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Safe Harbor 401k Plan: What Is It? Is It for You?

Safe harbor 401(k) plans enable companies to sidestep the annual IRS testing that comes with traditional 401(k) plans, in part by providing a contribution to all employees’ retirement accounts that vests immediately.

Typically a perk used to attract top talent, safe harbor 401(k) plans are a way for highly compensated employees, like company executives and owners, to save more than a traditional 401(k) plan would normally allow.

With traditional 401(k) plans, contributions from highly compensated employees can’t comprise more than 2% of the average of all other employee contributions, in addition to other restrictions. However, with safe harbor 401(k) plans, those limits don’t apply.

Keep reading to learn more about safe harbor rules, why companies use these plans, along with the benefits, drawbacks, and relevant deadlines.

Recommended: What is a 401K Plan and How Does it Work?

Safe Harbor 401(k) Plans Defined

A 401(k) safe harbor plan behaves much the same way a traditional 401(k) plan does — but with a twist. In both cases, eligible employees can use the plan to deposit pre-tax funds for their retirement and employers can contribute matching funds.

But with an ordinary 401(k) retirement plan, companies must submit to annual nondiscrimination regulatory testing by the IRS to ensure that the company plan doesn’t treat highly compensated employees (HCEs) — generally defined as earning at least $130,000 a year or owning 5% or more of the business — more favorably than others.

But the testing process is complex and onerous, as we’ll cover below in the section on safe harbor 401(k) rules.

An alternative is to set up a safe harbor 401(k) plan with a safe harbor match. This allows a company to skip the annual IRS testing — and avoid imposing restrictions on employee saving — by providing the same 401(k) contributions to all employees, regardless of title, salary, or even years spent at the company. And those funds must vest immediately.

This is an important benefit, because in many cases, employer contributions to ordinary 401(k) plans vest over time, requiring employees to stay with the company for some years in order to get the full value of the employer match. Often, if you leave before the employer contributions or match have vested, you may forfeit them.

For smaller companies, it may be worth making the extra safe harbor match contributions in order to avoid the time and expense of the IRS’s annual nondiscrimination testing. For larger companies, giving all employees the same percentage contribution could be expensive. But the upside is that highly paid employees can then make much larger 401(k) contributions without running afoul of IRS rules, a real perk for company leaders. In addition, 401(k) safe harbor plans are typically less expensive to set up than traditional plans.

What Are Nondiscrimination Tests, and How Do They Affect Your 401(k) Plan?

To understand the benefit of safe harbor plans, it helps to see what employers with traditional 401(k) plans are up against in terms of following IRS rules and submitting to the annual nondiscrimination tests. To confirm there is no compensation discrimination, the company must conduct Actual Deferral Percentage (ADP), Actual Contribution Percentage (ACP), and Top Heavy tests.

If the company fails one of the tests, it could mean considerable administrative hassle, plus the expense of making corrections, and potentially even refunding 401(k) contributions.

Before explaining the details of each test, here’s how the IRS defines highly compensated employees (HCEs) and non-highly compensated employees (NHCEs).

To be a HCE:

• The employee must own more than 5% of the company at any time during the current or preceding year (directly or through family attribution).

• The employee is paid over $130,000 in compensation from the employer during the current or previous year. The plan can limit these employees to the top 20% of employees who make the most money.

Employees who don’t fit these criteria are considered non-highly compensated. The nondiscrimination tests are designed to assess whether top employees are saving substantially more than the rank-and-file staffers.

• The Actual Deferral Percentage (ADP) test measures how much income highly paid employees contribute to their 401(k), versus staff employees.

• The Actual Contribution Percentage (ACP) test compares employer retirement contributions to HCEs versus the contributions to everyone else.

According to the IRS, the terms of the ADP test — which compares the amounts different employees are saving in their 401(k)s — are met if the ADP for highly compensated employees (HCE) doesn’t exceed the greater of:

• 125% of the deferral percentage for ordinary, i.e., non-highly compensated employees (NHCEs)

Or the lesser of:

• 200% of the deferral percentage for the NHCEs

• or the deferral percentage for the NHCEs plus 2%.

The ACP test is met if the deferral percentage for highly compensated employees doesn’t exceed the greater of:

• 125% of the deferral percentage for the NHCEs,

Or the lesser of:

• 200% of the deferral percentage for the group of NHCEs

• or the deferral percentage for the NHCEs plus 2%.

Last, the top-heavy test measures the value of the assets in all company 401(k) accounts, total. If the 401(k) balances of “key employees” account for more than 60% of total plan assets, the 401(k) would fail the top heavy test. The IRS defines key employees somewhat differently than highly compensated employees, although both groups are similar in that they earn more than ordinary staff.

As you can see, maintaining a traditional 401(k) plan, and meeting these requirements each year, can be a burden for some companies. Fortunately, it’s possible to set up a safe harbor 401(k) plan, avoid the annual nondiscrimination tests, and provide additional 401(k) savings for employees.

Requirements for a Safe Harbor 401(k)

To fulfill the safe harbor 401(k) requirements, the employer must make qualifying 401(k) contributions (a.k.a. the safe harbor match) that vest immediately. The company contributes to employees’ retirement accounts in one of three ways:

Non-elective: The company contributes the equivalent of 3% of each employee’s annual salary to a company 401(k) plan, regardless of whether the employee contributes.

Basic: The company offers 100% matching for the first 3% of an employee’s 401(k) plan contributions, plus a 50% match for the following 2% of an employee’s contributions.

Enhanced: The company offers a 100% company match for all employee 401(k) contributions, up to 4% of a staffer’s annual salary.

Safe Harbor Contribution Limits

Just like traditional 401(k) plans, the maximum employee contribution limit for a safe harbor plan is $19,500 per year. If you are over 50, you would be eligible for an additional $6,500 catch-up contribution, if your plan allows it.

But in a safe harbor plan, a company owner can reserve the maximum $19,500 (in 2021) for their plan contribution and also boost contribution payments to valued team members up to an individual profit-sharing maximum amount of 100% of their compensation, or $58,000 ($64,500 for those over age 50) — whichever is less.

Regular employees are allowed the standard maximum contribution limit of $19,500, plus anyone over age 50 can contribute an extra “catch-up” amount of $6,500. Those are the same maximum contribution ceilings as regular 401(k) plans.

Benefits of Offering a Safe Harbor 401(k) Plan

By creating a safe harbor 401(k) plan, a business owner can potentially attract and maintain highly skilled employees. Employees are attracted to higher retirement plan contributions and the ability to optimize retirement plan contribution amounts, ensuring more money for long-term retirement savings.

Plus, a safe harbor 401(k) plan can also help business owners save money on the compliance end of the spectrum. For example, companies save on regulatory costs by avoiding the costs of preparing for a nondiscrimination test (and the staff hours and training that goes with it).

There are some additional upsides to offering a safe harbor 401(k) retirement plan, for higher paid employees and regular staff too.

Playing catch up. If a company owner, or high-level managers, historically haven’t stowed enough money away in a company retirement plan, a safe harbor 401(k) plan can help them catch up. The same may be true, although to a lesser degree, for regular employees.

The spread of profit. Suppose a company has a steady and robust revenue stream and is managed efficiently. In that case, company owners may feel comfortable “spreading the wealth” with not only high-profile talent but rank-and-file employees, too.

Encourage retirement savings. Suppose a company is seeing weak contribution activity from its rank-and-file employees. In that case, it may feel more comfortable going the safe harbor route and at least guaranteeing minimum 401(k) contributions to employees while rewarding higher-value employees with more lucrative 401(k) plan contributions.

Potential Drawbacks of a Safe Harbor 401(k) Plan

Safe harbor 401(k) plans have their downsides, too.

Expense. The matching contribution requirements can add up to a hefty expense, depending on employee salaries. And because employees are vested immediately, there’s no incentive to stay with the company for a certain period.

Termination fees. If a company introduces a safe harbor 401(k) plan, it must commit to it for one calendar year, no matter how the plan is performing internally. Even after a year, 401(k) plan providers (which administer and manage the retirement plans) usually charge a termination fee if a company decides to pull the plug on its safe harbor plan after one year.

Filing Deadlines for a Safe Harbor 401(k) Plan

Companies that opt for a safe harbor 401(k) plan have to adhere to strict compliance filing deadlines. These are the dates worth knowing.

October 1: That’s the deadline for filing for a safe harbor 401(k) for the current calendar year. This deadline meets the government criteria of a company needing to have a safe harbor 401(k) in operation for at least three months in a 12 month period, for the first year operating a safe harbor plan.

November 1: For companies with a safe harbor plan already in place, November 1st represents the last date a business can change the structure of a safe harbor plan. Regulators stipulate the November 1 deadline date for plan changes so notices can be transmitted to employees by December 1, giving them time to prepare for the next calendar year.

December 1: By this date, all companies — whether they’re rolling out a brand new safe harbor plan or are administering an existing one — must issue a formal notice to employees that a safe harbor 401(k) will be offered to company staffers.

January 1: The date that all safe harbor 401(k) plans are activated.

For companies that currently have no 401(k) plan at all, they can roll out either a traditional 401(k) plan or a safe harbor 401(k) plan at any point in the year, for that calendar year.

The Takeaway

Companies that don’t want the regulatory obligations of a traditional 401(k) plan, and want to prioritize talent acquisition and retention may want to consider safe harbor 401(k) plans.

These plans allow an employer to bestow extra retirement benefits on high-value employees, making an overall compensation package more desirable. But a business owner needs to weigh the pros and cons of a safe harbor 401(k) plan because, in some cases, it can be expensive for a company to maintain.

For business owners who aren’t sure which retirement plan is suitable for their company and their employees, it can be helpful to do some research. With SoFi Invest®, you can also open an online retirement account to gain access to more resources, including complimentary access to financial advisors.

Planning for retirement? Learn how working with a financial planner can help you reach your 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.
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.
Advisory services are offered through SoFi Wealth, LLC an SEC-registered Investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .
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What Are Vanilla Options? Definition & Examples

What Are Vanilla Options? Definition & Examples

Once you’ve started investing, you may want to learn about different assets beyond stocks and bonds. Among the alternative assets you might consider, are options, and vanilla options are a great way to get started with this type of investment.

Options give investors the — you guessed it — option to purchase or sell a stock at a certain price over a certain period. Options are derivative financial instruments, which means they are based on an underlying asset. Vanilla options are the most basic type of option contract, and they’re often standardized and traded on exchanges.

Vanilla Option Definition

Vanilla options, in contrast to exotic options, which have customization features, have simple and straightforward terms of the strike price, or the price for which an investor buys or sells a stock, and the period in which they can exercise their option. The last day that an investor may exercise an option is known as the expiry date.

How Do Vanilla Trades Work?

Let’s look at how options trading works with vanilla trading.

Each option has a strike price. If that price for purchase is lower than the market value of the stock, investors call that option “in the money.”

Investors pay a premium to own an option. This premium reflects several factors, including:

• How close the strike price is to the market price

• The stock’s volatility

• How length of time before the option expires

Investors don’t have to wait until the option expires to complete the trade, and they are typically under no obligation to exercise the option.

Recommended: Popular Options Trading Terminology to Know

What are the Different Types of Vanilla Options?

When it comes to options for vanilla stock options, there are two types, calls and puts.

Calls

A vanilla call option gives an investor the option to buy an asset at a certain price within a certain period. A call option is a bit like a down payment; the investor pays the premium so that, later, they can buy the stock at a good price and profit from it.

However, an investor can pay the premium and never exercise the option. If they decided not to exercise it, they would either lose what they paid for the premium, or they could sell the call option to someone else before it expires.

Puts

In contrast, a put option allows an investor to sell an asset at a fixed price within a certain time period. If a stock tanks in value over the period that option is exercisable, the investor can still sell it for the put price and not lose as much of his investment. But if the stock’s value goes higher than the put price in the market, the vanilla options are worthless because the investor could sell it at the market price and realize more of a profit.

Characteristics of Vanilla Options

Like all investments, vanilla options include a level of risk and volatility. But they can also provide the opportunity for profit.

Premiums

Whether you are interested in a vanilla call or put, you will pay a premium, in addition to what you would pay to purchase the stock with a call. The premium isn’t refundable, so if you don’t exercise the option, you’ve lost what you paid for the premium.

Volatility

The volatility of an option determines its price. The higher the volatility of the option, the higher the premium because there is more opportunity for profits (as well as the risk of loss).

One way to reduce volatility is to use an options trading straddle where you buy a put and call option simultaneously.

Risk Level

Like most other types of investments, options are not without risk. If a stock is lower in price on the market than a call option, the option is worthless. And if a stock has a higher price on the market, the put option won’t net more return on investment.

However, a vanilla option may be less risky than buying a stock outright, since the only thing you’re guaranteed to spend is the premium.

Pros and Cons of Vanilla Options Trading

Trading vanilla options can have potentially great returns…or large losses. Here are the pros and cons.

Pros

Cons

Minimizes risk; no obligation to exercise Risky; may lose premium investment and more
Option to control more shares than buying them outright May be complex to understand
May offer large returns Fluctuations in market may render option worthless

Pros

Options may be less risky than buying a stock outright, since you’re only buying the option to purchase or sell a stock at a certain price. The premium is all you invest initially.

Typically you can purchase more shares through options than you could buying them on the market, so if you’re looking for larger investment opportunities, options could provide them.

And while they’re volatile, there is the potential for larger returns.

Cons

That being said, you don’t always see large returns. You can lose your entire investment if the option is out of the money when it expires.

Options can be complicated or confusing for new investors. Not only should you fully understand the risks you take with this investment tool, but you also should understand options taxation.

Examples of Vanilla Options

If you’re considering vanilla options as part of your options trading strategy, here are a few examples to illustrate how they work for both calls and puts.

Example of a Vanilla Put Option

A put is a bit like insurance in case your stock you’re holding goes down in value. It’s one way that investors might short a stock. Here’s an example.

Let’s say you own 100 shares of a stock that is currently trading at $25 per share. You buy a put option at a premium of $1 per share that expires in two months at a strike price of $25. So in total, you paid $100 for a premium for 100 shares.

In a month, the stock price drops to $18 per share. This is a good time to exercise that premium because your strike price allows you to sell the shares for $25 rather than $18. You wouldn’t gain any money because you’re essentially selling the stocks for what you paid for them ($25), and you would even lose a little (that $1 per share premium), but the alternative would be to lose even more if you waited and the price dropped more or you didn’t have the option.

Example of a Vanilla Call Option

A call option allows you to purchase a stock at a certain price within a specified time period. Bullish investors who expect a stock to go up in price typically purchase call options.

For our example, let’s say you’re interested in a stock that trades at $53, and you can buy a call option for this stock within one month to purchase the stock at $55 per share. The option is for 100 shares of this stock.

The premium for this option is $0.15 per share. So you would pay $15 for the premium. You aren’t obligated to purchase the stock. If the stock trades at more than $55.15 (option price plus premium), you can realize a profit.

Let’s say in two weeks, that stock is trading at $59. It is, as they say, “in the money.” Now would be a great time to exercise your option because you can realize $3.85 per share and $385 for 100 shares. You can sell the shares immediately to cash in on that profit or hold onto it to see if the stock price continues to rise.

The Takeaway

Vanilla stock options are a way to diversify your investment portfolio and increase your investing savvy. While SoFi does not offer options trading, it does allow you to build a portfolio of stocks, exchange-traded funds, and even IPOs or cryptocurrency. You can get started by opening an account on the SoFi Invest brokerage network.


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.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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What is Polygon (MATIC)? How to Buy MATIC Coin

What is Polygon (MATIC)? How to Buy MATIC Coin

In early 2021, an Ethereum infrastructure project called Matic rebranded itself as Polygon. Polygon, which is designed for developers of Ethereum projects, works on the infrastructure of the Ethereum network or blockchain and has products that make things happen faster and with more security.

Before the relaunch as Polygon, the existing Matic project had more than 80 applications that did some 7 million transactions for around 200,000 users. So what is it about this cryptocurrency project and its associated token, Matic, that makes it stand out from other types of cryptocurrency? Read on for everything you need to know about Polygon (MATIC).

History of Polygon (MATIC)

Polygon and Matic before it have many goals, but one of the main ones is to make Ethereum and the Ethereum blockchain easier to use for developers.

Ethereum is known to many investors for its token, Ether — but to developers it’s so much more than a currency. While the token is important for the functioning of the Ethereum blockchain, Ethereum was built to support the creation of applications and host smart contracts — agreements that can be validated and executed without the approval or action of a third party like a judge or lawyer.

The issue, Matic’s developers found, was that there were “scalability and user experience issues,” that had held back “mass adoption” of smart contracts and Dapps. The whole network would slow down. The solution: Matic would use “sidechains” to process apps and contracts on Ethereum without slowing everything down.

Just like Ethereum transactions require “gas” paid in Ether, the Matic token would be the medium through which transaction fees would be paid on the Matic Network.

The project was started in 2017, and by 2019 it attracted attention and funding from industry stalwarts such as Coinbase, bringing a new round of attention and credibility in the wide cryptocurrency world.

How Does the Polygon Network Work?

Polygon describes its network as a “Swiss army knife for Ethereum scaling and infrastructure development.”

Many of the new projects that define Polygon are still in development, but the basic structure is a series of blockchains that are compatible with Ethereum and work with it.

There are four layers in the Polygon Network:

• The Ethereum layer, which is a set of smart contracts that run on Ethereum

• The security layer which runs parallel to Ethereum

• The Polygon Networks layer, a set of sovereign blockchain networks,which is like its own blockchain protocol

• The execution layer, which handles execution for the Polygon Networks blockchains

How Does the MATIC Token Work?

In the original Matic Network, which Polygon has said will continue to operate, the Matic Token plays an important role. It functions as a “the unit of payment and settlement between participants who interact within the ecosystem on the Matic Network.” This means that the Matic Token is like a currency for applications or users on the Polygon Network. Also, like all Ethereum blockchains, the Polygon Network has transaction fees, which in this case can be paid in the Matic Token.

Matic also uses “proof-of-stake” technology as an alternative to “proof of work” (the technology underlying Bitcoin) to validate transactions and secure the network. This requires users to “stake” or put up some of their tokens so that the network overall can function.

New Matic tokens have a regular monthly release schedule that runs through 2022. About 60 percent of all Matic tokens that will be released have been released already. This differs from other cryptocurrencies whose creation is prompted by essentially solving large math problems (this is how Bitcoin mining works).

Is MATIC Crypto a Good Investment?

As with any investment, it’s impossible to say with certainty whether Matic is or will continue to be a good investment. Like many cryptocurrencies, the value of Matic tokens has been incredibly volatile, following the huge jumps in crypto value across the board earlier this year and then the subsequent choppiness, with large spikes and drops.

Recommended: 6 Things to Know Before Investing in Crypto

MATIC Price

The price of Matic has gone up tremendously this year, rising from just under 2 cents to around $2.28 in late May 2021, before dropping down to $1.06 as of late September 2021. As of that time, Matic is the 21st most valuable cryptocurrency listed on CoinMarketCap.

How to Buy MATIC

Step 1. Find an Exchange That Supports MATIC

Create an account at an exchange that lists Matic tokens. SoFi is one exchange that lets you trade Matic.

Step 2. Fund Your Account

Load up your account with the currency you’re buying Matic in. This process varies by exchange. For example, Binance accepts funds using bank transfers, credit, or debit cards; Coinbase uses bank transfers, PayPal, or debit cards. These transfers can sometimes take a few days. How crypto exchanges work is not that different from brokerages you use to buy stocks and bonds.

Step 3. Place a Transaction

Select the amount of Matic you want to buy and then hit the button on the exchange you’re using.

Step 4. Verify Your MATIC Coins

The Matic should then show up in the hardware or software you’re using for crypto storage, otherwise known as a crypto wallet. Many exchanges offer wallets as well.

The Takeaway

Polygon, formerly known as Matic, works on the Ethereum network to process applications faster and with better security. Its token, known as Matic, is the unit of payment within that ecosystem.

One of the basics of investing in crypto is to always know what you’re investing in. While some tokens or coins are supposed to be like money or some kind of savings instrument, others — like Matic — have value as denominated in dollars or other crypto but are primarily used in the context of another blockchain or network. The value of a coin is determined by its use in that network and the speculation that investors have in its value.

The SoFi Invest® online brokerage platform offers a wide range of cryptocurrencies — including Polygon, Bitcoin, Litecoin, Ethereum, Cardano, Dogecoin, and more — with 24-hour trading and secure storage.

Find out how to start trading crypto today.

Photo credit: iStock/bgblue


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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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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What is MANA (Decentraland Coin)? How to Buy MANA

What is MANA (Decentraland Coin)? How to Buy MANA

There are layers to cryptocurrency. Services, products, even nascent legal systems can be built on top of and within blockchains. For example, a whole range of cryptocurrency types are built on Ethereum and its blockchain, including something that combines services, products, and legal system — in fact, it’s a whole virtual world.

That’s the idea behind LAND, a non-fungible token (NFT) that’s the basis of the “land” in Decentraland, a virtual game world built on cryptocurrency. To get LAND you need MANA, the cryptocurrency of Decentraland — and quite literally the coin of the realm. Except this realm is governed by…well not by any one person exactly. After all, it’s Decentraland, not Centraland.

What is Decentraland (MANA)?

MANA is the currency that is used in Decentraland . Decentraland is made up of LAND, non-fungible digital plots of virtual space (or land) that make up the game. The developers of Decentraland created a fixed amount of land, encouraging users to “develop” what they have and thereby creating a market for the currency used to transact with it, MANA. Also, because LAND is a type of NFT, any individual parcel can not be replicated or duplicated. LAND first went up for sale in December, 2017 and since January the land has been owned by “participants” in Decentraland.

LAND isn’t the only asset available within the Decentraland universe — one can also buy virtual goods using MANA in the Decentraland Marketplace. These include “wearables” like virtual clothing as well as names that are unique within Decentraland.

MANA Price

As of late September 2021 the price of MANA was around 70 cents.

Like many cryptocurrencies, the value of MANA is quite volatile, with the price changing substantially over time. Anticipating and dealing with the rapid and extreme change in prices is one of the basics of investing in crypto.

According to CoinMarketCap , MANA is the 78th most valuable cryptocurrency with a “market cap” or total value of just under $1.2 billion. Like many cryptocurrencies, MANA shot up in price earlier this year, jumping from 25 cents to just over a dollar in less than a month starting in late February. It fell and rose again, getting as high as $1.57 in early May.

History of Decentraland

The Decentraland white paper — the official founding document of the cryptocurrency that explains its purpose and the technical specifications for it — was published in early 2017, several months before the virtual universe and its MANA cryptocurrency came into being.

The main idea behind Decentraland is that thanks to the proliferation of cell phones and computers, many people are in a kind of “virtual world” most of the time anyway. Decentraland positions itself as a 3D as opposed to 2D interface.

True to the ethos of cryptocurrency that animates everything from how Bitcoin mining works to the skepticism around some crypto regulations, let alone crypto taxes, another animating concept behind Decentraland was that as opposed to other virtual worlds — think Second Life, World of Warcraft, Fortnite — there would be no central authority in charge of it.

The group behind the white paper got started in 2015 and started working on a 2D grid that they referred to as Decentraland’s “Stone Age”. Another prototype was the “Bronze Age” and the public launch would be its “Iron Age”. Soon after the white paper, Decentraland was able to raise over $20 million in an initial coin offering.

A total of 2.8 billion MANA tokens have been in circulation since September 2017. There’s a maximum total supply of about 2.2 billion MANA coins; this, combined with the fixed amount of LAND tokens, is designed to avoid runaway or unpredictable devaluation of the assets within Decentraland, as can be an issue with other “currencies” like airline miles, for example. Instead of devaluation through inflation, there’s actually been some increased valuation of MANA through deflation.

How Does the MANA Coin Work?

The MANA coin works as a token on the Ethereum blockchain. This means that the Decentraland token MANA requires Ethereum and its token, Ether, to be purchased and exchanged.

To do this, the first step is connecting your crypto wallet holding Ether to the Decentralized marketplace . Once you exchange Ether for MANA, you can then use MANA to purchase items within Decentraland, including parcels of land.

How and Where to Buy MANA Crypto

There are a few different ways to buy MANA — both of which will be familiar to anyone who’s looked into investing in most other types of crypto.

Centralized Exchange

On a central exchange, you can swap your fiat currency like U.S. dollars for a crypto coin, which is then stored using a crypto wallet. The following exchanges offer MANA:

• Coinbase

• Gemini

• Binance

• Kraken

• Gate.io

Decentralized Exchange

You could also purchase MANA by purchasing Ether tokens through brokers or exchanges and then swapping for MANA. It’s possible to buy MANA in this way from:

SoFi Invest

• Kyber

Recommended: Centralized vs. Decentralized Exchanges: Six Differences to Consider

The Takeaway

Decentraland has created an entire virtual world where participants can use the cryptocurrency MANA to buy parcels of LAND, an NFT that represents actual land in that world. One can also use MANA to buy and sell goods and services within Decentraland — like virtual clothing — on the Decentraland marketplace.

For investors looking to trade crypto, SoFi Invest® offers a range of cryptocurrencies including Ethereum, Bitcoin, Litecoin, Cardano, Dogecoin, and more.

Find out how to start trading crypto with SoFi Invest.

Photo credit: iStock/RichVintage


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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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 Trade ETFs: X Strategies for Retail Investors

How to Trade ETFs: Strategies for Retail Investors

Conventional wisdom suggests investors are limited in what they can do with an exchange-traded fund (ETF). An investor can certainly buy into a fund based on portfolio needs and unique investment preference, with the goal hanging on to a good ETF for the long haul. That’s called taking a “buy and hold” strategy, which is common with mutual funds and ETFs.

But ETFs offer investors more options than that. For instance, it’s possible to trade an ETF, too, just like one would a stock, commodity, or cryptocurrency.

Let’s take a closer look at trading ETFs, and dig into the components, strategies, and trading formulas that can work with a fund.

ETFs, Explained

An exchange-traded fund is a popular investment vehicle that enables investors to buy a group of stocks in one bundle, thus promoting investment diversity and efficiency. They’re widely available, usually through major investment fund companies.

ETFs aren’t mutual funds, although they originate from the same fund investment family. The primary differences between the two is that mutual funds are usually more expensive than exchange traded funds. Another benefit of ETFs is that whereas mutual funds can only be traded after the end of the market day, ETFs can be traded during open market sessions at any point in the day.

ETFs have become wildly popular: According to the Investment Company Institute, the combined assets of the nation’s exchange-traded funds totaled $6.49 trillion in June, 2021.

Different Types of ETFs

ETFs are represented in all of the main stock categories, as follows:

Stock ETFs: This type of ETF is composed of various equity (stock) investments.

Bond ETFs: Bond funds hold different types of bond vehicles, like U.S. Treasury bonds, utility bonds, and municipal bonds.

Commodities: Commodity ETFs are popular with investors who want gold, silver, copper, oil, and other common global commodities.

International ETFs: Global-based ETFs usually include country-specific funds, like an Asia ETF or a Europe ETF, which are made up of companies based in the country featured in the ETF.

Emerging market ETFs: This type of ETF is composed of stocks from up-and-coming global economies like Indonesia and Argentina.

Sector ETF: A sector ETF focused on an economic sector, like manufacturing, health care, climate change/green companies, and semiconductors, among others.

Recommended: Tips on How to Choose The Right ETF

4 Reasons to Consider Trading ETFs

Trading ETFs offers the same advantages (and risks) associated with trading common stocks. These features and benefits are at the top of the list.

1. ETFs Provide Liquidity

In a $6.49 trillion market, there is likely no shortage of investors looking to buy and sell ETFs. By and large, the bigger the market, the more liquidity it provides, and the easier it is to move in and out of positions.

2. There are Different Investment Options

With ETFs widely available in popular categories like stocks, bonds, commodities, and more recently, green industries and cryptocurrencies, ETF traders have plenty of investment choice.

Recommended: Investing in Bitcoin ETFs

3. ETFs Offer Portfolio Diversity

Investment experts often extol the virtue of a diverse portfolio, i.e. one made up of both conservative and more aggressive investments that can balance one another and help reduce risk. With so many classes of ETFs available, it’s relatively easy to build an ETF trading portfolio that has different asset classes included.

4. ETFs Are Relatively Inexpensive to Trade

Exchange-traded funds are typically inexpensive to buy — the average fee for buying an ETF is just under 0.20 percent of the total asset purchased. Some brokerage platforms may offer commission-free ETFs.

What Are the Risks of Trading ETFs?

The main risk associated with trading ETFs is the same as with trading stocks — you could lose money. While shedding cash is always a threat when trading any security, the liquidity associated with exchange-traded funds makes it relatively easy to sell out of a position if needed. A candid conversation with a financial advisor may help investors deal with ETF investment trading risks.

How to Trade ETFs

Just as you can trade stocks, you can trade ETFs, too, by taking these steps.

Step 1. Choose a Trading Platform

Traditionally, investors trade stocks through a brokerage house or via an online broker more recently, on alternative trading platforms where investors can buy partial shares of a stock. As with most things in life, it’s generally a good idea to look around, kick some proverbial tires, and choose a broker with the best ETF trading services for you.

Investors can choose from different categories of ETF trading accounts, ranging from standard trading accounts with basic trading services to retirement accounts, specialty accounts, or managed portfolio accounts that offer portfolios managed by professional money managers. When looking for a good ETF trading platform, seek an account that offers the ability to regularly track market performance, create a unique portfolio trading plan, and “test” sample portfolios before you start trading for real.

Step 2. Select an ETF Trading Strategy

The path to successful ETF trading flows through good, sound portfolio construction and management.

That starts with leveraging two forms of investment strategy — technical or fundamental analysis.

Technical analysis: This investment strategy leverages statistical trading data that can help predict market flows and make prudent ETF trading decisions. Technical analysis uses data in the form of asset prices, trading volume, and past performance to measure the potential effectiveness of a particular ETF.

Fundamental analysis: This type of portfolio analysis takes a broader look at an ETF, based upon economic, market, and if necessary, sector conditions.

Fundamental analysis and technical analysis can be merged to build a trading consensus, typically with the help of an experienced money manager.

Any trading strategy used to build ETF assets will also depend on the investor’s unique investment needs and goals, and will likely focus on specific ETF portfolio diversification and management. For example, a retiree may trade more bond ETFs to help preserve capital, while a young millennial may engage in more stock-based ETF portfolio activity to help accumulate assets for the long haul.

Step 3. Make the Trade

Executing ETF trades is fairly straightforward for retail investors. It may be best to consider starting out with small positional trading, so that any rookie mistakes would be smaller ones, with less risk for one’s portfolio.

Here are two trading mechanisms that can get you up and running as an ETF trader:

Market order. With market order trading, you buy or sell an ETF right now at the current share price, based on the bid and the ask — the price attached to a purchase or a sale of a security. A bid signifies the highest price another investor will pay for your ETF and the ask is the lowest price an ETF owner will sell fund shares. The difference between the two is known as the trading “spread.”

A word of caution on market trades. ETFs tend to have wider trading spreads than sticks, which could complicate you’re getting the ETF shares at the price you want. Share trading spreads of 10% are not uncommon when trading ETFs.

Limit trade orders. An ETF limit order enables you to dictate terms on an ETF purchase or sale. With a limit order, you can set the top price you’ll pay for an ETF and the lowest price you’ll allow when selling an ETF.

For investors who have qualms about buying or selling an ETF at a fixed price, limit orders can be a viable option, as they allow the investor to set the terms for a trade and walk away from an ETF trade if those terms aren’t met.

The Takeaway

Historically, exchange traded funds have been used primarily as passive, “buy and sell investments.” But as asset trading grows more exotic in the digital age, trading ETFs has become increasingly popular.

As with any investment, a smart investor will perform their due diligence, tread cautiously, and work with a financial professional as needed. Ready to start investing in ETFs? With a SoFi Invest® online brokerage account, investors can choose from ETFs that are intelligently diversified and auto-rebalanced.

Find out how to get started with SoFi Invest today.

Photo credit: iStock/PeopleImages


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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.
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