Options Pricing: How Options Are Priced

Guide to Options Prices: How are Options Priced?

Options are derivative financial instruments that give the buyer the right (but not the obligation) to buy or sell an underlying security, such as a stock, within a predetermined time period for a predetermined price, known as the strike price.

Investors like options because they allow the investor to bet on the price increase or decrease of a stock, without owning the stock itself. There are two main types of options: call options and put options. An investor who buys a call option buys the right to buy the option’s underlying asset. An investor who purchases a put option is buying the ability to sell the option’s underlying asset.

Recommended: A Guide to Options Trading

How is an Option Price Determined?

The sellers of an option take many different factors into account to determine the price, or premium, of an option. The most widely known method for determining the value of an option is the Black-Scholes model. But other models – such as the binomial and trinomial options pricing models – are more commonly used to determine stock option prices.

All of those options pricing models are complex, but they all draw on a few primary factors that drive the investment value of an options contract:

• the market price of the stock that underlies the option

• the current intrinsic value of the option

• the time until the option expires

• volatility

Market Price and Intrinsic Value

The first is easy to understand – it’s the price at which the underlying stock is trading. The second – the intrinsic value of the option – is the value of the option would be worth if sold at that moment. This only applies if the price of the underlying stock has moved to where the option is “in the money,” meaning the owner of the option would make a profit by exercising it.

Recommended: Popular Options Trading Terminology to Know

Time Value

The time until expiration is more complex. It represents the possibility that an out-of-the-money option could eventually become profitable. This so-called time value reflects the amount of time an option has until it expires. It’s one part of an option’s value that only goes down – and which goes at an increasingly rapid rate as the options contract approaches expiration. As the expiration date gets closer, the underlying stock must make bigger moves for those price changes to make significant changes in stock options pricing.

Volatility

That time value reflects the volatility of the underlying security, as well as the market’s expectation of that security’s future volatility. As a general rule, stocks with a history of high volatility underlie options that with a higher likelihood to be in-the-money at the time of their expiration.

Volatility, in many pricing models, is represented by beta, which is the volatility of a given stock versus the volatility of the overall market. And options on stocks with higher historic or expected volatility typically cost more than options contracts on stocks that have little reputation for dramatic price swings.

Recommended: Understanding The Greeks in Options Trading

What Are the Different Option Pricing Models?

There are several models that investors and day traders consider when figuring out how to price an option. Here’s a look at a few of the most common:

The Black-Scholes Merton (BSM) Model

The best-known options pricing method is the Black-Scholes model. The model consists of a mathematical formula that can be daunting for people without a math background. That’s why both institutional and retail investors employ online options calculators and analysis tools.

The economists who created the formula published their findings in 1973, and won the 1997 Nobel Prize in economics for this new method for arriving at the value of financial derivatives.

Also known as the Black-Scholes Merton (BSM) model, the Black-Scholes equation takes the following into account:

• the underlying stock’s price

• the option’s strike price

• current interest rates

• the option’s time to expiration

• the underlying stock’s volatility

In its pure form, the Black-Scholes model only works for European options, which investors can not exercise until their expiration date. The model doesn’t work for U.S. options, because U.S. options can be exercised before their expiration date.

The Binomial Option Pricing Model

The Binomial Option Pricing Model is less well-known outside of financial circles, but it’s more widely used. One reason it’s more popular than the Black-Scholes Model is that it can work for U.S. options. Invented in 1979, the binomial model reflects on a very simple assumption – that in any pricing scenario the premium will go one of two ways: up or down.

As a method for calculating an option’s value, the binomial pricing model uses the same basic data inputs as other models, with the ability to update the equation as new information emerges. In comparison with other models, the binomial option pricing model is very simple at first, but it becomes more complex as investors take multiple time periods into account. For a U.S. option, which the owner can exercise at any point before it expires, traders often use the binomial model to decide when to exercise the option.

By using the binomial option pricing model with multiple periods of time, the trader has the advantage of being able to better visualize the change in the price of the underlying asset over time, and then evaluate the option at each point in time. It also allows the trader to update those multi-period equations based on each day’s price movements, and emerging market news.

Recommended: What Is a Straddle in Options Trading?

The Trinomial Option Pricing Model

The trinomial option pricing model is similar to the binomial model but it allows for three possible outcomes for an option’s underlying asset within a given period. Its value can go up, go down, or stay the same. As they do with the binomial model, traders recalculate the trinomial pricing model over the course of an option’s life, as the factors that drive the option’s price change, and as new information comes to light.

Its simplicity and acknowledgement of a static price possibility makes it more widely used than the binomial option pricing model. When pricing exotic options, or any complex option with features that make it harder to calculate than the common calls and puts on an exchange, many investors favor the trinomial model as a more stable and accurate way of understanding what the price of the option should be.

The Takeaway

Understanding how options pricing works is important, whether you’re interested in trading options or not. However, you can also build a more straightforward portfolio that does not use options at all.

A great way to get started is by opening an account on the SoFi Invest brokerage platform. SoFi Invest offers an active investing solution that allows you to choose stocks and ETFs without paying SoFi commissions. SoFi Invest also offers an automated investing solution that invests your money for you based on your goals and risk.

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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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Understanding The Different Types of Cryptocurrency

When Bitcoin launched in 2009, it didn’t have much — or any — competition in the newly minted realm of digital currency. By 2011, though, new types of cryptocurrency began to emerge as competitors adopted the blockchain technology bitcoin was built on to launch their own platforms and currencies. Suddenly the race to create more crypto was on.

Today there are thousands of different types of cryptocurrency, and while each is designed to provide some new feature or function, most are founded on similar principles to those that established bitcoin:

•  Cryptocurrencies are not issued, regulated, or backed by a central authority like a bank.

•  They are created using a distributed ledger (blockchain) and peer-to-peer review.

•  Bitcoin and other coins are encrypted (secured) with specialized computer code called cryptography.

•  As assets, cryptocurrencies are generally stored in digital wallets, commonly a blockchain wallet, which allows users to manage and trade their coins.

As of September 2021, estimates of the different types of cryptocurrency you can trade range from nearly 6,000 coins to over 10,000, with a total market capitalization of nearly $2 trillion.

What Are the Different Types of Crypto?

Different types of crypto generally fall into one of two categories:

•  Coins, which can include Bitcoin and altcoins (non-Bitcoin cryptocurrencies)

•  Tokens, which are programmable assets that live within the blockchain of a given platform.

Though many people use the words crypto, coins, and tokens interchangeably, it’s important to understand how they differ from one another.

Crypto Coins vs. Tokens

While coins and tokens are considered forms of cryptocurrency, they provide different functions. Coins are built on their own blockchain and they’re intended as a form of currency. Ether (ETH) is the cryptocurrency based on the Ethereum blockchain, for example.

Generally, any blockchain-based cryptocurrency that is not bitcoin is referred to as an altcoin (more on those below).

Tokens are also built on an existing blockchain, but they aren’t considered currency but rather programmable assets that allow for the creation and execution of unique smart contracts. These contracts can establish ownership of assets outside of the blockchain network. Tokens can represent units of value—including real-world items like electricity, money, points, coins, digital assets, and more—and can be sent and received.

For example the BAT, or Basic Attention Token, is built on the Ethereum platform and is used in digital advertising.

What Are Altcoins?

The name “altcoin” began as a shorthand for “alternative to Bitcoin,” and most altcoins were launched to improve upon Bitcoin in some way. Some examples include: Namecoin, Litecoin, Peercoin, Ethereum, and USD Coin.

Like Bitcoin, some cryptocurrencies have a limited supply of coins — which helps create demand and reinforce their perceived value. For example, there is a fixed number of Bitcoins that can be created — 21 million, as decided by the creator(s) of Bitcoin.

Though most altcoins are built on the same basic framework as Bitcoin and share some of its characteristics, each one offers investors something different. Some altcoins use a different process to produce and validate blocks of transactions. Some might offer new features, like smart contracts or an advantage like lower price volatility.

Tokens

Tokens are usually created and given out through an Initial Coin Offering, or ICO, very much like a stock offering. They can be represented as:

•  Value tokens (like bitcoins)

•  Security tokens (which are similar to stocks)

•  Utility tokens (designated for specific uses)

Like American dollars, tokens represent value, but they are not exactly valuable themselves, in the same way a paper dollar’s value may not be $1. But tokens can be used in transactions for other things.

A token differs from a coin in the way it’s constructed within the blockchain of an existing coin like Bitcoin or Ethereum.

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The 10 Most Common Types of Cryptocurrency

Here’s a list of the 10 biggest cryptocurrencies by market capitalization, according to CoinMarketCap as of 9/14/21. Because there are so many virtual currencies at wildly varying prices, market cap helps to identify those with the highest valuation. Note that the name of the blockchain platform may be different from its digital currency.

1. Bitcoin

Bitcoin was the first cryptocurrency to be created in 2009 by a person (or possibly a group) that goes by the pseudonym Satoshi Nakamoto. As noted above, there are more than 18.8 million Bitcoin tokens in circulation as of September 2021, against a capped limit of 21 million.

Bitcoin was designed to be independent of any government or central bank. Instead it relies on blockchain technology, a decentralized public ledger that contains a digital record of every Bitcoin transaction. Bitcoin established the basic system of cryptography and consensus (i.e., peer-to-peer) verification that is the foundation of most forms of crypto today.

So-called bitcoin miners use powerful computers to verify blocks of transactions and generate more bitcoins — a complex, time-consuming process called proof-of-work (PoW). The transactions are logged permanently on the blockchain — which helps to validate and secure each bitcoin and the network as a whole. Recently, the vast amount of energy required to create Bitcoin has raised concerns about environmental pollution.

2. Ethereum

Like Bitcoin, Ethereum is a blockchain network, but Ethereum was designed as a programmable blockchain, meaning it wasn’t created to support a currency — but to enable the network’s users to create, publish, monetize, and use applications (called “dApps”). Ether (ETH), the native Ethereum currency, was developed as a form of payment on the Ethereum platform.

As of September 2021, Ether was the number two virtual currency, behind Bitcoin. ETH is also generated using a proof-of-work system. But unlike Bitcoin, there is no limit to the number of ETHs that can be created.

Ethereum has helped fuel many initial coin offerings, since many of the ICOs used Ethereum blockchain. Ethereum has also been behind the boom in non-fungible tokens (NFTs) — digital versions of art or collectibles that are linked to a blockchain and made one-of-a-kind.

3. Cardano (ADA)

Cardano bills itself as a third-generation blockchain platform, to cast itself as a next-level player. Cardano relies on proof-of-stake (PoS), meaning that the complicated PoW calculations and high electricity usage required for mining coins like Bitcoin aren’t necessary, potentially making its network more efficient and sustainable.

Its cryptocurrency is called ada, after Ada Lovelace, a 19th-century mathematician.

Cardano’s main applications are in identity management and traceability. The first application can be used to streamline the collection of data from multiple sources. The latter can be used to audit a product’s manufacturing path, and potentially prevent fraud and counterfeit goods.

Cardano is being built in five phases toward achieving its goal of developing the network into a decentralized application (dApp) platform with a multi-asset ledger and verifiable smart contracts. Each phase, or era, in the Cardano roadmap is anchored by its research-based framework and peer-reviewed insights, which have helped establish its scholarly reputation.

4. Binance Coin (BNB)

Binance is one of the world’s biggest cryptocurrency exchanges, and Binance Coin (BNB) is a cryptocurrency token that was created to be used as a medium of exchange on Binance. It was initially built on the Ethereum blockchain, but now lives on Binance’s own blockchain platform.

BNB was created as a utility token in 2017 that allowed traders to get discounts on trading fees on Binance, but now it can also be used for payments, to book travel, for entertainment, online services, and even financial services.

BNB was created with a maximum of 200 million tokens, about half of which were made available to investors during its ICO. Every quarter, Binance buys back and then “burns” or permanently destroys some of the coins it holds to drive demand. In July 2021, Binance completed its 16th burn, of about 1.29 million BNB, roughly equal to $394 million at that time.

5. Tether

Tether was the first cryptocurrency marketed as a “stablecoin” — a breed of crypto known as fiat-collateralized stablecoins. The value of the tether is pegged to a fiat currency — in this case, the U.S. dollar.

Like other stablecoins, the tether is designed to offer stability, transparency, and lower transaction charges to users. Tether is not a speculative investment like some cryptocurrencies; rather it can be used by investors who want to avoid the extreme volatility of the crypto market. As of February 2021, 57% of bitcoin trading was conducted using tethers.

Tether is pegged to the U.S. dollar (which is why the ticker is USDT), and it allegedly maintains a 1:1 value with the dollar, although this claim has come under some scrutiny. According to the company, there is no guarantee provided by Tether, Ltd. for any redemption of tethers; i.e., tethers cannot be exchanged for U.S. dollars.

6. Solana

Solana is a blockchain platform that generates the cryptocurrency known as Sol. One of the more volatile currencies of late, the Sol was trading at about $191.00 on Sept. 10, 2021 — and one year ago it was worth $3.42. What accounts for its growing presence in the land of crypto?

Solana has made strides in decentralized finance (a.k.a. DeFi) and specifically its smart contract technology, which are programs that run on the platform according to preset conditions (like paper contracts, but without the middlemen). Solana was also behind the “Degenerate Ape Academy,” a non-fungible token (NFT) that was launched in August 2021.

7. XRP

XRP was developed by Ripple Labs, Inc. And while some people use the terms XRP and Ripple interchangeably, they are different. Ripple is a global money transfer network used by financial services companies. XRP is the crypto that was designed to work on the Ripple network. You can buy XRP as an investment, as a coin to exchange for other cryptocurrencies, or as a way to finance transactions on Ripple.

Unlike Bitcoin and many other cryptocurrencies, XRP can’t be mined; instead there is a limited number of coins — 100 billion XRP that already exist. Also, XRP doesn’t rely on a complex digital verification process via blockchain the way Bitcoin and others do. The Ripple network employs a unique system for validating transactions in which participating nodes conduct a poll to verify transactions. This makes XRP transactions faster and cheaper than Bitcoin.

8. Dogecoin

Dogecoin (pronounced dohj-coin) is widely known as the first joke cryptocurrency; it was launched in 2013 as a way to poke fun at Bitcoin. Nonetheless, the currency captured people’s attention and a fair amount of investment. In April of 2019, a tweet from Elon Musk indicated he had a positive view of Dogecoin, which further raised Dogecoin’s profile as a legitimate cryptocurrency.

Dogecoin is similar to Bitcoin and Ethereum in that it’s run on a blockchain network using a PoW system. But the number of coins that can be mined are unlimited (versus the 21 million-coin cap on Bitcoin).

Dogecoin is also associated with some headline moments in crypto; investors paid the equivalent of about $30,000 in Dogecoin to help send the Jamaican bobsled team to the Winter Olympics in 2014.

Despite its place as one of the biggest coins by market cap, it trades at one of the lowest prices: about 24 cents, as of Sept. 10, 2021.

9. Polkadot (DOT)

Polkadot was co-founded by Gavin Wood, also a co-founder of Ethereum, to take the capabilities of a blockchain network to another level. The blockchain’s cryptocurrency is called dot.

In fact, Polkadot operates using two blockchains — the main “relay” network, where transactions are permanent, and a parallel network of user-created blockchains, called “parachains.” Parachains can be customized for myriad uses like building apps (they can even support other coins), and they benefit from the security of the main blockchain.

What differentiates Polkadot from other blockchains is its core mission to solve the problem of interoperability by building so-called bridges between blockchains. Polkadot is not the only system trying to act as a translator to help blockchains talk to one another, but since it was established in 2020, it has become one of the bigger networks in a relatively short time.

10. USD (USDC)

USD Coin (USDC) is a stablecoin that runs on the Ethereum blockchain and several others. It is pegged to the U.S. dollar. Meaning that, like the stablecoin tether (USDT) described above, a USDC is worth one U.S. dollar — the guaranteed 1:1 ratio making it a stable form of exchange.

The goal of having a stablecoin like USDC is to make transactions faster and cheaper. While there are questions about whether the tether stablecoin is fully backed by U.S. dollar reserves, some investors believe that USDC is more transparent: its reserves are monitored by the American arm of Grant Thornton, LLC, a global accounting firm. On March 29, 2021, Visa announced the use of USDC to settle transactions on its payment network. As of June 2021 there were 24.1 billion USDC in circulation.

The Role of Miners in Cryptocurrency

How exactly do you get your virtual hands on different types of cryptocurrency? You can buy it the old-fashioned way, by buying it on an exchange like Coinbase (or using your SoFi Invest® account). You can also trade crypto on an exchange for other types of crypto (for example, using tethers to buy bitcoin). Some blogs and media platforms pay their content providers in crypto.

Then there are the miners. Miners usually don’t pay directly for their crypto; they earn it in various ways: e.g., through a painstaking, high-tech process of verifying transactions on a blockchain network.

Sounds sweet, but mining isn’t cheap. It requires powerful, expensive hardware and lots of electricity, and the competition can be fierce.

Hard Forks vs. Soft Forks and Why They Matter

Sometimes, a cryptocurrency — whether Bitcoin or an altcoin — forks. The concept is similar to reaching a literal fork in the road, where you have to pick one direction or the other. But with crypto forking is more complicated (of course), as it involves the nodes or computers that store, maintain, and validate the blockchain. Also, there are hard forks and soft forks.

In simplest terms, a fork creates a divergence in the blockchain protocol. A fork typically happens when the blockchain needs an upgrade or update; there’s evidence of hacking or fraud; or a large enough group of miners decide to change the network’s protocol.

Hard Forks

Developers might implement a hard fork for a variety of reasons, like correcting security risks found in older versions of the software, to reverse transactions, or add new functionality. For example, in September 2021 the Cardano blockchain forked in order to allow more smart-contract capabilities.

Some memorable hard forks include several on the Bitcoin platform that led to the creation of new crypto (e.g. Bitcoin Cash, Bitcoin Gold), and one on the Ethereum platform that addressed a massive crypto heist by reversing the fraudulent transactions on the old blockchain by forking to create a new blockchain.

Typically, a hard fork requires all miners on the platform to agree to the new update, which in effect creates a new branch of the blockchain.

Soft Forks

Soft forks are different from hard forks in that they are “backwards compatible.” This means that the change to the software protocol only makes previously valid transactions invalid. Old nodes will still recognize the new blocks as valid.

Soft forks don’t require any nodes to upgrade to maintain consensus, since all blocks with the new soft forked-in rules also follow the old rules, therefore old clients accept them.

The Takeaway

While Bitcoin launched the crypto craze a little more than a decade ago, today there are thousands of different cryptocurrencies that investors may want to learn about and invest in.

But cryptocurrencies aren’t like other real-world, fiat currencies, like the dollar, euro or yen. Those are tangible currencies, governed by central authorities, and they all operate in the same way as a store of value. Meaning: You can exchange any fiat currency for goods and services. Cryptocurrencies — which can include different types of coins (e.g. stablecoins, utility coins) and tokens (programmable assets) — serve many purposes.

As an investor, the guide to the top 10 different types of cryptocurrency above provides a grounding in what the biggest currencies are, but how and why they differ from each other. This can help you decide how best to invest in crypto. And what better place to start than by opening an account with SoFi Invest®? SoFi Members can manage crypto investments in the SoFi app, with the peace of mind of knowing their crypto is in a secure platform.

Find out how SoFi Invest can help you with your investment goals.


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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How Does Bitcoin Mining Work?

Mining Bitcoin is more than just the creation of Bitcoin tokens; it’s also the decentralized global system by which miners validate and secure all Bitcoin transactions — and earn Bitcoin themselves.

How does mining Bitcoin work — i.e. how does a miner actually mine Bitcoin? It goes back to the blockchain technology that Bitcoin is built on. Although the word mining implies that the reward lies in extracting a precious ore — or creating a Bitcoin — in fact miners rely on super-charged computer systems to validate blocks of digital transactions to do their crypto mining.

Once a miner has completed a certain number of calculations (1 MB) to verify a block of transactions, they may be rewarded with new Bitcoins — if they are the first to verify the block. This competitive process in turn helps to secure the system and prevent fraud. And it enables a network-wide consensus that essentially backs the validity of each Bitcoin, even without a central authority.

How Blockchain Enables Crypto Mining

Quick refresher: Unlike other traditional currencies Bitcoin isn’t overseen, issued or regulated by a central authority such as a bank. Instead, miners mint Bitcoin using blockchain — the transparent, digital public ledger that is essentially a list (or chain) of confirmed Bitcoin transactions that verifies the integrity of each transaction.

The transactions are confirmed by Bitcoin miners, who use special computer hardware to do the complex mathematical cryptography calculations required to confirm each item on the blockchain — an immense undertaking called a “proof of work” that involves literally billions of calculations.

Bitcoin miners are rewarded for this service with transaction fees and newly generated Bitcoins (and the satisfaction of knowing they are also helping to create, validate, and protect the Bitcoin universe).

Since there’s no government running Bitcoin — just a global network of computers, users, and software — how does Bitcoin mining work and generate new coins?

When a Bitcoin transaction is executed, it gets sent to miners for verification. For new transactions to be confirmed, the miners need to be included in a block along with the mathematical proof of work. The process of mining Bitcoin actually helps secure the network, and the transactions that fly across it every day. For a hacker to take control of the blockchain, to commit fraudulent charges, and to steal Bitcoin, they’d have to control over 51% of the network.

It’s an important insight into the decentralized world of crypto mining: Rewarding miners creates a competitive environment that encourages more miners to join the network. This increases the size of the network, making it harder to get more than 51% control of it, which in turn makes transactions more secure for users who are sending Bitcoins back and forth.

Is Mining Bitcoin Legal?

The question of whether Bitcoin mining is legal is still fairly complex and can vary from region to region. The short answer is that Bitcoin itself, as well as Bitcoin mining, are legal in many developed countries, including the U.S., U.K. and Japan. In general though, it’s wise to consider the use of any cryptocurrency within the context of the laws and regulations in a specific jurisdiction, as many are still in flux.

In some countries, the use of cryptocurrencies is forbidden and mining Bitcoin is illegal. In others, like China and India, the use of crypto is restricted. In Canada it’s not illegal to use cryptocurrencies, but they are not considered legal tender — which is a key distinction in how crypto is treated in the U.S. as well.

According to IRS guidelines issued in 2014, cryptocurrencies like Bitcoin are considered property, and are taxed as such. Also, if an employer compensates an employee using a cryptocurrency, the employee will get a W2 or 1099 tax form and may owe income taxes on their crypto paycheck.

Whether you’re contemplating crypto mining yourself, planning to trade crypto, or just wondering how to mine Bitcoin, it’s best to keep an eye on the news. The status of cryptocurrency mining as well as crypto’s legal standing can shift as new regulations come into play.

How Much Does a Miner Earn?

Given the speed at which technology can change and markets can shift — and new laws, policies, and trends can take hold — what miners actually earn can be tough to predict.

When miners mine Bitcoin, they compete against one another to create a hash — or 64-digit hexadecimal number — which goes into the blockchain ledger as confirmation of that Bitcoin transaction. When a computer solves the computation, that miner gets 6.25 Bitcoin — about $293,000 as of 8/31/21.

Remember, though: You have to be the first to validate a block of transactions in order to earn Bitcoin. Mining has become so competitive that some mining rigs leverage the computational muscle of thousands of high-powered computers to complete this process and ‘win’ (more on that in the next section). In short, miners have to subtract the time, effort, and considerable energy it takes to mine Bitcoin to determine their actual earnings.

Also, if you’re part of a mining pool, you would likely get only a portion of the total amount earned.

What Do I Need to Mine Bitcoins?

With the right equipment, nearly anyone can mine Bitcoin — in theory. The catch? As just discussed, Bitcoin mining has become highly competitive because of the potential rewards — and the complexity of the calculations and technology involved.

When Bitcoin was first announced in 2009, all miners needed was a sturdy PC and they could potentially get in the game. Things progressed quickly, though. In 2010, software was released that let miners mine with graphics processing units (GPUs), the technical name for a video card.

This was a major shift in Bitcoin mining because a single GPU was 100 times faster than a central processing unit (CPU), which was how most people were initially mining.

Then miners started getting fancy. They built computers specifically for mining Bitcoin, as well as other cryptocurrencies. These “crypto mining rigs” could feature motherboards, the main hub of a computer, that supported four to eight graphics cards.

If a single card was 100 times faster than a CPU, it’s easy to see how the average user looking to mine Bitcoin might be left in the dust by a high-powered crypto rig that featured anywhere from four to eight GPUs churning away at blockchain calculations.

From there, as is the case with many things tech, the hardware got better, faster, and more specialized. In 2013 the first Bitcoin ASIC miners hit the scene. ASIC stands for application-specific integrated circuit. These mining tools are built to do one thing — mine cryptocurrencies (including Bitcoin).

ASICs are an option if you’re thinking about getting into mining. While they’re more effective at processing Bitcoin transactions than their GPU and CPU predecessors, and they’re more energy efficient, they can come with some upfront costs, running anywhere from $1,000 to $3,000. And this doesn’t include the potentially high utility costs needed to maintain them (read: keep them cool enough to function).
Another option to consider may be a mining pool.

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How Bitcoin Mining Pools Work

A mining pool is a group of users who have decided to join forces to validate Bitcoin transactions (create a new block). Users who join mining pools contribute their own CPUs, GPUs, or ASICs to a network and when rewards are paid out, they all get a share.

Joining a mining pool isn’t too difficult. The first thing a user may want to have is a Bitcoin wallet. A Bitcoin wallet is a digital or physical place where you keep your Bitcoin, private keys (codes) and addresses.

There are many options when it comes to a Bitcoin wallet, from software solutions, to sites, to wallets that come in the form of hardware in secure USB sticks. A wallet makes a good first step because it’s where shares of rewards (new Bitcoins) would be sent and stored.

A next good step to joining a mining pool may be grabbing some Bitcoin mining software. Even if you’re thinking about going it alone, this software may be key to getting started.

If you are going solo, this software will try to verify transactions with just the processing power of whatever hardware (CPU, GPU, or ASIC) that you’ve got. That said, many folks agree that the computations have gotten so complex, it’s less likely that a solo miner will create a new block on their own. If you’re joining a pool, the mining software will help you connect to your pool.

Once miners have their wallets and software situation sorted, a good next step would likely be finding a mining pool they like and joining it. Many mining pools these days are located in China because of the cheaper electricity. Some of these pools are actually companies, including F2Pool, AntPool, BTCC, and BW. While these are some of the biggest pools, there are pools based in the U.S. and Europe as well.

While pools might seem appealing to miners with less computing horsepower, there may be some things to consider before joining. Pools may charge users a fee. And miners might be paid out their shares based on the level of their contribution, which could mean that miners with fancy ASICs take home more of the rewards.

Since this is Bitcoin, there’s probably another innovation around the corner.

Cloud mining is an example — an option if you don’t want to own your own mining hardware and would rather mine with someone else’s. However, cloud mining may also come with its own costs and risks that have left some members of the Bitcoin community less than impressed with this approach to mining coins.

What’s Cloud Mining?

Much like storing data or running applications in the cloud, cloud mining is the process of paying someone else to use their crypto mining hardware. This could save a miner the upfront cost of graphics card or ASIC systems. To get started, a miner would likely open an account with a cloud mining company, decide how much they want to spend, and how much they want to mine.

While cloud mining may seem like an easier way to get started with Bitcoin mining, it’s worth mentioning that there have been reports of cloud mining companies that might not be on the up and up. Miners looking to get started might consider doing a fair bit of research before deciding if cloud mining is right for them—as well as what company to go with.

The Risks of Crypto Mining

In addition to questions of legality, crypto mining can involve other risks — from excessive energy use, which may have environmental implications, to regulatory and security risks.

Environmental risks:

Because mining Bitcoin requires so much computer power and uses so much electricity — the hash rate of Bitcoin has been at record highs this year — the environmental impact of crypto mining has come under serious scrutiny. And last spring, when a well-known car manufacturer declined to accept cryptocurrency owing to its potential environmental toll, the issue made headlines.

What’s going on? Researchers estimate that some 80% of Bitcoin mining takes place primarily in four countries (China, Russia, Kazakhstan, Iran) — places where energy is cheap and fossil fuels like coal generate most of the country’s electricity. Thus there is a significant risk of higher carbon emissions from those networks.

Some newer altcoins (alternatives to Bitcoin) claim to be more environmentally friendly, but when you think about how to mine Bitcoin, this is a risk to consider.

Security risks:

Being part of a decentralized, global system that’s largely unregulated does come with some security risks. In some cases, using Bitcoin software could make your personal devices more vulnerable. If you’re part of a mining pool, that may help to mitigate some of the risks.

Regulatory risks:

As discussed above, the question of Bitcoin’s legality is increasingly complex and depends on a wave of regulations around the world that seem to fluctuate week to week, region to region. These may include how Bitcoin is defined (e.g. as a commodity or a currency); how it can be used (e.g. for some purchases or payments but not others); how it’s taxed.

Investment risk:

The value of Bitcoin and other crypto currencies is another factor that keeps fluctuating. A decade ago, many investors placed their bets on the generally upward trajectory of crypto, but as recent swings in valuation this year have shown, that’s not something investors can count on.

Is Bitcoin Mining Right for You?

Despite some hurdles, learning how to mine Bitcoin is still an intriguing and potentially lucrative opportunity for some. With the right equipment, it’s possible to validate enough transactions to earn actual Bitcoin tokens. That said, mining Bitcoin is not the gold rush it once was. Even if you invest in some serious Bitcoin mining ASICs, mining itself keeps getting more complex and competitive.

That doesn’t mean you can’t do crypto mining, though. There are thousands of cryptocurrencies that could use help from eager miners willing to donate some processing cycles from their CPUs or GPUs, and even if you don’t hit the mother lode, you could mine for a better understanding of how cryptocurrency works. Whether or not you want to grab a metaphorical hat and mining pick is up to you.


On SoFi Invest®, investors can trade their first cryptocurrency with as little as $10. Doing so will get them a bonus of $10 in Bitcoin. Unlike the stock market, investors can also trade cryptocurrencies like Bitcoin, Litecoin and Ethereum 24/7. Plus, SoFi takes security seriously and uses a number of tools to keep investors' crypto holdings secure.
Get started trading crypto on 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.
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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Understanding the Buy Low, Sell High Strategy

Buy Low, Sell High Strategy: An Investor’s Guide

When it comes to investing, there are certain rules of thumb that investors are often encouraged to follow. One of the most-repeated adages in investing is to “buy low sell high”.

Buying low and selling high simply means purchasing securities at one price, then selling them later at a higher price. This bit of investing wisdom offers a relatively straightforward take on how to realize profits in the market, but implementing it is more complicated than it sounds.

Figuring out how to buy low and sell high–and make this strategy work–is a bit more complicated, however. Timing the market is not a perfect science and understanding that is critical to investor success.

Recommended: Is it Possible to Time the Stock Market?

What Does It Mean to “Buy Low, Sell High”?

“Buy low, sell high” is an investment philosophy that advocates buying stocks or other securities at a lower price than you can later sell them. This is the opposite of buy high sell low, which effectively results in investors selling stocks at a loss.

When investors buy low and sell high they may do so in an attempt to maximize profits. For example, a day trader may purchase shares of XYZ stock at $10 in the morning, then turn around and sell them for $30 a share in the afternoon if the stock’s price increases. The end result is a $20 profit per share, less any trading fees or commissions.

Likewise, a buy-and-hold investor may purchase stocks or mutual funds and hold onto them for years or even decades. The pay off comes if they sell those securities later for more than what they paid for them.

Recommended: How to Know When to Sell a Stock

3 Tips on How to Buy Low and Sell High

Understanding stock market cycles and their correlation to the business cycle can help when determining how to buy low and sell high. If the business cycle is an expansion phase and the economy is growing, for instance, then stock prices may be on the upswing as well. On the other hand, if it’s become apparent that economic growth has peaked, that could be a signal for stock price drops to come.

It’s also important to remember that security prices typically don’t move in a straight line up or down. Most securities instead experience at least some level of volatility, where their prices move up or down (or both) in the short term before reverting to the mean.

These tips can help when developing a buy low, sell high strategy (or to simply avoid the buy high, sell low trap).

1. Look at Stock Pricing Trends

Investors who want to buy low may find it helpful to pay attention to pricing trends. Tracking trends for individual securities, for a particular stock market sector, or for the market as a whole can help investors get a sense of what kind of momentum is driving prices.

For instance, an investor who’s wondering how low a stock price can go can look at trends to identify significant pricing dips or rises in the stock’s history. This can make it easier to determine when a stock or security has reached its bottom, opening the door for buying opportunities. Conversely, investors can also use trends to evaluate when a stock has likely reached its high point, indicating that it’s prime time to sell.

2. Use Moving Averages

Moving averages are a commonly used indicator for technical analysis. A moving average represents the average price of a security over a set time period. So to find a simple moving average, for example, an investor would choose a time period to measure. Then they’d add up the stock’s closing price each day for that time period and divide it by the number of days.

The moving average formula can be useful for comparing stock pricing and determining points of resistance. In other words, they can tell investors where stock prices have topped out or bottomed out over time. Moving averages can smooth out occasional pricing blips that push stock prices up or down temporarily.

Comparing one moving average to another, such as the 50-day moving average to the 200-day moving average, can also help investors to spot sustainable up or down pricing trends. All of this can help when deciding when to buy low, sell high.

3. Beware of Investor Bias

An investor bias is a pattern of behavior that influences reactions to a changing market. For example, noise trading happens when an investor makes a trade without taking the state of the market or timing into account. The investor may be following pricing trends but making trades without considering whether the time is right to buy or sell.

Investors who give in to biases may find themselves following a herd mentality when it comes to making trades. If news of a pending interest rate hike sparks fear in the markets, for example, investors may start panic selling in droves. This can in turn cause stock prices to drop. On the other hand, irrational exuberance for a specific stock or type of security can push prices up, causing an unsustainable market bubble.

Investors who can refrain from being influenced by the crowd stand a better chance of making rational decisions about when to buy or when to sell to either maximize profits or minimize losses.

Recommended: How to Use the Fear and Greed Index to Your Advantage

Pros and Cons of Buy Low, Sell High

A buy low, sell high strategy can work for investors, but while it’s a worthy goal, the implementation can be difficult. Investors who are too focused on timing the market can run into difficulties.

Benefits of Buy Low, Sell High

Buying low and selling high can yield these advantages to investors.

Bargain-buying opportunities. If investor sentiment is causing fear and panic to take over the market and push stock prices down, that could open a door for buy low, sell high investors. Individuals who choose to ignore market panic could purchase stocks and other securities at a discount, only to benefit later once the market rebounds and prices begin to rise again.

Potential for high returns. An investor who is skilled at spotting trendings and reading the market cycle could reap sizable profits using a buy low, sell high strategy. The wider the gap between a stock’s purchase price and its sale price, the higher the profit margin.

Beat the market. A buy low, sell high approach could also help investors to beat the market if their portfolio performs better than expected. This might be preferable for active traders who choose to forgo a passive or indexing approach to investing.

Disadvantages of Buy Low, Sell High

Attempting to buy low and sell high also holds some risks for investors.

Timing the market is imperfect. There’s no way to time the market and which way stock prices will go at any given moment with 100% accuracy. So there’s still some risk involved for investors who jump the gun on when to buy or sell if stocks haven’t reached their respective lowest or highest points.

Being left out of the market. Investors who want to buy low and sell high would not want to buy securities when the market is up. That practice, however, could lead to substantial time out of the market entirely.

Biases can influence decision-making. Investment biases and herd mentality can wreak havoc in a portfolio if an investor allows it. Instead of buying low and selling at a profit later, investors may find themselves in a buy high, sell low cycle where they’re losing money on investments.

Pricing doesn’t tell the whole story. While tracking stock pricing trends and moving averages can be useful, they don’t offer a complete picture of what drives pricing changes. For that reason, it’s important for investors to also consider other factors, such as consumer sentiment, the possibility of a merger or geopolitical events, that could be influencing stock prices.

Alternatives to Buy Low, Sell High

Buying low and selling high is not a foolproof way to match the market’s performance or beat it. It’s easy to make mistakes and lose money when attempting to time the market, unless of course, you possess a crystal ball or psychic abilities.

There are, however, other ways to invest successfully without trying to get market timing right. Take dollar-cost averaging, for example. This strategy involves staying invested in the market continuously through its changing cycles. Instead of trying to time when to buy or sell, investors continue making new investments. Over time, the highs and lows in stock pricing average out.

A dividend reinvestment plan or DRIP is another option. Investors who own dividend-paying stocks may have the option to enroll in a DRIP. Instead of receiving dividend payouts as cash, they’re reinvesting into additional shares of the same stock. Similar to dollar-cost averaging, this approach could make it easier to ride out the ups and downs of the market over time and eliminate the stress of deciding when to buy or sell.

The Takeaway

While buying high and selling low is a good strategy in theory, it can be difficult to implement in practice. Executing a buy low, sell high strategy successfully means doing some research and due diligence to understand how the market works.

For investors who prefer to be more hands-off, automated investing could be the smarter approach. One way to get started is by opening an account on the SoFi Invest brokerage platform, which allows you to build wealth automatically with competitive fees.

Photo credit: iStock/katleho Seisa


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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A Guide to Financial Securities Licenses

A Guide to Financial Securities Licenses

Before someone can sell securities or offer financial advice they must first obtain the appropriate securities license. The Financial Industry Regulatory Authority (FINRA) is the organization that sets the requirements, oversees the process for earning an investments license, and administers most of the tests.

If you’re considering a career in the financial services industry it’s important to understand how securities licensing and registration works. Investors may also benefit from understanding what the various FINRA licenses signify when selecting an advisor.

What is a securities license and how do you obtain one? Here’s an overview of what the licensing process entails.

What Is a Securities License and Who Needs Them?

A securities license is a license that allows financial professionals to sell securities and/or offer financial advice. The type of license someone holds can determine the range of financial products and services they have authorization to offer to clients. Someone who holds one or more securities or investments licenses is a registered financial professional.

FINRA is the non-governmental agency responsible for overseeing the activities of registered financial professionals. That includes individuals who hold FINRA licenses to sell securities or offer advisory services. Individual investors do not need a license to buy and sell stocks.

Recommended: How to Start Investing in Stocks: A Beginner’s Guide

Under FINRA rules, anyone who’s associated with a brokerage firm and engages in that firm’s securities business must have a license.

Some specific examples of individuals who might need to a license from FINRA include:

• Registered Investment Advisors (RIAs)

• Financial advisors who want to sell mutual funds, annuities, and other investment packages on a commission-basis

Investment bankers

• Fee-only financial advisors who only charge for the services they provide

• Stockbrokers and commodities or futures traders

• Advisors who oversee separately managed accounts

• Individuals who want to play an advisory or consulting role in mergers and acquisitions

IPO underwriters

The North American Securities Administrators Association (NASAA) represents state securities regulators in the United States, Canada, and Mexico. This organization is responsible for licensing investment advisor firms and securities firms at the state level, registering certain securities offered to investors, and enforcing state securities law.

Types of FINRA Licenses

FINRA offers a number of different securities licenses. If you’re considering a career in securities trading, it’s important to understand which one or ones you might need. The appropriate license will depend on the type of securities that you want to sell, how you’ll get paid, and what (if any) other services you’ll provide to your clients.

Here’s a rundown of some of the most common FINRA licenses, what they’re used for and how to obtain one:

Series 6

FINRA offers the Series 6 Investment Company and Variable Contracts Products Representative Exam for individuals who work for investment companies and sell variable contracts products. The types of products you can sell while holding this securities license include:

• Mutual funds (closed-end funds on the initial offering only)

Variable annuities

• Variable life insurance

• Unit investment trusts (UITs)

• Municipal fund securities, including 529 plans

Obtaining this FINRA license requires you to also pass the introductory Securities Industry Essentials (SIE) exam. This 75-question exam tests your basic knowledge of the securities industry. FINRA offers a practice test online to help you study for the SIE. You can also watch a tutorial to learn how the 50-question Series 6 exam works.

Beyond those options you may consider investing in a paid Series 6 study prep course. Series 6 courses can help you familiarize yourself with the various variable products you can sell with this license and industry best practices. You’ll need to obtain a score of at least 70 to pass both the SIE and the Series 6 exam.

Series 7

People who see stocks and other securities must take the Series 7 General Securities Representative Exam. You may consider a Series 7 investments license if you want to sell:

• Public offerings and/or private placements of corporate securities (i.e. stocks and bonds)

• Rights

• Stock warrants

Mutual funds

• Money market funds

• Unit investment trusts

Exchange-traded funds (ETFs)

Real estate investment trusts (REITs)

• Options on mortgage-backed securities

• Government securities

• Repos and certificates of accrual on government securities

• Direct participation programs

• Venture capital

• Municipal securities

• Hedge funds

This securities license offers the widest range, in terms of what you can sell. The only things you’re not allowed to sell are real estate, life insurance products, and commodities futures.

You’ll need to take and pass the SIE to obtain a Series 7 exam. The Series 7 exam has 125 questions in a multiple choice format and 72 is a passing score. FINRA offers a content outline you can review to get a feel for what’s included on the exam. You may also benefit from taking a study course that covers the various securities you’re authorized to sell with the Series 7 license as well as the ethical and legal responsibilities the license conveys.

Series 3

Investment professionals can earn the Series 3 license by completing the Series 3 National Commodities Futures Exam. This test focuses on the knowledge necessary to sell commodities futures. This is a National Futures Association (NFA) exam administered by FINRA. It has 120 multiple choice questions, with 70% considered a passing score.

You have to pass the Series 3 license exam to join the National Futures Association. In terms of what’s included in the exam and how to study for it, the test is divided into these subjects:

• Futures trading theory and basic functions terminology

• Futures margins, options premiums, price limits, futures settlements, delivery, exercise and assignment

• Types of orders

• Hedging strategies

• Spread trading strategies

• Option hedging

• Regulatory requirements

Neither FINRA nor the NFA offer detailed study guides or practice tests for the Series 3 securities license. But you can purchase study prep materials online.

Series 63

The Series 63 Uniform Securities Agent State Law Exam is an NASAA exam administered by FINRA. The test has 60 questions, of which you’ll need to get at least 43 correct in order to pass.

You’ll need this license if you also hold a Series 6 or Series 7 license and you want to sell securities in any state. The NASAA offers a downloadable study guide that offers an overview of what’s included on the Series 63 securities license exam. Topics include:

• Regulation of investment advisors

• Regulation of broker-dealers

• Regulation of securities and issuers

• Communication with customers and prospects

• Ethical practices

Beyond that, the NASAA offers a list of suggested vendors for purchasing Series 63 exam study materials. But it doesn’t specifically endorse any of these vendors or their products for individuals who plan to obtain a Series 63 license.

Series 65

The Series 65 Uniform Investment Adviser Law Exam is another NASAA test that’s administered by FINRA. Holding this license allows you to offer services as a financial planner or a financial advisor on a fee-only basis. The exam has 130 multiple choice questions and you’ll need to get at least 94 questions correct to pass.

As with the Series 63 exam, the NASAA offers a study guide for the Series 65 exam that outlines key topics. Some of the things you’ll need to be knowledgeable about include:

• Basic economic concepts and terminology

• Characteristics of various investment vehicles, such as government securities and asset-backed securities

• Client investment recommendations and strategies

• Regulatory and ethical guidelines

You can review a list of approved vendors for Series 65 study materials on the NASAA website.

Series 66

The Series 66 Uniform Combined State Law Exam is the third NASAA exam administered by FINRA. Financial professionals who want to qualify as both securities agents and investment adviser representatives take this test.

This multiple choice exam has 100 questions and you’ll need a score of 73 correct or higher to pass. If you already hold a Series 7 license, which is a co-requisite, you could choose to take the Series 66 exam in place of the Series 63 and Series 65 exams.

The study guide and the scope of what the Series 66 exam covers is similar to the Series 65 exam. So if you hold a Series 65 license already, you may have little difficulty in studying and preparing for the Series 66 exam.

The Takeaway

Earning a securities license could help to further your career if you’re interested in the financial services industry. Knowing which license you need and how to qualify for it is an important first step.

Fortunately, you don’t need to hold a FINRA license to invest for yourself. You can build a portfolio by opening a brokerage account on the SoFi Invest platform, which has low minimum investments and no hidden fees. SoFi offers DIY trading for active traders and automated portfolios if you prefer more of a hands-off approach.

Photo credit: iStock/jacoblund


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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