Nov
14
2021
What Is Chainlink Crypto? How to Buy LINK Coin

Chainlink Crypto: What it is, Price, and How to Invest in LINK

By | Growing Wealth, invest, Investing | Comments Off on Chainlink Crypto: What it is, Price, and How to Invest in LINK

Chainlink is a decentralized oracle network that provides information that certain smart contracts need to perform their designated functions.

Smart contracts are blockchain-based, decentralized virtual agreements that can execute automatically when certain conditions are met. They are computer protocols designed to enforce, verify, or apply an agreement. These digital contracts can automate contractual agreements while getting rid of the need for lawyers, notaries, and other related services.

Chainlink gathers information from a decentralized network of information providers referred to as oracles. To ensure that the data is accurate, each oracle stakes a certain amount of collateral. If the oracle provides inaccurate data, it will be forced to forfeit that collateral. In this way, oracles are monetarily incentivized to give information that accurately reflects what’s happening in the real world.

Oracles have become a useful tool in the decentralized finance (DeFi) space, as much of DeFi is powered by smart contracts that need to source their prices from a decentralized place. This might be one factor that has led to the continued rise of coins like LINK.

What is the Chainlink Network?

Chainlink provides real-time price data to smart contracts. The smart contracts in question then use the data to perform some other function — swapping one token for another, for example.

LINK was launched in 2017. The idea came from a previous project of its parent company, SmartContract.com. They had once tried to develop an oracle solution for blockchains, but failed to do so in a decentralized manner. Centralized oracles are thought to be unreliable because if they source false data, it will be recorded in the blockchain and there will be no way for anyone to fix it.

Blockchains are designed to get their data from on-chain information. This makes them more secure and tamper-resistant. But sometimes, smart contracts require off-chain data from the real world. Things like fiat currency exchange rates or any other external type of data can only be integrated on-chain through oracles like Chainlink.

What is LINK Coin?

Chainlink crypto (LINK) is used to keep the network running smoothly. LINK is intended to provide an incentive for those who participate in the Chainlink network to source reliable data. This helps ensure that the smart contracts being fed Chainlink information will receive accurate data.

Smart contracts can use LINK to pay for the information they need, and oracles can use LINK as collateral.

There are 1 billion LINK tokens total. They exist as ERC20 tokens on the Ethereum blockchain.

Chainlink Price

As of early November 2021, LINK was the 15th largest cryptocurrency by market cap, according to data from Coinmarketcap.com . The price was around $33, triple its $11 price at the start of 2021. The all-time record high LINK price was $52.19, reached on May 8th.

In September 2017, about the time the project launched, the LINK coin price was less than $0.17.

What Can You Use LINK Coin For?

LINK can be traded on exchanges, where traders try to buy low and then sell higher later to make a profit. It’s important to be mindful of crypto rules and regulations and cryptocurrency taxes when trading.

Programmers also use Chainlink crypto to fund the oracle-driven information that powers some smart contracts. If someone wants to create a decentralized way for people to swap one cryptocurrency with another, as with Kyber Network (KNC), for example, they need real-time data on what the appropriate exchange rate would be. This information comes from oracles like Chainlink.

Should You Invest in LINK Coin?

Altcoins are generally considered to be speculative investments that carry high risk. There are few other investments available to the average person that carry greater risk and volatility.

Recommended: What Are Altcoins?

If an investor has done all the research necessary to understand what the Chainlink cryptocurrency is, how it works, and what it was designed for, then those with the necessary capital and risk tolerance might choose to take a chance on LINK. But as always, it’s common investment wisdom to never risk more than you can afford to lose.

Benefits of Investing in LINK Coin

One potential advantage that could work in Chainlink’s favor is that the network tends not to compete with other types of cryptocurrency. Instead, it helps to add value to other projects, particularly those in the DeFi space.

While there are other oracle networks out there, and likely will be more in the future, Chainlink is currently among the most well-known and trusted brands in this area. Should they continue to be a leader in the ecosystem, the LINK token might potentially see increased growth and adoption.

Disadvantages of Investing in LINK Coin

The drawbacks of LINK are largely the same as those of other altcoins. Volatility can be extreme and liquidity might not always be there when traders need it most. Competing projects could arise and see faster adoption, at which point Chainlink crypto could become irrelevant.

It’s also worth noting that thousands of altcoins have failed in the past for various reasons, with their values dropping to zero.

How to Buy LINK cryptocurrency

Buying LINK is not unlike buying any other cryptocurrency. Here is a simplified rundown of the basic steps.

1.    Create an exchange account. After learning how crypto exchanges work, an investor will want to create an account with an exchange that offers trading for the Chainlink cryptocurrency. Many prominent exchanges trade Chainlink, including Kraken, Coinbase, and CEX.io.

2.    Deposit either Bitcoin or some fiat currency, depending on what trading pairs the exchange has available. Buying crypto directly with a credit card is also an option on many exchanges, although this tends to incur higher fees (not only from the exchange — credit cards often treat crypto purchases as a cash advance, which comes with additional fees).

3.    Buy LINK. Simply select the trading pair that includes LINK and the currency held in your account. For example, if a user had Bitcoin and wanted to buy LINK, they would select the pair called “BTC/LINK.” If they had dollars, it might be “USD/LINK.” For a stablecoin like USDC, it might be “USDC/LINK.” Enter a buy order for the desired amount of coins at a desired price.

Alternatively, on exchanges that include order books in the user interface (like Binance), simply select the sell order (sometimes called an “ask” order) with the lowest price and buy from it.

After having acquired LINK tokens, advanced users may want to consider moving their crypto off of an exchange and into a hardware wallet that supports LINK. This method of crypto storage provides additional security for long-term holdings.

The Takeaway

Decentralized oracle networks like Chainlink are designed to provide a trusted decentralized source of information for smart contracts. For investors, LINK token is just one more potential cryptocurrency they might decide to trade.

Photo credit: iStock/Dmytro Duda

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit 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.

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.

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.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Nov
09
2021
What Are Nodes? 7 Types of Blockchain Nodes

What Are Nodes? 7 Types of Blockchain Nodes

By | Growing Wealth, invest, Investing | Comments Off on What Are Nodes? 7 Types of Blockchain Nodes

Nodes are critical aspects of blockchain security. Broadly speaking, a cryptocurrency node is a participant in a blockchain network. Without blockchain nodes, there can be no blockchain.

The key feature that makes blockchain technology unique, and part of why cryptocurrency has been so revolutionary, is decentralization. Bitcoin and most other cryptocurrencies aren’t controlled by a central server or group of servers. Instead, the network functions in a peer-to-peer (P2P) manner. People interact with each other directly rather than through a third-party intermediary, thanks to network nodes.

Recommended: How Do Bitcoin Transactions Work?

How Do Blockchain Nodes Work?

For decentralization to work, there has to be a way for the network to maintain its integrity. Everyone has to be assured that all transactions are valid and that no one on the network is cheating by double spending or reversing transactions.

The process of everyone on the network agreeing that transactions are valid in the absence of a central authority is known as “achieving consensus.” It is the network nodes that achieve this consensus among users, helping to make the blockchain secure.

Consensus Algorithms

Consensus refers to the rules by which a blockchain network operates and confirms the validity of information written in blocks. Confirming this information can be complicated with large networks involving large numbers of people, hence the need for a consensus algorithm.

The original consensus algorithm is Bitcoin’s proof-of-work (PoW) algorithm. Proof-of-Stake (PoS) is another popular consensus algorithm that works somewhat differently but seeks to achieve the same goal. Many DeFi protocols utilize PoS. Both algorithms rely on full nodes for the validation of transactions and enforcement of network rules.

For the sake of simplicity, in this article we will assume that someone is interested in learning about Bitcoin nodes that run on PoW.

Anyone can download the entire Bitcoin blockchain and validate blocks. This increases both the security and the decentralization of the network, as more copies of the ledger come into existence and can be referenced by others. Bitcoin nodes can be run by anyone in the world with the proper hardware and an internet connection.

7 Types of Blockchain Nodes

To recap: A node is one computer in a network of many that follows rules and shares information.

The term “node” is sometimes used interchangeably with the term “full node,” but they are not the same. A “full node” is a computer in the Bitcoin network that stores and synchronizes a copy of the Bitcoin network’s entire blockchain history.

Full nodes are important for several reasons, not the least of which being that they vote on proposed changes to the network. When more than 51% of full nodes don’t agree on a proposal, it gets skipped. Sometimes this leads to a hard fork, as was the case in 2017 with the Bitcoin Cash fork.

Recommended: What Happens When Bitcoin Forks?

While there are several types of full nodes, there are also lightweight nodes. Below, we’ll highlight both lightweight and full nodes.

1. Light Nodes

Lightweight nodes or “light nodes” do not hold full copies of the blockchain. Light nodes only download blockheaders, saving users significant download time and storage space. Nodes of this nature depend on full nodes to function and are used for simplified payment verification (SPV).

2. Archival Full Nodes

Most often, when someone uses the term “full node,” they are referring to an archival full node. This is the primary node type that forms the backbone of a blockchain network. Archival full nodes are servers that host the entire blockchain, with every single transaction recorded in their databases. The main task of these nodes is to validate blocks and maintain consensus.

Archival nodes can be broken down further into two subcategories: nodes that can add blocks to the chain and those that cannot.

3. Pruned Full Nodes

A pruned full node is one that saves hard disk space for its users by “pruning” older blocks in the blockchain. This type of node will first have to download the entire blockchain from the beginning. After that, it will begin deleting blocks beginning with the oldest and continue until the node only holds the most recent transactions up to a set size limit. If a node operator were to set the size limit to 250 MB, then a pruned full node would hold the most recent 250 MB worth of transactions.

4. Mining Nodes

In crypto mining, miners are either full or light nodes that try to prove they’ve completed the work required to create a new block. This is where the term “proof-of-work” comes from. To accomplish this task, miners have to either be an archival full node themselves, or get data from other nodes to learn the current status of the blockchain and how to work on finding the next block. (Those who seek to run mining nodes might want to take into account crypto mining electricity costs.)

5. Authority Nodes

Authority nodes are used by consensus algorithms for networks that aren’t fully decentralized, including Delegated Proof of Stake and Proof of Authority. In these networks, either the development team will decide how many authority nodes are needed and who will run them, or the community could vote for the decision. The task of these nodes is the same as full nodes in other networks.

6. Masternodes

Masternodes cannot add blocks to a blockchain. They only serve to validate and record transactions. Running a masternode can earn users a share of the network’s rewards. Doing so requires first locking away a certain amount of money in the form of the network’s native token.

7. Lightning Nodes

Lightning nodes don’t quite fit the mold of any of the nodes discussed so far. The main idea of a lightning node is to establish a connection between users outside of the blockchain, enabling what are referred to as “off-chain transactions.”

This reduces the load on the network and allows for much faster and cheaper transactions. Bitcoin lightning transactions typically cost 10 or 20 satoshis, or the equivalent of a fraction of a penny.

How to Set Up and Run a Full Node

Running a full blockchain node comes down to the following:

•   Choose a blockchain (Bitcoin, for example)

•   Acquire the hardware and/or software needed

•   Start running the node

The first thing required for running any kind of node is the necessary hardware. This often involves a small computer like a Raspberry Pi. There are three different ways to run a full node. They include:

•   Hosting a node in the cloud via Amazon Web Services or Google Cloud

•   Running a node on your local device (which requires a lot of hard disk space and RAM)

•   Using a “node-in-a-box” solution or building one from scratch.

After that, it’s just a matter of maintaining and monitoring the node.

The Takeaway

People might choose to run full nodes for a variety of reasons, including increased privacy or a desire to support their network of choice. Lightweight nodes and full nodes alike come with wallets that can be used for making cryptocurrency transactions. Full nodes provide greater privacy, as outside observers have a hard time distinguishing between transactions being processed by the node and transactions sent by the person running the node.

Photo credit: iStock/A stockphoto

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit 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.

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.

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.

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.

2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount Bonus Payout
Low High
$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

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Nov
08
2021
What Is a Protective Put? Definition, Graphs, & Example

What Is a Protective Put? Definition & Example

By | Growing Wealth, invest, Investing | Comments Off on What Is a Protective Put? Definition & Example

A protective put is an investment strategy that employs options contracts to mitigate the risk that comes with owning a particular security or commodity. In it, an investor buys a put option on the security or commodity.

Typically, put options are used by investors who hope to benefit from a price decline in a given investment. But in a protective put strategy, the investor owns the underlying asset, and is positioned to benefit if the price of the asset goes up.

Essentially, the investor is buying the right to also make money if the investment goes down. But while this protection is a nice thing to have, it isn’t free.

To buy the option, the investor pays a fee, called a premium. It is a way of managing uncertainty and risk (sort of like an insurance policy). An investor may take out a protective put on anything they own, including equities, currencies, commodities like oil, and index funds. But if the investment they own does go up, the investor will have to deduct the cost of the put-option premiums from their returns.

Recommended: How to Trade Options: A Beginner’s Guide

Understanding Protective Puts

Investors typically purchase protective puts on assets that they already own as a way of limiting or capping any future potential losses.

The instrument that makes a protective put strategy works is the put option. A put option is a contract between two investors. The buyer of the put acquires the right to sell an agreed-upon amount of a given asset security at a given price during a predetermined time period.

Important Options Terms to Know

There is some key options trading lingo to know, in order to fully understand a protective put.

•   The price at which the purchaser of the put option can sell the underlying asset is known as the “strike price”.

•   The amount of money the buyer pays to acquire this right is called the “premium”.

•   And the end of the time period specified in the options contract is the expiration date, or “expiry date”.

•   The strike price is also known as the “floor price”, after which the investor will not face losses on their investment. The options allow the investor to sell the underlying asset at the floor price, no matter where it is trading, which serves the purpose of wiping out the losses the investor would face below the strike price.

For complete coverage in a protective put strategy, an investor might buy put options contracts equal to their entire position. For large positions in a given stock, that can be expensive. And whether or not that protection comes in handy, the put options themselves regularly expire — which means the investor has to purchase new put options contracts on a regular basis.

How Strike Price and Premiums Affect Protective Puts

An investor can buy a protective put option contract when they buy the underlying security, or at any time while they’re holding it. But whenever they buy the put option, that option’s strike price will bear one of three relationships to the security they own.

These three relationships between a security’s price and the price of a given option are sometimes called the “moneyness.” The varieties of moneyness are:

1.    At the money (ATM): This is when the option’s strike price and the asset’s market price are the same. An option purchased ATM will offer 100% protection against losses for the duration of the option contract.

2.    Out of the money (OTM): In this situation, the option’s strike price is lower than the asset’s market price. With an OTM option, the further the strike price is below the market value, the lower the premium. An OTM put option won’t provide complete protection against loss, but it will limit the losses to just the difference between the price at which the investor bought the stock price and the option’s strike price.

3.    In the money (ITM): This is when the asset’s market price is lower than the option’s strike price. In this scenario, the option might be worth exercising in order to cover the price of the premium.

Recommended: How to Sell Options for Premiums

Protective Put Scenarios

An investor who is pursuing a protective put strategy will own the underlying security, commodity, currency or asset. If the underlying asset goes up in value and the put options related to it expire, then the investor gets to keep all of the upside growth, minus the premiums connected with the put options. To keep the protection, the investor will have to buy new put options once the original options expire.

Investors may use protective puts differently. Some investors use the strategy to cover only a portion of a long position. Others may use protective puts for the entirety of their position. When protective put coverage is the same as the amount of stock the investor owns, it is often referred to as “married put.”

Most often, investors will enter into married puts at the time they buy a given stock, though they can enter into a married put at any time they want to protect their investment.

A married ATM put effectively limits the maximum loss an investor faces to the costs connected with buying the stock, including commissions, plus the premium and other costs related to purchasing the put option.

Pros & Cons of Protective Puts

As with most investing strategies, there are both upsides and downsides to using protective puts.

Pros of Protective Puts

Protective puts allow investors to set a limit on how much they stand to lose in a given investment. Here’s why investors are drawn to them:

•   Protective puts offer protection from the possibility that an investment will lose money.

•   The protective put strategy allows an investor to participate in nearly all of an investment’s upside potential.

•   Investors can use at-the-money (ATM), or out-of-the-money (OTM) options, or a mix of the two to tailor their risks and costs.

Recommended: In the Money (ITM) vs Out of the Money (OTM)

Cons of Protective Puts

Like any form of insurance, buying protective put options comes at a cost.

•   An investor using protective puts will see lower returns if the underlying stock price rises, because of the premiums paid to buy the put options.

•   If a stock doesn’t experience much movement up or down, the investor will see a steady loss of assets as they pay the option premiums.

•   Options with strike prices close to the asset’s current market price can be prohibitively expensive.

•   More affordable options that are further away from the stock’s current price offer only partial protection and can put the investor in the position of losing money.

The Takeaway

Protective put options are risk-management strategies that use options contracts to guard against losses. This options-based strategy allows investors to set a limit on how much they stand to lose in a given investment.

Looking to start options trading? With SoFi’s options trading platform, you can trade options on the web platform or through the mobile app, thanks to an intuitive and approachable design.

Trade options with low fees through SoFi.

Photo credit: iStock/igoriss

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit 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.

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.
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 [email protected]. 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.

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.

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Nov
05
2021
What Is a Bond Option? Definition & Examples

What Is a Bond Option? Definition & Examples

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is a Bond Option? Definition & Examples

A bond option allows the contract holder to buy or sell an underlying investment (in this case, a bond) at a specific price and at a specific time. While considered less risky than stock options, bond options still typically carry higher risk than more traditional investments.

Like all options, bond options are derivative securities, used by investors to bet on the direction of an underlying security. Understanding what bond options are and how they work can help you understand these risks and determine whether bond options make sense for your portfolio.

Here’s a closer look at bond options, and the risks and rewards they bring to investors.

What are Bond Options?

A bond option is a legal contract to buy and sell underlying bond assets, usually via a call bond (i.e., the option to buy an underlying bond) or a put bond (the option to sell a bond) at a specific price (known as the “strike price)” at or before a specific time deadline (known as the “expiration date”).

For example, an investor might purchase a bond call option with a strike price of $900. The level value (also known as “par value”) of the underlying U.S. government bond is $1,000. Let’s say market conditions push the value of that bond up to $1,100. In that scenario, the option holder has the right to buy the government bond at $900 – even as the value of that underlying bond now stands at $1,100.

Investors typically trade options, including bond options, through over-the-counter exchanges. Bond options are also typically available wherever U.S. Treasury bonds are sold in fund form through investment companies.

Recommended: A Beginner’s Guide to Options Trading

Pros and Cons of Bond Options

There are benefits and drawbacks to incorporating bond options in your portfolio.

Pros of Bond Options

Higher return potential. As discussed in the example above, when executed well a bond options strategy can increase a trader’s gains on a particular investment. Bond options can also protect against downside risk. Investors often use bond options as hedges against more risk-laden investment strategies.

Risk hedging. Bond options investors can leverage derivative contracts to take advantage of interest rates and other short-term drives of investment performance. Investors can also lean on bond options to take advantage of pricing variations in options pricing or to position their portfolios ahead of major geopolitical events, like presidential elections, potentially big Federal Reserve policy decisions, or major recessions and other powerful economic forces.

Cons of Bond Options

The risk of non-exercise. Bond options investors may do well to let an options contract expire rather than execute a trade that goes awry and loses money. While a bond options investor isn’t obligated to exercise their bond options contracts, letting a contract expire means the original money used to buy or sell a bond option is gone forever. So, too, are the fees investment companies charge to handle options trades.

The risk of unlimited investment loss. While call options provide an investor with the possibility of unlimited gain if the underlying security rises in value, that same investor faces unlimited loss potential if that investor is selling a call or put option. If the underlying assets plummet to a value of zero, the options investor could face massive financial losses.

The risk of losing money quickly. As options, by nature, are short-term investing instruments, investors need to have extensive knowledge of near-term investment price movements to minimize the downside risk of investing in bond options. Often, traders make decisions about their options strategy based on a short time horizon. That means all options investors must master two key trading objectives – knowing the right time to purchase an options contract and knowing when to sell that contract, or cut losses by allowing the contract to expire without exercising the option to buy or sell by the expiration date.

Recommended: 10 Options Trading Strategies

Types of Bond Options

Bond options offer investors the right to buy or sell (via calls and puts) an underlying investment security at a specific time and at a set price.

Call Option Bonds

With a bond call option, if the price of the underlying bond option rises in value, the contract holder can earn a profit on the call by exercising the option to purchase the asset (with a call option) at a lower price and then selling it when the underlying asset goes up. A call option is in the money if the strike price is lower than the current market price of the underlying bond.

Bond Put Options

A bond options investor who buys believes a bond will go up in price may purchase a put option or put bond. With that option, buy the asset at the current low price and sell it at the rising strike price, assuming the price moves in the direction the trader had hoped. What a bond investor strives to avoid is being on the wrong side of an options trade, i.e., selling at a below market rate or buying at an above-market rate.

If an investor anticipates that bond prices will decline, given future expected market conditions, they’d purchase a put option. If the level value of the underlying bond option were$1,000, a bond put option gives the contract holder the right to sell the option contract at the strike price of $900 – on or before the expiration date. If bond prices fall, the underlying bond is now valued at $870. Now, that bond option investor can exercise the sale of the options contract at the strike price of $900, even as the bond’s value has fallen to $870. That guarantees a big profit for the investor, given the outsized nature of options contracts.

Embedded Bond Options

Embedded bond options are bonds in which the holder or the issuer has a right to take a specific action with a certain period going forward. Examples of embedded bond options include call provision, convertible provisions, and floored floating-rate provisions.

Callable Bond Options

Callable bonds are one type of embedded bond option. With callable bonds, the issuer has the option to repay investors the face value of the bond before the maturity date.

Recommended: Popular Options Terminology You Should Know

Bond Options Pricing

Given all the variables, including the current price and future price of a bond, volatility levels, interest rates, and time to expiration, it can be very complicated to properly price a bond option. Investors rely on several different mathematical formulas for this, including the Black-Derman-Toy Model and the Black Model.

The Takeaway

Options traders may use a bond option as a hedge against economic volatility in key areas like interest rates, currency rates, and bond yield rates, a bond option can be a useful portfolio management tool. However, there are plenty of other types of investments that an investor can use when building a portfolio, without trading bond options.

But for investors who are curious to start options trading, SoFi offers a user-friendly platform to do so. With an intuitive and approachable design, you can trade options on the web platform or through the mobile app.

Trade options with low fees through SoFi.

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit 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.

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.
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Nov
05
2021
What Is Bancor (BNT)? How to Buy BNT Crypto

What Is the Bancor Network Token (BNT)? How Does It Work?

By | Growing Wealth, invest, Investing | Comments Off on What Is the Bancor Network Token (BNT)? How Does It Work?

Developers created the Bancor blockchain to help provide liquidity for token swaps. It does this by providing economic incentives (money) to users who lock up their crypto in pools. The incentives come in the form of fees paid by traders who buy and sell the locked-up tokens.

All of this happens automatically via smart contracts, without any financial institution managing the system. Cross-chain conversion is what’s known as an automated market maker (AMM), a cornerstone of the decentralized finance (DeFi) ecosystem. AMMs like Bancor aim to make more niche altcoins that have smaller market caps more liquid by making it lucrative for users to sustain pools of tokens, and allowing for the swaps to take place without relying on a large exchange.

Bancor has one feature other DeFi platforms do not – interoperability. Bancor works across both the EOS and Ethereum blockchains, whereas most DeFi protocols only work on Ethereum or another, similar smart contract platform.

Having launched in 2017 when DeFi was still new, Bancor is one of the more established AMMs. Other types of cryptocurrencies and platforms that leverage more than one crypto or blockchain were less common back then.

Here in this guide to crypto, we’ll explore how the Bancor cryptocurrency works.

History of the Bancor Network Token (BNT) Crypto

In 2017, the Bancor project raised $153 million in a token sale, managed by Bprotocol Foundation, a Swiss non-profit organization. Participants of the token sale received half the tokens, while the other half went to the founders of the project, Galia and Guy Benartzi. Silicon Valley venture capitalist Tim Draper is also an investor in the project.

How Does BNT Work?

Bancor automates its service by incentivizing users to deposit crypto into pools. A pool has two components – a token trading pair and a reserve of the BNT crypto.

Users deposit coins into a pool and receive new pool tokens in exchange. These pool tokens allow the user to get back their original funds they’ve locked away in the protocol.

BNT crypto serves as an intermediary between the trades of each token. In other words, the first token converts to BNT, and then BNT is converted to the second token. Because the process happens through a smart contract, some people refer to BNT as a “smart token.”

These automated features of the network may appeal to some traders as a security feature, since the crypto market is still largely unregulated.

Bancor also allows users to lock in one token at a time as opposed to a pair. Other AMMs sometimes require users to lock up pairs of tokens in certain proportions to each other. In a Bancor liquidity pool, users have the option to deposit ETH or DAI, for example. Some alternatives to Bancor would require a deposit of both ETH and DAI.

It’s worth noting that users also have to deposit BNT into the Bancor pool of their choice.

Using liquidity pools and the BNT token in this manner differentiates Bancor from some other decentralized applications, which require each trade order to match with another order. Instead of having to wait for a buyer or seller, Bancor users can access liquidity right away, thanks to the BNT smart token.

Developers overhauled the platform in 2020 to make it more user-friendly.

💡 Recommended: What Is a Liquidity Pool?

The Use of Price Oracles

In order to access accurate pricing information for the coins locked into the protocol, Bancor V2 uses a solution called an “oracle.” Oracles send real-time price information from an external source into an existing blockchain.

With this price data, the pools on Bancor can automatically adjust token proportions in alignment with changes in price. Liquidity providers can then withdraw tokens of the same value they originally deposited.

BNT Coin Price

At the time of writing, BNT was the #104 cryptocurrency by market cap and trading at $4.29 per BNT. This represents an approximately 150% increase year-to-date, as the token began 2021 trading at around $1.30.

The all-time high for the BNT price was about $9.30, reached in January 2018. The all-time low was about $0.14, reached in March 2020. That kind of volatility could make a difficult coin to HODL long-term.

How to Use BNT

You can use BNT tokens to exchange one type of crypto for another without needing a third-party. This may help traders who hold low liquidity tokens that don’t have a lot of trading volume on large exchanges.

BNT holders can also earn interest by locking up their tokens in the protocol. Those who stake tokens receive a portion of the trading fees incurred by traders using the platform.

BNT Coin Storage

BNT holders can keep their coin in any crypto wallet that supports ERC-20 tokens. ERC-20 is a type of standard for tokens that run on the Ethereum network. Many utility tokens fall under this category. Popular Ethereum wallets like MyEtherWallet support storage of ERC-20 tokens like BNT.

Traders might also hold their BNT tokens on an exchanged-hosted wallet. After buying coins on an exchange, the exchange will automatically hold it in a wallet on behalf of the investor. This method of storage is only as secure as the exchange itself, and is generally not advised for large amounts of funds held over the long-term.

Recommended: Cold Wallet vs Hot Wallet: Which to Choose?

How to Buy BNT Cryptocurrency

Buying Bancor network token is similar to buying other digital assets. Doing so involves a few simple steps.

•   Step 1: First, choose an exchange that supports BNT trading.

•   Step 2: Sign up for an account on the chosen exchange.

•   Step 3: Fund your account. Make sure the exchange supports a trading pair of the currency you deposit. For example, if the exchange only supports BTC/BNT, you will have to deposit bitcoin. If it only supports USD/BNT, you will have to deposit U.S. dollars, and so on.

•   Step 4: Place a buy order for BNT. Doing so could work differently depending on the exchange. Beginner-friendly exchanges allow users to simply place an order for a certain amount of BNT and have it instantly executed at the current market price. Other exchanges require users to select an existing ask (sell) order from the order books, and buy at that price, or create a new buy order at a price of their choosing.

•   Step 5: Optionally, users can then move their BNT off of an exchange, into their own crypto wallet.

•   Step 6: As with all assets, traders must keep track of their transactions so that they can declare the value of their crypto holdings at tax time.

BNT can also be acquired directly through the Bancor smart contract. Users can convert any supported ERC-20 token on Bancor’s web app.

The Takeaway

BNT is a smart token that facilitates decentralized trading through an automated market maker by functioning as a reserve currency. It may be a way for some investors to bet on its technology, or to build a diversified portfolio of cryptocurrency.

Photo credit: iStock/gradyreese

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit 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.

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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