How to Create, Buy, and Sell NFTs: Easy Guide

How to Create, Buy, and Sell NFTs: Easy Guide

While NFTs have been around since the launch of Bitcoin in 2009, the market has only recently taken off. Non-fungible tokens (NFT) have become one of the biggest crypto crazes of 2020 and 2021. NFT sales totaled $95 million in 2020, and in just the first half of 2021 sales reached nearly $2.5 billion.

Digital artist Mike Winkelman, known as Beeple, recently sold an NFT for $69 million, and soccer great Lionel Messi recently launched his own NFT collection. But you don’t have to be famous to create or trade NFTs. Read on to learn more about the NFT market, and how you can use these digital assets.

NFTs 101

NFTs are collectible crypto assets, intended to represent a unique digital item that can be bought, sold, or traded.

The term “fungible” refers to something that can be interchanged for something else just like it. A dollar bill, for example, is fungible because all dollar bills are more or less the same. Non-fungible tokens, then, are digital items that cannot be duplicated, such as:

• Artwork

• Music

• Collectibles, like trading cards

• Items within video games like skins, weapons, or avatars

• Virtual land

The possibilities are almost endless. Individuals can now create something digital, put a unique stamp on it within the blockchain network, and sell it to someone without needing a third-party intermediary like an art broker or pawn shop.

Recommended: Crypto Tokens vs. Coins: What is the Difference?

How to Buy NFT Tokens

In some ways, trading NFT tokens is similar to trading other kinds of crypto. Before learning how to buy NFT tokens, there are a few things worth considering, such as:

• What marketplace do you intend to use?

• Which cryptocurrency will be needed to fund your crypto wallet and make the purchase?

• Are the NFTs you’d like to buy only available at a certain time?

Some NFTs are only available on certain platforms. Someone who wants to buy an NBA Top Shot pack of virtual trading cards, for example, must open an account with NBA Top Shot and create a Dapper wallet.

The buyer will then fund their wallet with either the USDC stablecoin or any number of supported fiat currency options. After that, a buyer will have to wait for a card pack drop and buy a pack before they sell out.

NFT drops have become a popular method of selling NFTs to eager buyers. Drops like these often require users to sign up and have their accounts funded prior to the drop so they don’t miss their chance to buy once the NFTs drop.

Drops can sell out in a matter of seconds, so being ready ahead of time can be crucial. Of course, there are other NFTs and NFT platforms that don’t utilize drops. The main things to keep in mind when pondering the question “how to buy NFT tokens” are what wallet to use, which cryptocurrency you’ll use, and what platform to use.

How to Create NFT Art

What about those who are uninterested in learning how to buy NFT tokens and instead want to create their own? Creating a piece of NFT artwork is fairly straightforward and does not require in-depth knowledge of the crypto industry.

Before beginning, a creator will have to figure out which blockchain on which they want to issue their NFTs. Ethereum is the most popular blockchain service for this purpose at this time, but a variety of other blockchains are gaining in popularity, such as:

Cosmos (ATOM)

• Tezos

• Polkadot

Tron (TRX)

• Flow by Dapper Labs

Binance Smart Chain

Each blockchain comes with its own unique NFT token standard, marketplaces, and wallet services. If someone were to create NFT tokens on Binance Smart Chain, for example, traders can only use those NFTs on platforms that support Binance Smart Chain assets. So, they couldn’t sell them on an NFT marketplace like OpenSea which is based on Ethereum.

Since Ethereum is the most commonly used NFT ecosystem, let’s look at what’s needed to mint a new NFT on the Ethereum blockchain. First, an NFT creator would need an Ethereum wallet that supports ERC-721, Ethereum’s NFT token standard. Some wallets that qualify include Coinbase Wallet, MetaMask, Trust Wallet, Enjin, and D’Cent.

An NFT creator will also need about $50 – $100 worth of Ether (ETH) tokens. Those using the Coinbase wallet can buy ETH from Coinbase with US dollars or another fiat currency. Other users will have to purchase ETH from a crypto exchange and send it to the wallet they set up in the previous step.

How to Create NFT Art: Using a Marketplace

After creating a wallet and funding it with ETH, it’s time to choose a platform. A variety of NFT-focused platforms allow users to connect their wallets and upload the images or files that they’d like to turn into NFTs.

Some popular NFT marketplaces on Ethereum include:

• Mintable

• Rarible

• OpenSea

These three marketplaces all have a “create” button located in the upper-right corner. Let’s look at how things work in OpenSea.

Clicking “create” takes you to a screen that asks to connect to your Ethereum-based wallet. After entering the wallet password as requested, the wallet will connect with the marketplace. You might have to sign a message in their Ethereum wallet to prove they own it.

Next, you would hover over the “create” button and select “my collections.” Then you would click the blue “create” button. A window will pop up that lets you upload the image or file you want to turn into an NFT. Add your name, and write a description. Basically, you’re creating a folder where you can place the NFTs you create.

After assigning an image for the collection, it will appear on the left-hand side of the screen. Then you’ll have to add a banner image by selecting the pencil icon on the top right.

At this point, you can start creating NFTs. Click on “Add New Item” and sign a message with your wallet. You’ll then arrive at a new window where you can upload the item you want to turn into an NFT, whether It be audio, an image, or a GIF.

On OpenSea and similar platforms, users can also add special attributes to make their NFTs more unique. You can also add special content that can only be opened by the buyer. This could include things like discount codes or passwords that let buyers access particular services.

After finishing, clicking “create” at the bottom of the page and signing another wallet message will confirm that you have created your NFT. The token will then show up in your collection.

How to Sell NFTs

Once you’ve purchased an NFT, you’ll need to decide whether you want to HODL it, or sell it. To sell an NFT, you must list the token on a marketplace. To do this, click on the NFT in your collection that you’d like to sell and locate the “sell” button. Clicking on “sell” will bring up a pricing page, allowing you to set the terms of the sale. You can choose either a fixed price or an auction sale.

NFTs typically sell for ETH or ERC-20 tokens. Some platforms only let you sell for the native token of their blockchain, however.

NFT creators can also earn royalties for their artwork each time someone sells their tokens to a new person. In OpenSea, you set this up by clicking the “edit” button and making use of the option to program royalties into an NFT. You would receive royalties through a variety of ERC-20 tokens. Once they’ve selected that option, creators earn royalties automatically through smart contracts.

The Takeaway

Overall, it’s not that hard to learn how to buy NFT tokens or to create and sell them. Developers have created graphic user interfaces that make the process as painless as possible. Of course, having previous experience with using cryptocurrency wallets will be a big help.

If you’re ready to start trading crypto, but not quite up for buying and selling NFTs, a great way to get started is by opening an account on the SoFi Invest Brokerage Platform. You can use the platform to trade Bitcoin, Ethereum, Dogecoin and other cryptocurrencies directly from your phone.

Photo credit: iStock/asbe


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.
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.
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What Is After-Hours Trading?

After-hour trading is stock trading that occurs after the normal close of the trading session. Ordinarily, stock trading begins at 9:30 a.m. ET and ends at 4 p.m. ET, Monday through Friday.

The after-hours trading period begins where the regular trading day leaves off. Trading after hours may appeal to investors who have limited time to trade during the day or want to take advantage of overnight market movements.

If you’re new to trading stocks or even if you know some of the investing basics, aftermarket trading can still be a confusing concept to understand. Understanding what happens with the stock market after hours can help answer those questions.

Market Hours Schedule

Stock exchanges operate on a regular schedule during which investors can buy and sell securities. The New York Stock Exchange and NASDAQ are open between 9:30 a.m. and 4 p.m. Eastern time. Most trading occurs during these normal business hours. Bond markets typically trade between 8 a.m and 5 p.m. Foreign exchanges typically have workday hours depending on their time zone.

After-hours trading does not follow this schedule.

How Does After-Hours Trading Work?

After-hours trading is pretty much what it sounds like: buying and selling stocks after the market has officially closed. After-hours trading lasts four hours, from 4 to 8 p.m. eastern time on weekdays.

In the past, after-hours trading wasn’t possible for retail investors, since institutional investors were the only ones who had methods of trading without being physically on the floor of the exchange. But increasingly, trades began taking place electronically, and more investors from around the globe were buying US stocks.

In response, in the early 1990s, the two main American stock exchanges opened up to after-hours trading. Anyone can engage in after-hours trading—you don’t need a special status or to be a licensed broker. However, the ins and outs of how to trade after-hours can vary. Some brokerages may not allow you to buy or sell stock during this period or only permit it during narrower windows of time.

Recommended: How to Trade Stocks Online

They may also have specific rules about what kinds of trading activities you can engage in outside of regular hours. You typically cannot trade stock options after hours, for example.

Pre-Market Trading

Pre-Market trading occurs from 4 to 9:30 a.m. eastern time on weekdaysTogether, after-hours trading and pre-market trading are sometimes called “extended-hours trading.”

Some online brokerages are taking after hour trading a step further and offering 24/7 trading. This allows investors to make trades during the gap between after hours trading and premarket trading. The advantage of 24/7 trading is that investors are not bound by the regular market hours schedule for making trades.

Potential Advantages of After-Hours Trading

Convenience

One of the benefits of trading later in the day is convenience. If you’re busy with other pursuits during business hours or live in a different time zone, this might be a more optimal time for you to buy and sell stocks.

Leveraging New Information

Another potential advantage is the opportunity to take action based on new information, such as a company’s earnings report or a major news event, without having to wait for the market to reopen. This can allow you to take advantage of opportunities ahead of other investors by entering a market-on-open order. This allows you to make a trade as soon as the market opens for regular trading hours.

Potential for Cheaper Prices

Finally, buyers can sometimes snag cheaper prices for individual stocks or exchange-traded funds after-hours. This may reflect lower competition, since fewer people are trading, but it’s far from a guarantee that you’ll get better prices.

Cons of After-Hours Trading

Buying and selling stocks outside of regular trading hours comes with some risks and disadvantages.

Fewer Transactions Happen After-Hours

First, there are many fewer transactions happening after-hours than while the stock market is open.

Since there aren’t as many people out there buying and selling stocks, it can be hard to find someone who wants to trade at the price you have in mind. Likewise, it can be hard to actually get a hold of a stock you want when there is a lower volume being traded. If there is no counterparty available for a trade you want, the trade will either get canceled or held until the next market open.

Prices Are More Volatile

Another drawback is that prices are more volatile after-hours. Although it’s normal for the stock market to fluctuate, you tend to see much wider swings in price after-hours than during the typical trading day.

This is partly a result of lower liquidity: Since there are fewer people participating in the market, the trades have a greater effect on price. It can also be a result of many people acting quickly in reaction to major news or announcements.

A company’s share price can climb in response to a news event after-hours, and then fall dramatically as soon as markets open. Often, prices adjust after more information becomes available or investors get the chance to digest it more thoroughly. And with major ups and downs, of course, comes greater risk and potential for losses.

Best Prices May Differ

Another thing to consider is that you might not be able to confirm the best available price during after-hours trading. During regular hours, brokerages must offer the best possible price at that time. However, this doesn’t extend into after-hours, and the share price you see in one place may differ from one you see in another.

Is After-Hours Trading the Same Thing as Late-Day Trading?

No. Late-day trading is an illegal practice in which mutual fund managers allow hedge funds to record some trades made after-hours as having happened right before closing during regular hours.

This pushes up the mutual fund’s net asset value, which summarizes how much the fund is worth at the end of the trading day. When the net asset value (NAV) increases the following day to reflect those late-day trades, the hedge funds can sell the shares they bought at a higher price.

Recommended: What Is Market Manipulation?

After-hours trading itself is considered ethical and is legal.

Is It Bad to Trade After Hours?

Trading stocks after hours is neither bad, nor good. But whether it makes sense for you to engage in after hour trading can depend on your risk tolerance and investment goals.

As mentioned, the stock market after hours can be more volatile than it is during regular trading hours. That means you could be exposing yourself to greater risk by trading stocks after the market has closed. Increased volatility can also make it more difficult to gauge how likely limit orders are to be executed.

Pricing risk could also cause you to end up paying more for securities after hours then you would during the regular trading day. In that scenario, you’d get less value for your investment dollars. So it’s important to consider how much of your time you’re willing to devote to watching the after hours market and how much risk you’re willing to accept.

It’s generally recommended that only highly active traders take part in after-hours trading—not average investors who intend to hold onto their stocks for a long time. The majority of everyday investors would be wise to remember the old adage: “Time in the market beats timing the market.”

Does After Hours Trading Affect Opening Price?

Yes. Buying and selling activity can influence which way a stock’s price moves during normal market hours. The same is true for aftermarket trading.

That means it’s possible that a stock could close at one price point during regular trading hours but have a different open price once the new trading day begins. Whether this price difference is negligible or significant depends on how much trading activity occurred after hours and what motivated the activity.

For example, price fluctuations between the regular day’s closing and the next day’s opening could be more substantial if investors get wind overnight that a company is planning a merger or has a scandal brewing. Likewise, if companies are earnings miss expectations or the Federal Reserve makes an announcement about interest rates, those things could affect stock pricing after hours.

Recommended: 7 Factors That Determine Stock Price

Is After Hours a Good Indicator?

It depends. On one hand, after-hour trading activity could help investors gauge where the market will start on the next trading day. But it’s important to keep in mind that this is a short-term prediction at best, as pricing can change on a moment’s notice.

Investor attitudes and behaviors can very quickly shift the momentum of the market and stock prices along with it. Again, something as simple as the release of an earnings report or a small interest rate hike can send ripples through the market. So rather than focusing on aftermarket trading as a sole indicator of what a stock may do next, it’s important to look at the bigger picture.

Specifically, you may want to consider the stock’s most recent performance and trading volumes as well as overall market conditions. Whether the market is leaning bullish or bearish, for example, can influence what happens with stock pricing. If you’re primarily a day trader, learning some of the basics of technical analysis can help you become more attuned to market trends and how to interpret them when making investment decisions.

Recommended: Day Trading Strategies

The Takeaway

If you are a hands-on investor and want to experiment, you might be a good candidate to explore after-hours trading. Many people, however, don’t want to actively manage their investments and place overly risky bets. Instead, they may want to feel confident that they’re investing their money with less risk.

A great way to get started is by opening an account on the SoFi Invest® brokerage platform. With SoFi, you can choose from one of five automated investment strategies based on how conservative or aggressive you’d like to be.

Each investment account includes between three and nine exchange-traded funds (ETFs), which offer a competitive-cost way to reduce risk by holding a diversified array of assets.

Ready to put your money to work in the market? Get started with SoFi Invest 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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How to Find Upcoming IPO Stocks Before Listing Day

How to Find Upcoming IPO Stocks Before Listing Day

Accessing and purchasing a stock at its initial public offering (IPO) can seem like a VIP invite to a party. In addition to the cache of being “in the know” about potential opportunities, IPO investing can also allow potentially higher returns if the IPO is successful. But how do you find IPO stocks before listing day? And what might the benefits and risks be?

IPO investing is a calculated risk that can be either a short-term or long-term investment. Some investors may invest in an IPO, only to quickly flip it as the price rises. Others see it as a long-term strategy to build their portfolio with younger companies that could grow in value over the years. And, while some IPOs have created massive profits for early investors, others have not delivered on the promise.

This may be of particular interest right now, as 2021 IPOs have already hit a record level, and there are still a number of upcoming IPOs in 2021.

When IPOs Are Offered to People Prior to Listing Day

When people talk about IPO prices, they may be talking about two things:

• The IPO offering price. This is a fixed price available to a limited group of people. This may include employees who were offered stock options as part of their compensation package, as well as certain investors who get access to the IPO fixed rate. This may be less than the share price set when the company goes public. All of these sales occur before trading day and can be tricky to navigate.

• The price of new IPO stocks once the company goes public. This is the price that is available to all investors and fluctuates based on market conditions.

Buying IPOs at their offer price can take some navigation, but that does not mean it’s impossible. Typically, offer prices may be offered only to certain brokerages. For example, SoFi Invest offers IPO Investing.

One way that buying IPOs at offer prices differs from buying stocks already in the market: There is only a certain amount of shares available to each brokerage, and they may be accessible to investors who have the highest account balances. Instead of simply buying the shares, an investor submits an indication of interest (IOI) letter. The buy order may be limited due to availability.

How Do You Find Upcoming IPO Stocks Before Listing Day?

Investors who plan to wait until the unlisted stock debuts may find themselves frustrated that there is little prep time before the stock appears on the market. The secrecy prior to an initial public offering reflects several factors: One is the registration process with the Securities and Exchange Commission (SEC). The company can not publicly sell or trade its stock until the SEC deems the registration statement effective.

Once the company has filed its registration, the company enters what’s known as a “quiet period” where it must adhere to restrictions on what and how much it communicates to the public.

Any “gun jumping” or public communication that nods or hints at an upcoming IPO may violate the Securities Act. But once a company registers with the SEC investors and stock market analysts will keep an eye out for the IPO.

Recommended: What is the IPO Process? 7 Steps to Going Public

So, beyond combing through the SEC database, how can an investor find new companies going public? There are many resources:

Media Outlets

Media outlets often report on upcoming and rumored IPOs. Reading through market news can be valuable for new and experienced investors alike, allowing them to have an enhanced perspective on how the market is evolving and which companies may be poised to IPO.

Exchanges

Exchanges, such as Nasdaq, also have trackers on upcoming IPOs, although these are IPOs likely to debut within the next several days.

Brokerage News

Brokerages and financial institutions may also report on industry news and trends and may publish IPO tacking. For example, SoFi has a blog which covers the personal finance world, including IPO filings, as well as a daily newsletter to keep you abreast of what is going on in the world of finance, including the markets.

Vetting Upcoming IPOs

With hundreds of IPOs taking place in some years, investors will need to vet any potential offering before they decide to add it to their portfolio. If you’re considering investing in a company as it goes public, you’ll want to comb through all of its public documents to see whether its financials look sustainable. Then, ask yourself the following questions:

• Do I understand the business and the potential investment risks?

• Is the IPO underwriter a well respected, major investment firm?

• How are other companies in this space performing?

• Do the financials justify the IPO price and company valuation?

Recommended: How to Value a Stock

The Pros and Cons of Investing in IPOs

Access to IPO investing can be exciting. It can make an investor feel like they’re invested — literally — in buzzy companies that may be shaping the way we live and work. But they can also be risky. Some companies that may get a lot of media attention may fail to live up to investor expectations. Other companies may hit bumps in the road as they adjust to being a public company facing investor scrutiny. That’s why it can be a good idea for an investor to assess what goals they want their IPO investment to fulfill.

Pros of Investing in an IPO

• It can be exciting.

• There’s potential for significant profits.

• It can allow investors to put their money behind a company they may value, believe in, or otherwise want to be a part of in some small way.

Cons of Investing in an IPO

• While there’s potential for reward, there’s also risk potential that the IPO may flop.

• Market fluctuations may require active management and quick decisions when it comes to holding or selling.

• The volatility of investing in an IPO may require portfolio calibration so that other investments are less volatile.

The Takeaway

By doing research, understanding the risks, and having realistic expectations, you can make IPO investments an exciting and potentially rewarding aspect of your portfolio. However, you do not have to invest in IPOs to fulfill your financial goals. If you get stressed about risk and stock volatility, IPO investing might not be the best strategy for you.

Whether you’re investing in IPOs or more interested in traditional stocks and exchange-traded funds, you can get started by opening an account on the SoFi Invest® brokerage platform. SoFi invest offers access to IPO investing with no account minimums for members with an Active Investing account. As with any investment, considering your overall portfolio goals can be key to assessing whether IPO investing is right for you.

Photo credit: iStock/solidcolours


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.
IPOs: Investing early in IPO stock involves substantial risk of loss. The decision to invest should always be made as part of a comprehensive financial plan taking individual circumstances and risk appetites into account.
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Complete Guide to the volume weighted average price indicator (VWAP)

Complete Guide to the Volume Weighted Average Price Indicator (VWAP)

What Is Volume-Weighted Average Price (VWAP)?

The volume-weighted average price indicator (VWAP) is a short-term trend indicator used on intraday charts (time frames that occur throughout the day, e.g., 1 minute, 5 minute, 1 hour, etc.). It measures the average price of a stock weighted by trading volume and shows up as a single line.

Professionals and retail traders alike can use the VWAP as a benchmark to aid their trading strategies by using this indicator to identify liquidity points or as part of a broader trend confirmation strategy. It helps them determine the target price for a particular asset.

How Is VWAP Used In Trading?

As a trend indicator, VWAP adds more context to a moving average (MA). Since a moving average does not take volume into account, it could potentially be misleading when relatively big price changes happen on low volume, or if relatively small price changes happen despite large volume.

In addition, moving averages aren’t always helpful for short-term traders, because MA’s require longer time frames to provide good information. The VWAP is made to be a short-term indicator, as it involves one data point for each “tick,” or time period of a selected chart (each minute on a 1-minute chart, for example).

There are several ways that investors use the VWAP when trading.

Institutional Investors

Large institutional investors and algorithm-based traders use the VWAP to make sure they don’t move the market too much when entering into large positions. Buying too many shares too quickly could create price rises, making it more expensive to buy a security.

Some institutions instead try to buy when prices fall below the VWAP, and either sell or just pause purchases when prices rise above the VWAP, in an attempt to keep prices near their average. This works because the VWAP helps identify liquidity points, being a volume-weighted price measure.

Retail Traders

Retail traders use the VWAP as a tool to confirm trends. The VWAP indicator is similar to a simple moving average with one key difference – VWAP includes trading volume, as the name implies. Why does this matter?

Moving averages (MA) simply calculate average closing prices for a given security over a particular period (e.g., 9-day MA, 50-day MA, 200-day MA, etc.). Adding volume to an indicator helps confirm the potential strength of a trend.

Recommended: Institutional vs Retail Investors: What’s the Difference?

How To Calculate VWAP

VWAP is a ratio that indicates the relationship between an asset’s price and its volume. When used as a technical indicator on a chart, the computer automatically calculates VWAP and displays it as a single line.

Investors can also calculate VWAP manually. The two main pieces of the equation include:

• Typical price + volume

• Cumulative volume

The formula for calculating VWAP equals the typical price (the average of the low price, the high price, and the closing price of the stock for a given day) multiplied by the number of shares traded in a given day, divided by the total number of shares traded (cumulative volume).

Calculated daily, VWAP begins when the markets open and ends each day when the markets close.

How Do You Read a VWAP Chart?

As with most technical indicators, there are many different ways to interpret the VWAP. Some of the most common ways to use this indicator for price signals include establishing support and resistance, indicating a trend being overextended, or using VWAP in combination with a different indicator.

Recommended: Using Technical Analysis to Research Stocks

Support and Resistance

This might be one of the simplest and most objective ways to read a chart using VWAP. One method for reading a VWAP chart is to use the line as an indicator for short-term support and resistance levels. If prices break beneath support, this could indicate further weakness ahead. If prices break above resistance, this could indicate more bullish momentum is yet to come.

Support and resistance are commonly measured using historic points of price strength or weakness, but this becomes more difficult when time frames are very short. Traders may use a volume-weighted indicator like the VWAP to predict short-term moves.

Trend Overextended

When looking at the VWAP indicator on a short-term chart, there could be times when price action goes very far beyond the VWAP line.

If price quickly goes too far above the line on heavy volume, this could indicate that the security has become overbought, and traders might go short. If price quickly falls far below the line, this could indicate that the security has become oversold, and traders might go long.

Of course, there is a subjective component involved in determining the exact definition of “overextended.” Typically, however, investors assume that price tends to return to the VWAP line or close to it, so when prices go too far beyond this line one way or the other, they could eventually snap back.

Recommended: Understanding Stock Volatility

VWAP Plus MACD

As they do with many technical indicators, investors often use the VWAP indicator in conjunction with other data points.

Technical analysis can become more effective when using multiple indicators together. By confirming a trend in multiple ways, investors can feel more confident in their projections.

As an example, some traders like to look at the VWAP while also looking at the Moving Average Convergence Divergence (MACD).

If the MACD lines see a bullish crossover around the same time that prices become overextended to the downside beneath the VWAP line, this could indicate a buying opportunity. If the MACD shows a bearish crossover as prices stretch far above the VWAP line, this could indicate a good time to close out a trade or establish a short position.

Is VWAP Good for Swing Trading?

It’s impossible to answer the question “What is VWAP in trading?” without addressing swing trading with this indicator.

The VWAP tends to work well for short-term trading like day trading and short to medium-term trading like swing trading, in which investors hold a position for anywhere from a few days to a few weeks.

Using the VWAP on a daily basis could potentially help swing traders determine whether to continue to hold their position. If a short-term chart consistently shows prices beneath the VWAP, this fact could combine with other information to help the trader decide when to sell.

How Do Investors Calculate 30-Day VWAP?

The 30-day VWAP is equivalent to the average of the daily VWAP over a 30-day period. So, to calculate the 30-day VWAP, you would have to add up the daily closing VWAP for each day, then divide the total by 30.

A Cumulative Indicator

It’s important to note that VWAP is what’s known as a cumulative indicator, meaning the number of data points grows higher as the day goes on. There will be one data point for each measurement of time on a given chart, and as the day passes, these points accumulate.

A 5-minute chart would have 12 data points one hour after the market opens, 36 after 3 hours, and 84 by the time the market closes. For this reason, VWAP lags the price and the lag increases as time goes on.

The Takeaway

The volume-weighted average price indicator gives information about price action and volume relating to one day, making it most helpful for intraday analysis. It’s one data point among many that traders might use when devising their investment strategy.

If you’re ready to try your hand at technical analysis, a great way to get started is by opening an account on the SoFi Invest® brokerage platform. SoFi Invest provides traders with tools and information to understand and analyze potential securities, including investments like stocks, exchange-traded funds, and cryptocurrency.

Photo credit: iStock/Pheelings Media


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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What Is a Bitcoin Faucet? How Bitcoin Faucets Work

What Is a Bitcoin Faucet? How Bitcoin Faucets Work

A Bitcoin faucet is a way to get free cryptocurrency. Of course, nothing is really free, and faucet users have to do something to get rewards from a faucet.

Before learning more about crypto faucets, it’s important to take note that some people have used Bitcoin faucets to create scams in the past. There could be some crypto faucet sites that infect a user’s device with malware, spyware, or ransomware. Users choose to engage with crypto faucets at their own risk.

What Are Bitcoin Faucets?

A Bitcoin faucet is a website or app that gives out tiny amounts of cryptocurrency in exchange for completing simple tasks. The name “faucet” comes from the fact that the rewards are very small, like drops of water dripping from a faucet.

Bitcoin faucets send small amounts of free or earned Satoshis (the smallest unit of Bitcoin) to a user’s wallet. To claim these rewards, users typically have to perform a task such as:

• Watching product videos

• Viewing or clicking on advertisements

• Completing a Captcha

• Solving a puzzle

• Playing a game

As payment for these tasks, users could receive a single Satoshi, which is one millionth of one Bitcoin (0.00000001 BTC). At the time of writing, one Satoshi was equivalent to $0.0003, or three hundredths of one cent.

Recommended: 8 Ways to Make Money with Cryptocurrency

How Do Bitcoin Faucets Work?

Most Bitcoin faucets are easy to use. Sometimes it can be as simple as entering a public key address for your Bitcoin wallet, clicking a few buttons, and receiving the coins. In general, the more complex the tasks required, the higher the rewards. Keep in mind that some faucets are safe and legal, but they give very small rewards and it is unlikely that users will get rich off of them.

Faucets often have a web-hosted wallet that stores coins for users up until a certain point. To avoid transaction fees eating up most or all of the rewards, most Bitcoin faucets have a minimum threshold that users must reach before they can withdraw the coins to their own wallet.

What is the Purpose of Bitcoin Faucets?

During the first few years after the creation of Bitcoin 2009, few had heard of the idea of virtual currency. And those who had couldn’t do much with their coins, as business did not accept bitcoin for payment, and there were no opportunities for trading because the crypto exchanges of today didn’t exist yet.

Gavin Andresen, an early Bitcoin adopter, believed in the future of Bitcoin and devised a way for more people to learn about cryptocurrency. He offered free Bitcoins in exchange for completing Captchas.

In 2010, the first Bitcoin faucet ever created paid out 5 BTC in exchange for the simple task of clicking images. This was at a time when one Bitcoin was worth less than a penny. Today, 5 BTC would be worth about $150,000.

As crypto and crypto faucets became more popular, the rewards fell to the smallest denominations possible. Faucets became an integral part of cryptocurrency history.

Pros and Cons of Bitcoin Faucets

Bitcoin faucets have both benefits and drawbacks that investors should understand.

Pro

Cons

Free crypto Some faucets could be scams
Easy way to get started learning about crypto Small rewards
Anyone can use faucets Mindless tasks required

Pros of Bitcoin Faucets

• The biggest pro of crypto faucets might be the free crypto. There aren’t many other ways to get crypto handed to you. Crypto airdrops also involve users receiving free crypto, but those are usually distributed to select users based on certain eligibility requirements.

• Faucets are an easy way to get started with Bitcoin or other cryptocurrencies. There’s no real investment required beyond getting a crypto wallet and doing the task associated with the faucet in question.

• Faucets don’t require much knowledge or know-how to get started. Anyone can use them. You don’t have to know how to trade crypto to use a faucet.

Cons of Bitcoin Faucets

• The amount of crypto earned is very small. As mentioned earlier, the reward could be as little as one Satoshi. At the time of writing, one penny is equivalent to about 33 Satoshis.

• The tasks that a Bitcoin faucet will require can quickly get monotonous. How long will someone be willing to sit there and repeatedly complete a Captcha? Probably not long enough to accrue earnings worth more than a few cents.

• The risks of cryptocurrency in general also apply to faucets. Some can be scams, phishing attempts, or ways to steal a user’s funds or identity. Some faucets could infect users with malware. The lure of free money can be an effective way for hackers to compromise the devices or identity of potential users. The website or app might be phishing for information or download malware to a user’s device after having them click a link or download a file. There are a few signs that could be red flags that a crypto faucet is a scam:

The rewards are too good to be true. If the rewards seem significantly higher than other faucet rewards, they may not be legitimate.

You’ve received an unsolicited offer. If you’ve received a faucet offer via email or message without asking for it, it could be from a scammer.

Error-heavy messages. Multiple grammatical errors and misspellings could indicate a problem.

Other Types of Crypto Faucets

While it all began with a Bitcoin faucet many years ago, today there are crypto faucets for all types of different cryptocurrencies. Some of the most popular include Litecoin faucets, Ethereum faucets, and Dogecoin faucets.

Litecoin Faucets

A Litecoin faucet functions in the same manner as a Bitcoin faucet. The only difference is that the faucet distributes Litecoin (LTC) rather than Bitcoin (BTC).

To use Litecoin faucets, users will have to first set up a Litecoin wallet. Then it’s just a matter of choosing the highest-paying Litecoin faucet. Some faucets could pay up to 1,000 litoshis (the smallest units of Litecoin), or about one tenth of a penny at current prices.

Ethereum Faucets

An Ethereum faucet is one that distributes ETH, the native token of the Ethereum network.

Ethereum faucets, like some other faucets, also have referral bonuses. Users who refer their friends could get an extra faucet drip without having to do anything more.

When trying to withdraw funds, users could run into problems, however. The Ethereum network tends to have very high transaction fees, known as GAS fees. So, to send $2 worth of ETH to another wallet could easily cost more than the transaction itself. If that turns out to be the case, then moving the funds will prove impossible.

Dogecoin Faucets

Dogecoin faucets have been popular since the meme cryptocurrency was first invented back in 2014. These faucets distribute Dogecoin (DOGE). Because DOGE has such a low value, larger portions of coins can come out of faucets. When one DOGE was worth a fraction of a penny, faucets would distribute 1 or 5 DOGE at a time.

Today’s Dogecoin faucets distribute anywhere from 0.1 to 1 DOGE at a time. With 1 DOGE being worth about $0.18 at the time of writing, these might be the most lucrative faucets at this point in time.

The Future of Crypto Faucets

The future of crypto faucets probably looks a lot like the past. These are basically fun apps for people who are new to crypto. It gives individuals a way to get started learning how to interact with the cryptocurrency ecosystem without having to make an initial investment. No one keeps clicking on a faucet all day hoping to cash in on big rewards.

Then again, if the crypto provided by a faucet sees big price gains, then over time, it’s possible that the small amounts of crypto could add up to something for those that HODL. But in terms of today’s value, the typical crypto faucet pays out a tiny fraction of a penny each time, and there are limits on the number of payouts a user can receive in a given timeframe.

The Takeaway

A Bitcoin faucet or any other crypto faucet isn’t a way to make money with cryptocurrency. Faucets are more like free games that can give new users their first foray into the crypto world. It could take many months of repeatedly using faucets to accumulate even one dollar’s worth of rewards. Crypto faucets take advantage of the divisibility of cryptocurrencies, or their ability to be divided into many smaller units. This feature is part of what makes digital assets unique.

There are easier and more effective ways to get started investing in cryptocurrency. One of them is to open an account on the SoFi Invest® online brokerage platform. Beginners and experienced investors alike can use the Invest platform to buy and sell Bitcoin and several other top cryptocurrencies.

Photo credit: iStock/Fabian19


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.
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.
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