How to Pay Fewer Fees When Trading Crypto

Cryptocurrency is like any investment that investors trade with the goal of selling later at a higher price. But like other investments, fees, commissions and other trading costs can cut into the profit one makes.

This is true when buying and selling stocks, but even more so with cryptocurrencies, whose fees can vary widely from one form of crypto to another, one exchange to another, and can even change from hour to hour. One reason for the variability in fees is that cryptocurrency exchanges are not regulated like brokerages and stock exchanges.

But while the details of what each exchange charges to trade each of the many types of cryptocurrency will vary, there are a few trends to keep in mind.

Trends in Crypto Trading Fees

Most cryptocurrency exchanges design their fee schedules at most cryptocurrency exchanges to entice traders of large blocks of crypto. So fees tend to decrease as the size of trades increase. Some exchanges try to compete for the largest orders by charging no fees at all on massive trades of $10 million or more.

Exchanges also typically charge fees when an investor wants to cash out into a fiat currency, like U.S. dollars. Those fees can be much higher than the transaction costs of trading one form Bitcoin or altcoins with one another, which is often free. This is one way that crypto exchanges encourage investors to remain on their platforms.

Recommended: What Are Altcoins?

Crypto exchanges don’t always play nice with one another. Even though the Bitcoin or other cryptocurrency or that an investor owns remains in their crypto wallet, some exchanges will charge a fee to import a new wallet with crypto purchased on another exchange. Or they may charge to port over a wallet with crypto purchased on its platform over to another exchange.

Examples of Cryptocurrency Trading Fees

Binance is the world’s largest crypto exchange, and its U.S. exchange charges investors a flat fee of 0.1% of the amount of each spot trade. On top of that, it charges a 0.5% fee if the investor wants the transaction executed instantly. That may not seem like much, but on a $1,000 Ripple trade, for example, an instant trade will cost the investor $6. On $100,000, that rises to $600.

And Binance.US charges a 0.5% fee to trade crypto directly with U.S. dollars. Investors can avoid that fee by depositing cash into their Binance.US account and then placing an order for the cryptocurrency of their choice. That will take longer, however.

The 0.1% standard fee Binance.US is only available for trades using assets on the Binance.US trading platform. Other large exchanges, including Coinbase and Gemini, have similar fee structures.

There are some differences between exchanges. The Global Digital Asset Exchange charges a 0.3% “taker fee” to trade a market order, and Coinbase charges a 4% fee for investments made using a credit card.

Recommended: 12 Factors to Consider When Choosing a Cryptocurrency Exchange

Factoring in Spreads

Investors must understand the spread between the bid and ask prices of a crypto, such as Ethereum, listed on an exchange. Spreads are not fees, strictly speaking, but they are trading costs and they act like fees by eating into the return on the investment.

Seasoned investors in the stock market know about these spreads, which tend to mean that the buyer of an asset will pay slightly more than the average price, while the seller will receive slightly less than the average price quoted on the exchange.

For less-heavily traded forms of crypto, there’s also a chance that a big trade could change its price. When trades move the market, the sale of the crypto can drive down the price, while a big purchase can drive it up. Spreads on crypto trades vary widely from currency to currency and from day to day, but can be as high as 1.5%.

5 Ways to Pay Less for Crypto Trades

While you may not be able to completely trade crypto without fees, there are several strategies that investors can use to lower the cost of their crypto trades.

1. Trade Less Often

One thing that transaction fees and bid/ask spreads have in common is that the more often you trade, the bigger an impact they’ll have on your final return. Each trade comes with a fee, which the exchange deducts from your balance. And each trade also occurs with a spread, which leaves you with a lower return than you might expect when you look at the bid/ask price for the forms of crypto, such as Litecoin, that you’re trading.

For investors who are regularly trading between their crypto accounts and their bank accounts, those transactions are even more costly. So, one simple way to drive down the fees – and the overall trading costs – is to HODL and trade less frequently.

2. Use Lower-Cost Trade Types

Another way an investor can reduce the fees they pay for their crypto trades is to look closely at the type of trade they execute. Limit orders, for instance, often come with lower fees. In a limit order, an investor agrees to buy or sell a stock at a specific price, or better. That means that a buy limit order executes at the limit price or one that’s lower, while a sell limit order executes at the limit price or one that’s higher. But with limit orders, the investor has no certainty of order fulfillment. If the market moves away from the limit price, then no trade occurs.

3. Shop Around

With so many exchanges competing for crypto investments, trading fees are changing on a regular basis. It can pay to do some comparison shopping, especially for investors who trade frequently, or for investors who expect to cash out in the near future. But those fees should be only one consideration. Given the potential for catastrophic security issues with cryptocurrencies, an exchange’s security, and its backing, also deserve close consideration.

You’ll also want to think about which cryptocurrencies, it covers. Many exchanges might offer Bitcoin, for example, but not all of them may support smaller altcoins like Cardano.

Recommended: How to Buy Cardano

4. Rewards and Promotions

Cryptocurrency exchanges are still relatively new, and heavily competitive. There are a steady stream of new competitors offering investors rock-bottom fees, or even fee-free trading to win new accounts. But being one of the first customers of a crypto exchange can be risky.

Still, even some of the biggest players regularly offer low- or no-fee promotions to win new accounts. But beware that those promotions usually have an expiration date. When the promotions expire, the investor has to decide whether to keep on trading at the exchange’s usual rates, or transfer their crypto assets to another exchange, which can often come with additional fees.

5. Turn Your SoFi Credit Reward Points to Crypto

SoFi allows its credit card customers to exchange SoFi Credit Card reward points directly for cryptocurrency via SoFi Invest®.1 Currently, this is the only credit card reward program that allows for cryptocurrency redemption.

The Takeaway

Fees and other trading costs can take a big bite out of crypto investor’s returns. But understanding how fees work and planning your trading strategy to minimize them can reduce their impact on returns.

You can get started investing today by opening a brokerage account on the SoFi Invest platform to purchase cryptocurrency as well as stock, exchange-traded funds, and cryptocurrency. You can use the platform to trade your first cryptocurrency with as little as $10.

Photo credit: iStock/Pekic


1See Rewards Details at SoFi.com/card/rewards.
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.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
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Understanding the Yield to Maturity (YTM) Formula

When investors evaluate which bonds to buy, they often take a look at yield to maturity (YTM), the total rate of return a bond will earn over its life, assuming it has made all interest payments and repaid the principal.

Calculating YTM can be complicated. Doing so takes into account a bond’s face value, current price, number of years to maturity and coupon, or interest payments. It also assumes that all interest payments are reinvested at a constant rate of return. Not surprisingly, many investors rely on online calculators to help them determine yield to maturity, but with these figures in hand, they will be better equipped to understand the bond market and which bonds will offer the greatest yield if held to maturity.

What Is a Bond’s Yield to Maturity?

The yield to maturity is the estimated rate investors earn when holding a bond until it reaches maturity or full value. The YTM is stated as an annual rate and can differ from the stated coupon rate.

The calculations in the yield to maturity formula include the following factors:

•  Coupon rate: Also known as a bond’s interest rate, the coupon rate is the regular payment issuers pay bondholders for the right to borrow their money. The higher the coupon rate, the higher the yield.

•  Face value: A bond’s face value, or par value, is the amount paid to a bondholder at its maturity date.

•  Market price: A bond’s market price refers to how much an investor would have to pay for a bond on the open market currently. The price buyers pay on the secondary market may be higher or lower than a bond’s face value. The higher the price of the bond, the lower the yield.

•  Maturity date: The date when the issuer repays the principal is known as the maturity date.

The YTM formula assumes all coupon payments are made as scheduled, and most calculations assume interest will be reinvested.

How to Calculate the Yield to Maturity Formula

To calculate yield to maturity, investors can use the following YTM formula:

Where:

C = Interest or coupon payment
FV = Face value of the investment
PV = Present value or current price of the investment
t = Years it takes the investment to reach the full value or maturity

Here’s an example: Suppose there’s a bond with a market price of $800, a face value of $1,000, and a coupon value of $150. The bond will reach maturity in 10 years, with a coupon rate of about 14%.

By using this formula, the estimated yield to maturity would calculate as follows:

The Importance of Yield to Maturity

Knowing a bond’s YTM can help investors compare bonds with various maturity and coupon rates. For example, consider two bonds of varying maturity: a five-year bond with a 3% YTM and a 10-year bond with a 2.5% YTM. Investor’s can easily see that the five-year bond is more valuable.

YTM is particularly useful when attempting to compare older bonds sold in a secondary market, which can be priced at a premium or discounted — meaning they cost more or less than the bond’s face value. Understanding the YTM formula also helps investors understand how market conditions can impact their portfolio based on the investment they select. Since yields rise when prices drop (and vice versa), investors can forecast how their investment will perform.

Additionally, YTM can help investors understand how likely they are to be affected by interest rate risk — the danger that the value of a bond may be adversely affected due to the changes in interest rate. Current YTM is inversely proportional to interest rate risk. That means, the higher the YTM, the less bond prices will be affected should interest rates change.

Yield to Maturity vs. Yield to Call

With a callable, or redeemable bond, issuers can choose to repay the principal amount before the maturity date, halting interest payments early. This throws a bit of a wrench into the YTM calculation. Instead, investors may want to use a yield to call (YTC) calculation. To do so, they can use the YTM calculation, substituting the maturity date for the soonest possible call date.

Typically a bond issuer will call a bond only if it will result in a financial gain. For example, if the interest rate drops below a coupon rate, the issuer may decide to recall the bond to borrow funds at a lower rate. This situation is similar to when interest rates drop and homeowners refinance their home loans.

For investors that use callable bonds for income, yield to call is significant. Suppose the issuer decides to call the bond when the interest rates are lower than when the investor purchases it. If an investor decides to reinvest their payout, they may have a tough time finding a comparable bond that offers the yield they need to support their lifestyle. They may feel it necessary to take on more risk, looking to high-yield bonds.

Limitations of Yield to Maturity

It’s important to note that YTM calculations exclude taxes. While some bonds, like municipal bonds and U.S Treasury bonds, may be tax exempt on a federal and state level, most other bonds are taxable. In some cases, a tax-exempt bond may have a lower interest rate but ultimately offer a higher yield once taxes are factored in.

As an investor, it can be especially helpful to consider the after-tax yield rate of return. For example, suppose an investor in the 35% federal tax bracket who doesn’t pay state income taxes is considering investing in either Bond X or Bond Y. Bond X is a tax-exempt bond and pays a 4% interest rate, while Bond Y is taxable and pays 6% interest.

While the 4% yield for Bond X remains the same, the after-tax yield for Bond Y is 3.8%. While it seemed like the less lucrative of the two options up front, Bond X should ultimately yield a higher return after taxes.

Frequently Asked Questions

Q: What is a bond’s yield to maturity (YTM)?
A: A bond’s yield to maturity is the total return an investor can anticipate receiving if the bond is held to its maturity date. YTM calculations assume that all interest payments will be made by the issuer and reinvested by the bondholder at a constant rate of interest.

Q: What is the difference between a bond’s coupon rate and its YTM?
A: A bond’s coupon, or interest, rate is fixed from the moment an investor buys it. However, the same bond’s YTM can fluctuate over time depending on the price paid for it and other interest prices available on the market. If YTM is lower than the coupon rate, it may indicate that the bond is being sold at a premium to its face value. If it’s lower, it may be that the bond is priced at a discount to face value.

Q: Is a higher YTM better?
A: A higher YTM may be better under certain circumstances. For example, since a higher YTM may indicate a bond is being sold for less than its face value, it may represent a valuable opportunity to invest. However, if the bond is discounted because the company that offered it is in trouble or interest rates offered by other investments are more appealing, then a high YTM might not be such a good thing. Investors must research investments carefully and understand the full story before they buy.

The Takeaway

Using the yield to maturity formula can help investors compare bond options with different coupon and maturity rates, market and par values, and determine which one offers the potential for a higher yield. But calculating the YTM is not an exact science, especially when you’re gauging the return on a callable bond, say, or adding the impact of taxes to the mix. YTM is just one tool investors can use to determine which bond may best serve their financial needs and goals.

One alternative to choosing individual bonds is to invest in bond mutual funds or bond exchange-traded funds (ETFs).

SoFi Invest® offers affordable access to a wide range of investment selections, including bond funds. The Active Investing platform lets investors choose from an array of stocks, ETFs, or fractional shares. For a limited time, opening an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is sign up, play the claw game, and find out how much you won.

Find out how SoFi Invest can help you reach your financial goals.


Claw Promotion: For the full terms and conditions of SoFi’s Claw Promotion, click here. Probability of a customer receiving $1,000 is 0.028%.
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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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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How to Buy Bonds: A Guide for Beginners

How to Buy Bonds: A Guide for Beginners

Investing in bonds is a method of lending money to a company or government. Governments, municipalities, and companies issue bonds to investors who are willing to lend them money for a set period of time. In exchange, the issuer pays interest over the life of the loan and returns the principal when the bond “matures” at the end of a predetermined period known as the bond term.

When building a diversified portfolio, many investors want to include a mix of equities (stocks) and fixed income (bonds), since the two securities have different attributes and often behave differently throughout the economic cycle. Here’s a closer look at how bonds work, and how and why to buy them.

Why Invest in Bonds

As investors choose between the different types of investments, there are several reasons they might opt for bonds. Bonds pay interest at regular intervals, such as twice a year, which provides investors with a predictable stream of income. Also, if investors hold the bond to maturity, they get back their entire principal. In this way, investors can preserve their savings while investing.

Bonds are also an important tool for diversification. Compared with stocks, bonds are less volatile, so they can offset some of the risk inherent to stock investing.

Recommended: Bonds vs. Stocks: Understanding the Difference

While investors typically consider bonds a less risky investment, it’s still possible to lose money when investing in bonds, if the issuer is unable to fulfill its obligation. In addition, inflation can eat away at bond returns, since fixed returns are worth less during periods of high inflation.

Where Can You Buy Bonds?

The best way to purchase bonds for you will depend on the type of bond and the bond market exposure that you want.

The Government

If you’re 18 or older, you can buy government bonds directly from the federal government through the TreasuryDirect website. The site is available at all times and gives investors access to Treasury bills, notes, bonds, Floating Rate Notes, Treasury Inflation-Protected Securities and savings bonds.

A Brokerage

Investors can buy a variety of bonds, including corporate, municipal, and government bonds, through their bank brokerage account. Bond prices vary depending on transaction fees and markups.

An ETF or Mutual Fund

Investors who don’t want to buy bonds directly can gain access to the asset class by buying shares of exchange-traded funds (ETFs) or mutual funds that themselves invest in bonds.

Diversification is the main reason for investing in funds. Because issuers typically sell individual bonds tend in large units (a single bond might cost $1,000) the average investor may only be able to purchase a few of them on their own, making it tricky to put together a diversified bond portfolio.

Meanwhile, funds typically hold a diversified basket of bonds that tracks a bond index or a certain sector of the bond market, making it much easier for individuals to diversify. It’s important to note that while the yield of individual bonds is fixed, the yield on bond mutual funds or ETFs can fluctuate over time.

What Type of Bonds Can You Buy?

There are a few basic types of bonds you may consider buying:

Corporate Bonds

Corporate bonds are a type of debt security issued by public and private corporations. Investment banks typically underwrite the debt and issue it on the entities behalf. Companies use the money they raise through bond sales for a variety of reasons, such as investing in new equipment, research and development, paying investor dividends, and stock buybacks.

Municipal Bonds

States, cities, and counties issue municipal bonds, sometimes called “munis”, to finance capital expenditures like the building of new roads or bridges. There are three general types of municipal bonds:

• General obligation bonds aren’t backed by assets, but rather the “full faith and credit” of the issuer. Governments have the power to tax residents to pay bondholders back.

• Revenue bonds are backed by revenue from a specific source, such as highway tolls. That said, some revenue bonds are “non-recourse” meaning that if the revenue source disappears, bondholders have no claim to it.

• Conduit bonds are issued on behalf of private entities like hospitals.

US Treasuries

The Department of the Treasury issues U.S. Treasury bonds for the federal government. Investors typically consider Treasuries one of the safest investments, since they have the full faith and credit of the U.S. government backing them.

Treasury bills are short-term debt obligations that mature within one year or less.

• Treasury notes are longer-term debt securities that mature within 10 years.

• Treasury bonds mature in 30 years and pay bondholders interest every six months.

Treasury Inflation-Protected Securities, or TIPS, are notes or bonds that adjust payments to match inflation. Investors can buy tips with maturities of five, 10 and 30 years, and they pay interest every six months.

Bond Mutual Funds

A mutual fund is a pool of money that’s invested by an investment firm according to a set of stated objectives. A bond mutual fund focuses specifically on bonds. They may focus on one type, such as corporate bonds, or they may contain all types. Unlike traditional bonds, investors don’t get their principal returned with bond mutual funds, and there may be ongoing fees and expenses associated with owning shares of the mutual fund.

Bond ETFs

Like bond mutual funds, bond ETFs represent a way for investors to pool their money and spread it across a basket of many different investments. While investors can only trade mutual funds once a day, they can trade ETFs throughout the day. ETFs may have lower fees than mutual funds.

How to Invest in Bonds

As investors decide which bonds to buy, they may want to consider the following factors:

Credit Ratings

Credit ratings are a way to gauge the creditworthiness of companies or governments that issue bonds. The ratings give investors an idea of how likely the bond issuer is to default. Standard & Poor’s, Moody’s and Fitch are the three private companies that control most bond ratings. The rating system is slightly different at each company, but generally speaking, a mark of AAA represents the highest rated and least likely to default issuers, while C or D denotes the riskiest issuers.

Duration

A bond’s duration is not the same at its term, or maturity. Rather it is a measure of how sensitive a bond’s price will be to changing interest rates. The longer a bond’s duration, the more likely its value will fall as interest rates rise. However, you can avoid duration issues by holding the bond to its maturity date.

Fees

If you buy bonds through a broker, you should expect to pay transaction fees. Brokers typically mark up the price of a bond when they sell it to you in lieu of charging a commission. Markups may be anywhere from 1% to 5% of the bonds original value. Look for brokerages that have low fees and markups.

Risk Level

Before buying a bond, investors should understand the associated risks, including:

• Credit risk: The risk that issuers may fail to make interest payments and default on the bond.

• Interest rate risk: The possibility that changes in interest rate will raise or lower a bond’s value if sold before maturity.

• Inflation risk: The risk that inflation will decrease the value of bond returns.

• Liquidity risk: The risk an investor won’t be able to sell their bond when they want to due to low or no demand.

Recommended: Investment Risks and Ways to Manage

Timing

You might consider matching the maturity date to your investment timeline. For example, if you need your principal in five years to make a down payment on a house, you may not want to buy a 10-year bond. While you could sell the 10-year bond after five years, market conditions could make it less valuable than if you waited until maturity.

The Takeaway

Whether purchased individually or accessed through mutual funds and ETFs, bonds provide an important way for investors to diversify their portfolios. They can also help investors develop a reliable stream of income, which can become increasingly important as they move toward retirement.

Before buying a bond, you should research issuers and credit ratings to be sure you aren’t taking on undue risk. And above all, you should be sure that whatever you buy fits into your long-term investment plan.

If you’re interested in adding bonds to your portfolios via exchange-traded funds, a great way to start is by opening an account on the SoFi Invest brokerage platform. With SoFi Active Investing, you can buy and sell ETFs and trade traditional company stocks and fractional shares.

Photo credit: iStock/ILIA KALINKIN


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.
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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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What Is a Paper Wallet? How Paper Wallets Work

What Is a Paper Wallet? How Paper Wallets Work

A paper wallet is just what it sounds like – a crypto wallet made from a piece of paper. It contains a private and public key pair for making crypto transactions. Typically, a key generator program creates the key and prints it on paper in the form of two QR codes and two strings of alphanumeric characters.

A paper wallet is among the oldest kinds of noncustodial, cold crypto wallets, but it is an outdated method that has security flaws.

History of Paper Wallets

In the early days of Bitcoin, paper wallets may have been the most secure form of Bitcoin storage. There was no other mechanism to take coins offline and put them into cold crypto storage.

Still, investors realized that having a safe method of holding onto their crypto was a necessity for crypto investing. Over time, as crypto exchanges, institutional-grade custody solutions, hardware wallets, multi-signature wallets, and other secure forms of storing crypto became more commonplace, crypto paper wallets became less popular.

How Does a Paper Wallet Work?

When created correctly, a paper wallet is immune to hacking. There’s no way to access a piece of paper via the Internet. But certain parts of the process could still make users vulnerable.

The problem is that users have to be very careful when creating paper wallets. The process requires using a computer, and there could be traces of evidence left behind that a sophisticated attacker might be able to access.

How to Keep a Paper Wallet Secure

There are several steps that investors can take to protect their paper wallet. For starters, create the wallet entirely offline, but following these steps:

• Download the wallet generator software to a USB drive

• Plug the USB drive into a new device that has never been connected to the internet

• Create the wallet keys and print them out using a wired connection to a printer

What about when you want to take funds off of a paper wallet and spend them? Things can get a little tricky here, and users who don’t know exactly what they’re doing could lose most or all of their funds.

Recommended: 6 Crypto Debit Cards to Consider in 2021

Taking coins out of a cryptocurrency paper wallet requires either sweeping or importing the private keys into a software wallet. Sweeping keys and importing keys don’t result in the same outcome, however.

Importing Keys

Users who import their crypto private keys, essentially creating a copy of them, could lose funds if they fail to first set up something called a “change output.”

A change output, or change address, is the destination where the remaining funds on a paper wallet will go when a user only spends a portion of the wallet’s balance. If this address hasn’t been set up beforehand, the unspent portion of a paper wallet will disappear forever after the first transaction from that wallet.

For example, if a user has 0.1 BTC on a paper wallet and decides to spend just 0.01 BTC, the remaining 0.09 BTC would automatically go to a change address. If no change address has been established before the transaction, the Bitcoins would simply be lost.

Sweeping Keys

“Sweeping” the private keys from a paper wallet into a software or mobile wallet avoids this problem, as the keys are transferred to a new location in their entirety.

How Do You Use Paper Wallets?

Using a paper wallet doesn’t involve a lot of hassle. Users simply have to:

• Create the wallet addresses

• Print out the paper wallet

• Deposit coins to the public key address

Paper wallets typically include addresses in both QR code and alphanumeric format.

When a user wants to spend the funds stored on a paper wallet, they import or sweep the private key. To do this, a user must install a digital wallet on their desktop or mobile device that allows private keys to be imported (Electrum would be one example).

Crypto exchanges generally do not support this function.

Pros and Cons of Paper Wallets

Paper wallets represent a simple and inexpensive way to put small amounts of crypto into cold storage. But the cons outweigh the pros.

A paper wallet is, of course, made of paper, which means that water, fire, or the family pet could damage or destroy it. This could result in total loss of funds.

Pros of paper wallets

Cons of paper wallets

Inexpensive Not suitable for holding large amounts of coin
Easy to create User error can result in total loss of funds
Secure cold storage If someone gets hold of the wallet, they will have the private keys and can steal the coins
It can be difficult to bring the funds back online
Vulnerable to water or fire damage

Alternatives to Paper Wallets

In addition to paper wallets, there are several other, more common types of virtual vaults to store different types of crypto.

Web Wallets

Web wallets are hosted online in a web browser. These wallets can be convenient but are among the least secure types of hot wallets. They can be easily hacked and if something goes wrong with the web browser, the wallet could be lost.

Wallets like these have great utility value in that they are easy to use and can enable users to participate in different crypto applications.

Software Wallets

Software wallets are basically desktop applications that come with a simple graphic user interface for sending and receiving transactions. While somewhat more secure than web wallets, software wallets are generally not considered good options for long-term storage of large amounts of crypto.

Funds held in a software wallet on someone’s personal computer can be vulnerable to hacking, a user could lose their password, or the device could be stolen or damaged.

Hardware wallets

Hardware wallets have been growing in popularity ever since a company called Trezor created the first one back in summer 2014. Later that same year, Ledger also created a hardware wallet. Both companies are still leaders in this space today.

Hardware wallets keep a user’s private keys securely stored offline in cold storage, like paper wallets. The big difference is that a user can easily bring a hardware wallet online and use it to make transactions. Hardware wallets are also much more durable than paper wallets.

Most users will find all of the wallet types listed above much easier to use than paper wallets with Bitcoin.

Exchange Wallets

Some crypto exchanges also have integrated wallets, which allow users to store their crypto on the exchange. Exchange wallets are easy to use, but their security depends on the overall security of the exchange. Ideally, an exchange will offer users the option to use cold storage or multi-signature wallets.

The Takeaway

A Bitcoin paper wallet isn’t recommended in the modern age of hardware wallets and other secure forms of cold storage. Paper wallets with Bitcoin are too vulnerable to human error and other factors to make them risky, especially for investors who want to use them over the long term and HODL their crypto investments.

These types of wallets represent a bygone relic of crypto’s earliest days. Unless someone is on a strict budget with only a small amount of coin to store, it’s hard to justify using a paper wallet to store your private keys.

An easy way to get started trading crypto is by downloading the SoFi Invest® brokerage platform. You can use it to buy several forms of crypto, including Bitcoin, Ethereum, Litecoin, Dogecoin, and Cardano.

Photo credit: iStock/Vladimir Sukhachev


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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What is Tezos (XTZ)? How to Trade XTZ Crypto

Everything You Need to Know About Tezos (XTZ)

While Tezos (XYZ) may sound like the name of a rare gem or a hotel in Santa Fe, it’s yet another crypto that investors can add to their wallets. Below, we’ll cover the basics of Tezos and what you’ll need to know if you’re considering adding it to your crypto portfolio.

What is Tezos (XTZ)?

Like some other common types of cryptos (Ethereum, for instance) Tezos is not only a currency, but also a platform. Technically speaking, Tezos is a decentralized, open-source blockchain network. More specifically, it’s a network that allows for peer-to-peer transactions, and on which users can deploy assets, applications, and smart contracts. The “tez”, or XTZ, is the native cryptocurrency for the Tezos blockchain.

Like other, similar networks, Tezos utilizes blockchain to produce a decentralized computing platform. As such, users verify the code and data on the blockchain, and through that process, receive XTZ tokens. This process, “baking,” is similar to Bitcoin mining. Tezos coin uses a proof-of-stake consensus mechanism, which means there is no need for miners to produce new tokens.

History of Tezos (XTZ) Crypto

Like most other cryptocurrencies, XTZ Tezos has a relatively short history.

Husband and wife team Arthur and Kathleen Breitman first proposed Tezos XTC in a 2014 whitepaper . In 2017, they raised more than $230 million during an initial coin offering (ICO) , the biggest-ever initial public coin offering at the time. The currency launched the following year.

The Tezos ICO, however, faced controversy from the start. The Breitmans got into a spat with the head of the Tezos Foundation (a non-profit organization created to promote Tezos), which led to a court battle, which took three years to settle.

It’s a pretty long, intricate story, and one that’s worth reading if you plan on investing in Tezos cryptocurrency. But for traders and investors, the important takeaway is that Tezos is now on the market, and has been for a few years.

How Does Tezos Work?

Tezos doesn’t exist on a single central server or computer somewhere—instead, it exists on the blockchain, on users’ computers all around the world.

The Breitmans envisioned the platform itself as a self-amending blockchain network, which means that anyone who owns XTZ crypto could vote on changes to its rules. So, participants actively have control over the network, which sets it apart from many other networks where control remains with the developers. Its ongoing evolution gives it a flexibility that some other crypto currencies might not have.

XTZ holders can stake, or “bake,” their coins to earn more. That also allows those with a large balance to take a role in actively managing the network.

XTZ Coin Price

XTZ’s coin price has had an up-and-down ride over its short existence. When it debuted back in late 2017, XTZ’s value topped out at more than $12. It hasn’t seen such lofty heights since, unfortunately. In the following months, XTZ prices fell, and bottomed-out at below $0.40.

After more volatility over the next several years, XTZ rose in value through most of 2020, reaching $8.42 on May 6 before falling back down to $3.13 in early August.

Like any commodity, digital or otherwise, Tezos’ value reflects supply and demand. And like other cryptos, XTZ doesn’t have much on-the-ground application.

Instead, it derives value from its utility on the Tezos blockchain network. Other than that, users can trade it as a commodity or hold it as an investment, much like Bitcoin or other cryptos.

Is XTZ A Good Investment?

While cryptocurrency can add another dimension to your portfolio, it also has significant risks. As noted by looking at XTZ’s price history, it’s a volatile asset, and could lose significant value in the future.

That said, it could also gain value, too. Proponents of the cryptocurrency believe that its strict governance rules could lead to market-leading technology solutions, which could make it more valuable.

But there’s always the chance that the government could change crypto rules and regulations. All told, there are a lot of things to consider before taking the leap. Do your due diligence, or talk to a professional if you feel like you’re in over your head.

Recommended: Cryptocurrency Guide for Beginners

How to Buy and Sell XTZ Cryptocurrency

If you’re an experienced crypto investor, you know the drill. Buying XTZ requires following a few basic steps. If you have any experience buying cryptocurrency online, this should amount to a review:

Step 1: Choose an exchange, and fund your account.

Much like choosing a stock broker, you’ll need to choose a crypto exchange and fund your account before you can buy, sell, or otherwise trade crypto like XTZ. If need be, do a little homework to learn about how crypto exchanges work.

Step 2: Have a place to store your assets.

If you don’t already have one, look up what options are available for crypto wallets. There are many different types, each with their own pros and cons. Your digital wallet is what you’ll use for crypto storage going forward.

Step 3: Trade!

Once you’ve selected and funded the exchange, you can start trading. The details might vary, but it typically involves looking up XTZ in a search bar, and then exchanging your U.S. dollars or other cryptocurrency for XTZ. Once you’ve executed the trade, you can transfer your holdings to your wallet, unless your exchange provides you with one.

Recommended: Crypto Taxes (2021): How to Pay Taxes on Cryptocurrency

The Takeaway

Tezos has quickly become a fixture on the markets. And though it has a fairly interesting past, throngs of users across the world use its network for various assets.

If you feel that XTZ would make a good fit for your portfolio, you can take the next steps by purchasing cryptocurrency with the SoFi Invest® brokerage platform. You can use it to build a portfolio that includes more than 20 different types of crypto, as well as stocks and exchange-traded funds.

Photo credit: iStock/PeopleImages


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.
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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