor confidence.

In a similar spirit, although inflation has been at historic highs, only 19% of investors said they were investing less in their portfolios — and 82% either wanted to invest more or maintain their holdings.

And a striking 40% said they didn’t experience stress in relation to market ups and downs.

Following are some of the leading investment trends that investors may be watching as 2025 draws to a close and 2026 comes into focus.

1. The Rapid Advance of Artificial Intelligence

As artificial intelligence technology has continued to skyrocket, the impact of these innovations and the widespread adoption of AI across industries has presented opportunities for investors, as well as challenges.

While global assets in AI funds reached a record $5.5 billion in Q2 of 2025, according to Morningstar, this rapid growth has also been met with concerns about capacity, energy needs, and the possibility of a bubble.

Nonetheless, AI has a strong appeal for investors, owing to its potential for growth. Investors must also consider the volatility in this industry, as well. This may be one reason investors seem to favor U.S. AI-focused ETFs than, say, stocks, according to Morningstar — given that AI ETFs may provide greater diversification as well as access to thematic investing.

2. A Renewed Focus on Alternative Investments

Investors were pursuing alternative assets at a record pace throughout 2024 and into early 2025, according to Morningstar. This trend is echoed by the sentiment reflected in the SoFi Investor Survey, where some 47% of respondents said that they invest in alternatives.

The Accessibility of Alts

Alternatives tend not to be correlated with traditional assets like stocks and bonds, and as such they can offer some portfolio diversification. Alternative assets were once restricted to qualified investors, but are increasingly available to ordinary investors through certain types of ETFs and other instruments.

Examples of alternative investments include tangible assets like real estate and commodities, as well as collectibles like art and antiques.

But alternative assets may also refer to the use of specific strategies: e.g., hedge funds, derivatives, and venture capital, as well as private market investments.

These assets may deliver higher returns when compared with conventional assets, but they are considered higher risk, owing to the lack of transparency, lower levels of regulation, lack of liquidity, and other risk factors investors may want to consider.

3. The Implications of Greater Longevity

People are living longer, with adults over age 65 projected to reach nearly a quarter (23%) of the U.S. population in the coming 30 years, according to the Pew Research Center. The result of this increased longevity has been a steady expansion of the science, technology, and business of living longer — with some estimates putting the global longevity market at $600 billion by the end of 2025.

While many investors are aware of advances in health care and medicine, the longevity market has expanded to include consumer goods, travel, computer and mobile technologies, caregiving services, housing developments, and more. Investing in longevity has obvious societal benefits, many of which may enable people to live longer as well as healthier and more rewarding lives.

That said, for all its focus on aging, the longevity sector itself is young — and from an investing perspective, it may be difficult to predict the winners and losers in the years to come. Nonetheless, this is a trend that’s unlikely to reverse, and investors may want to keep an eye on the opportunities emerging here.

Recommended: Investing in Commodities

4. New Approaches to Portfolio Risk Management

In the face of market swings, the majority of investors surveyed by SoFi (73%) chose to hold onto their assets rather than sell. This focus on staying the course is an important component of overall portfolio risk management, especially in light of ongoing volatility in many sectors.

Some tried-and-true strategies for managing portfolio risk factors include diversification, using dollar-cost averaging, and lowering overall portfolio volatility by rebalancing and similar approaches.

It’s also possible to gain a deeper understanding of one’s actual risk tolerance by seeking out a professional portfolio risk analysis, which can stress-test the holdings in your portfolio, and may provide insights about ways to adjust your investments.

5. Navigating a Shifting Real Estate Market

The real estate market will continue to be an area of focus for investors and potential homebuyers in 2025 and into 2026, largely owing to pent up demand while interest rates were high.

If interest rates continue to decrease as anticipated, the real estate and home building markets may see renewed growth — although the ongoing impact of tariffs on sector supplies such lumber, appliances, metals, and other goods could be significant.

As the SoFi Investor Survey revealed, some investors are intrigued by real estate opportunities, with 15% saying they have real estate investments, and 11% specifically invested in real estate investment trusts (REITs).

Recommended: Pros & Cons of Investing in REITs

How to Approach These Investing Trends

As noted above, investing trends are not a guarantee of success; they’re simply broader market movements that a wider swath of investors may be participating in at the moment. But as with trends in fashion or music or politics, investors must decide for themselves whether an investment trend is worth considering.

Do Your Own Research

One important way to evaluate investment trends is by doing your own research. Basic reading helps to keep investors informed about relevant news and industry factors that could impact a trend.

It’s also wise to compare a current trend in light of a company’s or fund’s actual performance and fundamentals. Some investments are poised to benefit from a trend, whereas others are not.

Align Trends With Your Long-Term Goals and Risk Tolerance

Above all, investing in a certain trend only makes sense when it aligns with your overall goals, your financial circumstances, and your risk tolerance.

By their very nature, trends are not necessarily going to last. There may be short-term opportunities investors can consider, or a trend may evolve in such a way that an investor may find it worthwhile to stick with it. That will depend on the trend and on the individual.

The Takeaway

Putting hard-earned dollars into any investment — whether it’s trendy or traditional — requires careful thought and due diligence. 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.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

How can I add AI exposure to my portfolio?

There are many ways to invest in artificial intelligence, including individual stocks as well as ETFs. Investors may also want to consider the range of industries involved in AI and/or using this technology, from big data analysis to large language models to sectors such as media and healthcare, which are integrating AI technology.

What are the risks of investing in trends?

Trends can be higher risk in many cases, simply because most trends are driven by investor emotion, not company financials.

How are investors coping with market stress?

According to the SoFi Investor Survey, while 40% of investors say the markets don’t stress them out, others have multiple coping strategies, including talking to their broker, doing market research, and not checking their account balances.

Photo credit: iStock/MicroStockHub

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Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
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Dollar Cost Averaging (DCA)
Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOIN-Q325-053

In the Money vs Out of the Money Options: Main Differences

What Does “In the Money” Mean?

Example of In the Money

What Does “Out of the Money” Mean?

Example of Out of the Money

What’s the Difference Between In the Money and Out of the Money?

Should I Buy ITM or OTM Options?

The Takeaway

Frequently Asked Questions

What is the difference between in the money and out of the money?

What is the difference between ITM and OTM options?

What is the difference between an out-of-the-money and in-the-money put?

How can you tell if an option is in or out of the money?

What are Underlying Assets?

What Is an Underlying Asset?

How Underlying Assets Work

Example of an Underlying Asset in Play

5 Different Types of Underlying Assets

1. Stocks

2. Bonds and Fixed Income Instruments

3. Index Funds

4. Currencies

5. Commodities

The Takeaway

FAQ

What are underlying assets?

What are different types of underlying assets?

Are gold and silver considered underlying assets?

Guide to Liquid Certificates of Deposit (CDs)

What Is a Liquid Certificate of Deposit?

Understanding a Liquid CD

How Do You Withdraw Money From a Liquid CD?

Liquid CD: Real World Example

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Pros of a Liquid CD

Cons of a Liquid CD

Alternatives to a Liquid CD

Traditional CDs

Laddering

Money Market Account

Emergency Fund

High-Yield Savings Account

The Takeaway

FAQ

Are CDs liquid investments?

What is a non-penalty CD?

How much is the penalty for early withdrawal from a CD?

The 7 Main Types of Cryptocurrency

Understanding the Cryptocurrency Landscape: More Than Just Bitcoin

What Is Cryptocurrency and Why Do Different Types Exist?

Crypto is coming back to SoFi.

The new crypto experience is coming soon— seamless, and easy to manage alongside the rest of your finances, right in the SoFi app. Sign up for the waitlist today.

The Fundamental Difference: Coins vs Tokens

Type 1: Proof-of-Work (PoW) Cryptocurrencies – The Originals

What Is Proof-of-Work?

Examples of PoW Coins

Type 2: Proof-of-Stake (PoS) Cryptocurrencies – The Evolution

What Is Proof-of-Stake?

Examples of PoS Coins

Type 3: Utility Tokens – The Keys to a Network

What Are Utility Tokens?

Examples of Utility Tokens

Type 4: Stablecoins – The Price Stability Anchor

What Are Stablecoins?

Examples of Stablecoins

Type 5: DeFi Service Providers – The Future of Finance

What Is Decentralized Finance (DeFi)?

Examples of DeFi Tokens

Type 6: Privacy Coins – The Anonymous Transactions

What Are Privacy Coins?

Examples of Privacy Coins

Type 7: Meme Coins – The High Risk, High Reward Speculation

What Are Meme Coins?

Examples of Meme Coins

The Critical Impact of Tax Treatment

The Takeaway

FAQ

How many types of cryptocurrencies are there?

What is the most common type of cryptocurrency?

What is the difference between a coin and a token?

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with a limited-time APY boost.*

Crypto is coming
back to SoFi.

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