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A derivative is a secondary security, meaning it is not an asset itself but rather a contract that tracks the value of an underlying asset, such as stocks, commodities, foreign currencies. A derivative is so named because it derives its value from the underlying asset.

Derivative contracts are a legal financial agreement between two parties: a buyer and seller. Common types of derivatives include options, futures, swaps, and forward contracts.

The value of these derivatives fluctuates based on market events, changes to the underlying price, and other factors related to the underlying asset.

Experienced investors often use derivatives to place bigger bets, to help hedge their investments against future loss, or to try to profit from upcoming market shifts. Some investors also use them to profit or speculate on commodities, such as gold or oil. They can serve different purposes for different people, such as limiting risk related to possible future events.

How Does a Derivative Work in Finance?

A derivative is a legally binding contract that can take the form of futures, swaps, and options trading. A derivative contract outlines the terms, rules, and costs for a potential future transaction based on the performance of an underlying asset.

For instance, if an investor decided to buy stock and has a significant amount of a particular stock with an unrealized gain, they might choose to enter into a derivative contract that gives them the ability to sell it at a specific price on a future date. This may provide them with some protection against future losses.

Derivatives are also a way to give investors exposure to a certain asset class without having to actually buy the assets, when investing online or through a traditional brokerage.

In addition: Derivatives are leveraged contracts, in that the investor pays a fee that’s a fraction of the total cost to control the underlying position. The seller of a derivative doesn’t always need to own the underlying asset. In many cases, the buyer never owns the asset directly either. Derivatives provide exposure to the asset’s value rather than trading it directly.

Derivative Example

A derivative contract, such as a call option, would grant the option buyer the right, but not the obligation, to purchase shares of a particular stock at a predetermined price of, say, $150 per share (the strike price) within a six-month period (the expiration).

The standard options contract is for 100 shares of stock.

The appeal of this strategy, and the appeal of derivatives in general, is that the buyer is able to purchase the right to buy the underlying asset at the strike price, on or before the expiration — but only pay the cost of the contract, which is the premium. If the trade moves in the wrong direction, they are not obligated to buy the underlying shares.

In other words, options (like other types of derivatives) enable investors to make bigger trades than they could with just cash.

Recommended: Options Trading 101

Types of Derivatives

There are two categories of derivatives: obligation-based contracts and option-based contracts. Obligation-based contracts include swaps and futures. These form an obligation between both parties to fulfill the terms of the agreement.

Option contracts give the parties the right, but not necessarily the obligation, to fulfill the contract transaction.

Options

Options are a common type of derivative that give traders the right, but not necessarily the obligation, to buy or sell an underlying asset at a predetermined price within a set time frame. Since the value of an option contract depends on the price movements of the underlying asset, it’s considered a derivative.

Traders use options for speculation or to hedge against potential losses, but they carry risks, including the possibility of losing the premium paid upfront (for buyers), and the potential for significant losses, particularly for uncovered (naked) option sellers.

Recommended: Popular Options Trading Terminology to Know

Futures

With futures contracts, the buyer and seller set a price to buy or sell an asset or commodity on a specific date in the future. The contract includes the price, the amount, and the future settlement date. The contract obligates both parties to fulfill the contract.

Traders are required to deposit margin funds, which is a fraction of the contract value. They may also need to post additional funds, known as maintenance margin, to cover potential losses.

Once the contract is entered into, the price of the underlying asset is tracked daily, and any gains or losses are added to or removed from the trader’s account until the contract is sold or expires.

Futures contracts are traded on regulated exchanges, while similar contracts, known as forwards, are sold over the counter (OTC), allowing for more negotiation but less regulatory oversight and greater risk exposure.

Swaps

Swaps are contracts traded OTC for the exchange of financial terms or cash flows such as interest rates and currencies.

Companies can swap types of interest rates in order to get better terms. Often, one rate is variable and the other rate is fixed.

With currency swaps, companies can invest overseas with a lower risk of exchange rate fluctuations.

What Is Margin?

Margin requirements for derivatives trading differ somewhat from standard margin trading in stocks.

In futures trading, traders must deposit an initial margin, which is a fraction of the total contract value, to open a position. They may also need to post maintenance margin to cover potential losses if the trade moves against them.

In options trading, margin requirements depend on whether an investor is buying or selling an option. Buyers pay a premium upfront, while sellers (writers) may need to post margin to ensure they can fulfill their obligations if the option is exercised.

Swaps may also involve margin requirements, particularly in over-the-counter markets, to mitigate counterparty risk. The specifics vary based on the contract terms and the regulatory environment.

How Derivative Trading Works

A derivatives contract says that the investor will either earn or pay money related to the underlying asset. Although there is an initial cost for the derivative contract, traders may be required to contribute additional maintenance margin if the underlying asset moves against their position.

Once a derivative contract is entered into, the buyer can either hold onto it until the expiration date when they purchase the asset at the agreed upon price, or they can sell the contract to someone else, potentially for a profit. Trading one derivative for another one prior to the contract end date is common.

Generally the contract will sell for only a tiny amount of the value of the underlying asset, but the value of the contract can fluctuate along with the underlying asset price fluctuations — and as the expiration date draws closer.

There is a small initial deposit, sometimes called a premium, required to enter into the contract. This amount varies depending on the type of derivative and market conditions. For example, there could be a contract to purchase 100 shares of a stock for $300 per share, and the option contract might trade at a premium of $3 per share.

Before entering into a derivative contract, it’s important to understand how derivatives work and read what the contract entails, including the disclosure statement. There will be an agreement to sign stating that both parties have read and understand the terms.

Trading derivatives also requires ongoing work and attention. Markets can change quickly, and there may be obligations throughout the contract period, such as tracking the value of the underlying asset.

Costs

Derivative contracts come with various costs depending on the type of contract and the market where they are traded. Common costs include:

•   Options: Premiums, commissions, and potential assignment fees

•   Futures: Initial margin, maintenance margin, and exchange fees

•   Swaps and Other OTC Derivatives: Transaction fees and counterparty costs

Derivatives are best suited for experienced investors who understand the potential risk of loss involved. Consider consulting with a financial professional to understand the full costs for specific trades.

Pros and Cons of Trading Derivatives

There are several pros and cons to trading derivatives. Some of the main ones are:

Potential Benefits

Derivatives traders may benefit from potential upsides, including:

•   A hedge against the risk of future losses

•   An opportunity for speculation

•   Exposure to an asset without having to purchase it

•   Can help predict future cash flows

•   Provides the ability to lock in prices

Potential Risks

In addition to the advantages, there are several potential drawbacks that derivatives traders should understand.

•   Trading derivatives is very complex and can be risky for inexperienced traders

•   The derivative contract may not be liquid or easily sellable on the open market

•   There is a risk of losing more than you invest

•   Online scams in derivatives trading are common, adding to the risk

•   There are fees and costs associated with the contract

•   There may be ongoing maintenance and time commitment required

Financial Derivatives Regulations

Regulations around derivatives vary depending on where they are traded. The Securities and Exchange Commission regulates derivatives traded on registered national securities exchanges, while over-the-counter (OTC) derivatives — which are the majority of derivatives — are typically subject to less oversight and may involve bilateral agreements between parties.

In the latter case, the parties negotiate the terms of contracts on their own. Sometimes these parties include banks and financial institutions regulated by the SEC.

Futures brokers and commercial traders must be registered with the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC).

The Chicago Board Options Exchange (CBOE) is the most well known options exchange platform and is regulated by the SEC. These regulating bodies help to prevent fraud and abusive trading practices and promote fair, orderly markets.

The Takeaway

Derivatives can be a riskier type of investment but they can provide value to both institutional and retail investors’ portfolios when used appropriately, and with a clear understanding of the risks involved.

Trading derivatives requires more work than simply buying and selling more traditional securities, chiefly owing to the representational nature of a derivative contract (i.e., you’re not trading the asset directly) and the use of leverage.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

FAQ

What are derivatives in simple terms?

Derivatives are contracts that represent a certain amount of an underlying asset (e.g., stocks, commodities, a benchmark index). Investors can pay a relatively small amount to purchase a derivative such as an options contract, which they can then trade.

What are the four main types of derivatives?

The four main types of derivative contracts are options, futures, swaps, and forwards. These contracts represent different types of sophisticated, higher-risk investing strategies. Less experienced investors may want to do their due diligence before trading derivatives.

Are derivatives a type of alternative investment?

Derivative products can be used in some alternative strategies, such as hedge funds, but they aren’t considered alternative assets in the same way that, say, commodities, private equity or real estate are. Many derivatives, such as options and futures, are highly regulated, and many derivative contracts are tied to traditional underlying assets such as stocks. That said, the majority of derivatives are traded over-the-counter, making them less liquid and less transparent and more like alternatives.

Photo credit: iStock/fizkes

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

Before investing, carefully consider the investment objectives, risks, charges, and expenses detailed in a Fund’s prospectus. This document contains important information and must be read carefully prior to investing; you can find the current prospectus by clicking the link on the Fund’s respective page.
Alternative investments are highly risky and may not be suitable for all investors. These investments often involve leveraging, speculative practices, and the potential for complete loss of investment. They typically charge high fees, lack diversification, and can be highly illiquid and volatile. Be aware that both registered and unregistered alternative investments, including Interval Funds, are not subject to the same regulatory requirements as mutual funds, and their illiquid nature may restrict your ability to trade on your timeline. Always review the specific fee schedule for Interval Funds within their prospectus.

Options involve substantial risk of loss and the possibility an investor may lose the entire amount invested. Before starting options trading, investors should be familiar with the Characteristics and Risks of Standardized Options . TTax implications with options should be considered. Consult your tax advisor to understand any impacts to your taxes.

SOIN-Q326-026

Platinum is one of several precious metals, including silver and gold, that tend to have high relative values, which can make them attractive to investors. Investing in platinum, likewise, isn’t all that different from investing in other precious metals, and investors can generally add platinum to their portfolios by purchasing bullion (or, the metal itself), purchasing stocks that are involved in the mining or production of platinum, or through funds that may offer exposure to the precious metals market.

Investors may turn to platinum for a number of reasons, such as the potential to see gains or as a possible hedge against inflation. But, as with any alternative investment, there are additional risks and considerations investors should take into account before adding platinum to their portfolios.

Understanding Platinum as an Investment

Platinum is a precious metal, which has a shiny metallic appearance, similar to silver. In fact, the moniker “platinum” comes from the Spanish word “platina,” which translates to “little silver.” It’s been mined and traded for hundreds of years, too, particularly in pre-Columbian South America, and was initially taken to European markets in the mid-1700s. It’s even been found in ancient Egyptian tombs, too. Today, a majority of platinum is mined in South Africa.

It’s commonly used to produce jewelry – again, because of its striking visual appeal – but is also used to produce some auto parts like catalytic converters, in chemical production, and to create computer and electronics components. Additionally, it’s used to produce a host of other products, including wind turbines and even dental fillings. It’s a versatile metal, but it’s largely due to its visual aesthetics that it carries a lot of value.

And that value is mostly tied to the fact that it’s scarce – scarcer even than gold, in fact. Since the mid-1700s, roughly 10,000 cubic tons of platinum have been mined, out of an estimated 70,000 total. So, platinum’s relative scarcity – meaning that it could go up in value in the future (or not, of course!) – is what primarily makes it attractive to investors as an alt investment.

Ways to Invest in Platinum

For investors who are interested in investing in platinum, there are a few primary ways to do it: By purchasing physical platinum, buying shares of funds that may add exposure to platinum to their portfolios, or by purchasing shares of mining companies that may be involved in platinum production.

It’s not much different, really, from the types of assets you might consider when determining how to invest in gold or another alternative investment. In addition, some investors may choose to invest in the precious metal through platinum futures, derivative contracts to buy or sell an asset at a future date for a set price. (Note that SoFi does not offer futures trading at this time.)

Read more: Guide to Alternative Investments

Physical Platinum

Purchasing physical platinum can include buying bullion, examples of which may be bars or coins. Effectively, platinum bullion is solid (or near solid) platinum, valued for its weight, rather than an assigned monetary value (such as a quarter from a mint that’s used for transactions) or its numismatic value (i.e., its value to collectors based on factors such as its rarity and condition).

Bullion coins can be purchased in different sizes, such as one ounce, one-half ounce, and one-quarter ounce. Bars, too, are generally sold by the ounce – one ounce, ten ounces, etc. – and can be purchased through the United States Mint, at coin and bullion dealers’ online shops or stores, and at certain retailers such as Walmart and Costco. Investors may also buy platinum jewelry from jewelers or other retailers.

Platinum ETFs and Mutual Funds

If buying physical platinum isn’t exactly what investors are looking for, they may look at fund options – that can include exchange-traded funds (ETFs) or mutual funds that are focused on or concentrated in the platinum market. There are numerous platinum-focused funds on the market, though each will vary in terms of costs, risks, price-per-share, and individual holdings or allocations. As such, investors should do their due diligence and research the particular funds they’re considering before investing.

💡 Quick Tip: How do you decide if a certain online trading platform or app is right for you? Ideally, the online investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Platinum Mining Stocks

investing in stocks of companies that are involved in platinum mining or production is another option for investors. Like platinum-focused funds, there are many companies that mine platinum, each with their own individual risks and potential upsides. It’s up to investors to do their homework to weigh the pros and cons and consider how these stocks fit within their overall investment strategy before making a choice.

Factors Affecting Platinum Prices

Platinum prices are subject to numerous factors, like other precious metals. The largest, however, is supply and demand – as simple as it is, the more that platinum is in demand, the higher its value tends to be. Supply and demand, of course, is influenced by a large set of variables that include how much and often platinum is being used by manufacturers, or even if platinum jewelry experiences a moment of popularity.

In recent years, platinum has seen an increase in demand due to an uptick in electric and hybrid vehicle production, for example. But it’s also been influenced by power outages in South Africa, where most mining takes place, as well as military conflicts and wars in Europe.

Economic factors can also play a role. For instance, some investors crowd into precious metals investing if they feel that a recession is on the horizon or if inflation becomes an issue. That’s because precious metals are often seen as a powerful store of value and a hedge against inflation – though whether or not that’s true is, itself, dependent on other factors.

Advantages of Investing in Platinum

There can be potential advantages of investing in platinum, as noted. For one, adding platinum or other precious metals to your portfolio can add an element of diversification. That is, if your portfolio already contains a good mix of other investment types – which may include stocks, bonds, ETFs, mutual funds, and more – precious metals may be yet another asset class that can help diversify it even further.

Additionally, as mentioned, it’s possible that investing in platinum or other precious metals may help a portfolio retain value if the markets see a dip, or if inflation goes up. Likewise, there’s always the possibility that platinum prices could rise in the future, helping a portfolio’s overall value increase as well – but there are no guarantees.

Read more: What are Alternative Investments?

Risks and Challenges

While there are some advantages to investing in platinum and precious metals, there are risks and other considerations that investors need to take into account to determine if precious metals may be a good investment choice for them.

For example, precious metal values – including platinum – are notoriously volatile. That means that one day platinum prices may look like they’re heading to the moon, and the next, they’re cratering. Investors who don’t have much of an appetite for risk may want to consider whether they can handle wild price swings.

On top of that, if investors are buying physical platinum, they’ll need a safe place to actually store it, where it won’t be affected by environmental conditions, or even tempt thieves. It could also be a bit more of a chore to sell physical platinum, as well, as it’d require at the very least a trip to a trusted coin store or finding a reputable buyer online.

How to Buy Physical Platinum

Buying physical platinum is fairly easy. Investors can find numerous online retailers that sell platinum and other precious metals, and buy through those channels. That includes the United States Mint, which produces and sells platinum coins. Investors can also visit coin or bullion shops in their local markets to see what platinum options are available.

Investing in Platinum Through the Stock Market

Investing in platinum through the stock market is likewise fairly straightforward, as it involves simply selecting the company or fund you want to buy shares in, and executing a trade. But the important part of the trade is doing due diligence before investing.

That means looking at a stock or fund’s financial statements and history of returns, where it’s being operated and by whom, and much more. It’s effectively the same process as investing in any other asset — doing some initial research and analysis of the fundamentals in order to make a choice that aligns with your investment strategy.

Tax Implications of Platinum Investments

Figuring out tax liabilities generated from platinum investments generally boils down to calculating any capital gains on those investments. If you invest in physical platinum, the IRS considers or classifies it as a collectible. So, if you sell it after holding it for more than a year, you may be subject to a 28% capital gains tax rate.

However, if you’ve invested in platinum-focused funds or stocks, there may be other tax implications, and potentially, a different capital gains tax rate. As such, it may be best to touch base with a financial professional to help you figure out exactly what the tax implications of your platinum investment might be.

Comparing Platinum to Other Precious Metals

Platinum is just one of several precious metals that investors often set their sights on, the others being gold, silver, and palladium. They each have their own unique properties, uses, and potential upsides and risks.

Their prices vary over time and, at times in the past, platinum has actually been more expensive than gold, given its rarity. Typically, however, gold is the most expensive per ounce of the four, while investing in silver is typically the cheapest – platinum and palladium lie somewhere between the two.

It may help to review the gold/silver ratio to better understand the pricing differences. Again, depending on an investor’s strategy and how much risk they’re willing to take on, looking at options for each precious metal may be worth the effort.

The Takeaway

Platinum is one of four main precious metals that investors typically focus on. The rare metal has a number of industrial uses, and is valued for its use in jewelry, given its aesthetic and physical qualities.

Platinum investments may be advantageous in that they can diversify a portfolio and act as a hedge against inflation, but precious metal values are typically volatile, and investors would do well to do their research before buying physical assets, or investing in related funds or stocks.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

FAQ

What are the different forms of platinum investments available?

Investors can buy physical platinum – such as bars or coins – or invest in funds that focus on platinum. It’s also possible to invest in companies that operate in or around platinum mining and production.

How does platinum pricing compare to gold and silver?

Gold is typically the most expensive precious metal per ounce, while silver is generally the least expensive. Platinum (and palladium) prices are often between the two, with platinum prices, as of September 2026, around $1,765 per ounce.

What factors influence the platinum market?

Platinum values and the overall market can be influenced by a number of factors, including general supply and demand, industrial need, economic strength, and more.

Photo credit: iStock/Zinkevych

SOIN-Q326-041

Stock dilution is when a company action increases the number of outstanding shares of its stock, typically reducing the ownership stake of current shareholders. There are a number of ways share dilution might occur. Sometimes companies issue new stock as part of a secondary or follow-on offering in addition to the shares issued as part of its initial public offering (or IPO). A company may create more shares through stock options for employees or board members as part of a compensation or retirement plan.

Whichever way the stock dilution happens, the increase in the number of shares means that each individual stockholder ends up owning a smaller, or diluted, portion of the company. This isn’t necessarily bad news for investors, however, as the issuance of these additional shares may be put toward the company’s debt or into research and development, potentially enhancing the company’s long-term value.

What Is Stock Dilution?

Stock dilution occurs when a publicly-traded company increases the number of shares of stock on the market. Stocks are shares of ownership in a company. Owning even one share of stock is like owning a tiny piece of the operations of a business.

When a company’s board of directors first makes the decision to take a company public, the IPO process allows a set number of shares of that company’s stock to trade on public stock exchanges. This initial number of shares is often called the “float.”

Any further issuance of stock (often referred to as a secondary offering) will result in the outstanding shares being diluted. The same applies if the secondary offering occurs after a backdoor listing. While this may or may not affect the price, it does impact current investors’ ownership stake.

Example of Stock Dilution

Here’s an example of stock dilution: Let’s say a company has 10,000 shares of stock as part of its initial offering, and decides to issue 10,000 more shares as a secondary offering to raise more capital. In that case, existing investors could see a dilution factor of 50%. So if they previously owned 5% of the company, they would now own 2.5%.

Owing to a decrease in their percentage of ownership, stock dilution might also reduce the voting power of some shareholders. That may be something to keep in mind if voting power is important to you as you dig deeper into the world of online investing.

How Does Stock Dilution Work?

There are any number of reasons that companies choose to issue secondary shares of stock. A company might want to give rewards to its employees or raise new capital.

Issuing new shares as a method of raising money could be a particularly desirable option because it allows a business to receive an infusion of cash without going into debt or having to sell any assets that belong to the company.

It should be noted that stock splits are separate events that do not result in dilution. And a stock buyback, which reduces the number of outstanding shares, could be a way of enhancing the value of the stock.

When a business has a standard split of its stock, investors who already hold that stock receive additional shares, so their ownership in the company stays the same. Dilution of stock only occurs when new shares are issued and sold to additional investors who hadn’t purchased shares before the secondary offering.

Reasons Why Stock Dilution Occurs

When share dilution occurs, a company usually has its reasons for issuing the additional shares. Those reasons could include:

•   Additional shares may be sold to pay down debt or increase capital for R&D or other purposes.

•   Companies may offer stock options to employees as rewards or bonuses. When employees exercise these options, that increases the number of outstanding shares.

•   A company might issue stock warrants or bonds as another way of raising capital. But when or if these are converted to shares, they might be dilutive.

•   Some shareholders may push for an action that would end up diluting shares, as a way to reduce the power of smaller shareholders.

Is Stock Dilution Bad?

Stock dilution isn’t inherently bad or good, because the repercussions of diluting stock could affect all parties differently. While all shareholders may see their ownership stake decrease, that will affect some more than others.

Even if shareholders are unhappy in the short term, the resulting cash infusion from making more shares available on the market could benefit the company long-term – which in turn might increase the value of the stock.

Stock Dilutions and Stock Price

When a company increases the number of outstanding shares, that action of course has an impact on earnings per share (EPS) as well as dividends – because there are now more shares on the market, or in investors’ hands. And when EPS and dividends effectively become diluted (or reduced) as well, that could impact the price per share.

So instead of looking only at basic EPS, investors should take into consideration convertible securities that may be outstanding as well. By understanding the whole picture, investors might arrive at the diluted earnings per share, which captures a more accurate picture of company fundamentals.

How Does Stock Dilution Affect Investors?

When a company creates new shares of stock, the value of existing shares becomes diluted, meaning they decrease in value. If you’re thinking of cashing out stocks, this is something to consider.

Think of it like a birthday cake. At first, you and seven of your friends agree to each have one slice of cake. But then two of your other friends unexpectedly show up, also wanting cake. Now you have to slice the cake into ten pieces rather than eight, so each piece will be smaller.

This scenario is similar to what happens when a company issues more shares of stock and stockholders see the value of their shares reduced. The difference is that each share not only becomes like a smaller piece of the cake, but usually (but not always) becomes less valuable and entitles its holder to less company ownership and voting rights.

Stock Dilution and Dividends

For dividend-yielding stocks, dilution could also lead to smaller dividend payouts unless earnings per share rise enough to make up the difference.

Because more shareholders now have to be paid, paying the same dividend yield takes a heavier toll on profits. If a company is only issuing new shares out of an attempt at raising new capital because their business is hurting, then they may have to cut dividends even deeper down the line or halt them altogether.

This will likely have consequences for investors who hold equities for income. Dividend investors will do well to keep an eye on the number of shares outstanding for any stock, as well as how previous dilutions (if any) have affected dividends.

To be clear, dilution doesn’t have to affect dividends. Dilution cuts down on earnings per share (EPS) but not necessarily on dividends per share (DPS), but it’s likely it would.

While EPS measures a company’s profitability per each share of stock outstanding, DPS measures the value of dividends paid out to investors per each share of stock outstanding. A company may choose to keep DPS the same after dilution, although doing so will cut into the profits of their business to a larger extent than before.

The more dividends per share a company pays out, and the more shares there are, the more unsustainable the dividend is likely to become, since a company could only afford to pay so much of its profits out to investors.

The only way for big dividend payments to be sustainable is when a company is either growing rapidly or taking on lots of debt to finance its operations.

Other Stock Dilution Effects

Stock dilution has an impact on more than just the price of a stock or potential dividend payouts.

When additional shares are created, this reduces the stock’s earnings per share (there will be fewer earnings per share with more shares on the market) as well as the voting rights of the shareholder (holders of stocks sometimes get to cast a vote for important company decisions, like the addition or removal of board members).

In fact, income statements issued by companies often show both “basic” and “diluted” earnings per share (EPS) numbers. This allows for shareholders and investors thinking about purchasing the stock to see the effect that dilution would have if the maximum number of potential shares were to come into existence (through the use of unexercised stock options, for example).

Dilution of a stock could also have a positive impact on the stock’s valuation, however. That’s because the issuing of new shares being bought increases the stock’s market cap, as people buy those shares. If this momentum outpaces any selling caused by negative market views of the secondary offering, then share prices could rise.

Beyond the short-term, news-based influence of dilution, the long-term effects of new stock shares coming into existence depends largely on how a company’s management decides to spend the funds they just received.

Pros and Cons of Stock Dilution

While it’s easy to interpret stock dilution as a negative thing from the perspective of those who hold shares before the dilution occurs, the concept isn’t so one-sided.

When done in the right way for purposes that contribute to company growth, dilution might benefit both a company and its shareholders over the long-term.

When done recklessly or in an attempt at covering up bad business performance, dilution could provide a temporary cash flow boost that doesn’t solve any real problems and puts shareholders in a precarious position.

It comes down to whether or not a management team has a good reason for diluting their stock and what they choose to do with the funds raised afterward.

Pros of Stock Dilution

In some ways, dilution of stock could be a good thing. When new shares are used to reward managers and employees, this might indicate a company is growing and performing well, and that it wants to share some of its good fortune.

When new shares are issued at a price higher than what the stock is currently selling for, this might also be a win-win scenario. It indicates demand for shares while minimizing the share dilution that existing shareholders must endure.

Ideally, companies should have a good reason to issue new shares and use the resulting cash infusion in a productive manner. Raising money for a new product, research and development, or bringing on new and valuable employees might be some good reasons for dilution of a stock.

When a company dilutes its stock without good reason, or doesn’t use the proceeds in a productive way, then the cons of stock dilution are all that’s left.

Cons of Stock Dilution

In general, investors don’t take kindly to the concept of new stock shares being issued to internal shareholders, as it usually decreases the value of the stock and the ownership stake of those who already hold shares. To the investing public that has some kind of awareness of this, stock dilution could be seen as negative news.

Some of the things mentioned previously could also be considered cons of stock dilution: a decrease in earnings per share, less voting power for shareholders, or declining share prices.

Recurring, new stock issuances might be perceived as a warning sign by investors. If a company needs to keep diluting its stock to raise money, perhaps their business operations haven’t been performing well.

This perception might lead people to sell shares, resulting in a decline in the stock price. Sometimes this happens when a company merely announces that they might be issuing new shares in the future. The perception could become reality before anything even happens.

Stock Dilution vs Stock Splits

While share dilution and stock splits both increase the number of outstanding shares, a stock split has a different motive and different results.

A company often conducts a stock split to bring down the price per share. For example, a company trading at $200 per share could do a 4-to-1 stock split, bringing down the PPS to $50. Shareholders still hold the same dollar amount, but the number of shares they own has increased, so their ownership percentage doesn’t change.

Understanding Corporate Buyback

The opposite of a company creating more shares is when a company buys its own shares back. This is sometimes called a corporate buyback and reduces the number of shares outstanding, usually leading to a rise in the price of a stock (due to the law of supply and demand).

While this might be good for shareholders in the short-term, it might be a bad thing for a company overall, since the money used could have been spent to improve business operations instead.

Sometimes stock could become highly overvalued due to the practice of corporate share buybacks, leading to precipitous drops in prices later on.

Sometimes companies issue public statements detailing their exact plans for dilution as well as their reasons for doing so.

This way, both current and future investors could prepare accordingly. The news alone might, sometimes, lead to a stock selloff due to the fact that the concept of stock dilution is usually interpreted in a negative way by most investors.

Investors would do well to monitor the amount of shares a company has outstanding. If the number keeps increasing, earnings per share are likely to decline or stay flat while investors voting rights diminish in their influence.

And while a drop in share counts may be a good thing, they might cover up a lack of growth by boosting earnings per share without any real underlying growth happening.

The Takeaway

Stock dilution – when a company issues additional shares – is neither good nor bad, but it does have specific consequences for shareholders, who typically see their ownership stake decrease. In some cases, the additional capital raised by the shares in a secondary offering (one that occurs after the IPO) could benefit a company long term by paying down debt or adding to its assets or intellectual capital. But stock dilution could impact earnings per share, as well as dividend payouts, which in turn could impact the price.

But if the company sees a gain, growth, or expansion from the additional revenue, that could boost the stock price. It’s just important for investors to understand what a stock dilution might mean.

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FAQ

What does stock dilution mean?

Stock dilution is something that happens when a company increases the total number of outstanding shares on the market, which effectively reduces the ownership stake of existing shareholders. Their ownership stakes, then, are “diluted.”

Why would a company dilute its stock?

Companies might dilute their own stock in order to raise more capital, as a result of exercised stock options by employees, or due to converted stock warrants.

What’s the difference between stock dilution and a stock split?

Both stock dilution and stock splits effectively increase the total number of shares on the market, but stock splits are often used to reduce a stock’s price, rather than to raise capital or incentivize employees. A stock split does not dilute current shareholders’ ownership stake, either.

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Silver certificates are a type of money, or paper bill, issued by the United States government between the years 1878 and 1964. Although they resemble ordinary currency, and may still be used as legal tender, silver certificate bills are generally worth more than their face value. How much more depends on the type, the size, and several other factors. The rarer the certificate, the higher its likely value. In some cases, certain unusual or historic silver certificates may be worth large sums at auction.

Silver certificates are more like collectibles, in that their value might also fluctuate based on demand or trend factors. There is also the risk of fraud, and it’s wise to consult a professional before buying or trading silver certificates.

What Are Silver Certificates?

Silver certificates, which were issued only between the years 1878 and 1964, could at one time be redeemed for their designated amount in silver: either coins or silver bullion.

History of Silver Certificates

Silver certificates are no longer printed or produced by the U.S. Mint, and haven’t been since the mid-1960s. As such, they’re somewhat rare, and may be worth more than their face value. Each series of silver certificates displays its own combination of design flourishes and security elements that also reflect artistic trends of the day, as well as technological developments.

The Mint stopped producing silver certificates in 1964 after Congress passed a law repealing the Silver Purchase Act – which had allowed certificates to be exchanged for silver. They were gradually replaced by Federal Reserve notes, which solidified the era of fiat currency: legal tender not backed by a precious metal, but rather the U.S. government’s guarantee.

Uses for Silver Certificates

Silver certificates may, however, still be used as cash even today. Depending on the type of silver certificate, they may vary slightly in appearance from other bills, but they are considered legal tender.

For collectors or investors, silver certificates may be considered a type of alternative investment, similar to collectibles like art, rare books, and antique sports cards. While they aren’t necessarily high-risk investments, silver certificates are beholden to certain risk factors, like potential fraud from counterfeit certificates, as well as a lack of transparency in the market for these items.

At this time, SoFi does not offer silver certificates.

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Types of Silver Certificates

Generally speaking, there are two types of silver certificates: Large and small silver certificates. The description actually refers to when the certificates were produced, as well as the difference in their physical dimensions. Because silver certificates are basically a type of collectible – in that their value isn’t derived from their face value – they fall under the rubric of alternative assets.

Large-Size Silver Certificates (pre-1929)

Large silver certificates are, as the name suggests, physically larger than small silver certificates, and measure around seven inches long by three inches wide. These certificates were produced between 1878 and 1923, and came in nine denominations, ranging from $1 to $1,000.

Small-Size Silver Certificates (1929-1964)

Small silver certificates conform to modern bill sizes, measuring at a bit more than six inches long, and two-and-a-half inches wide. They were produced beginning in 1928, after the Mint redesigned bills, and were printed until 1964. They come in only three denominations: $1, $5, and $10. And, like their modern standard counterparts, they feature portraits of either George Washington, Abraham Lincoln, or Alexander Hamilton.

Recommended: Comprehensive Guide to Alternative Investments

Factors Affecting the Value of Silver Certificates

There are quite a few variables that ultimately determine the value of a silver certificate today, just as there are a range of factors that impact the value of various types of stocks.

Perhaps the most important is the physical condition of the silver certificate itself, or “grading,” as numismatics would say. Similar to collecting rare coins, there are professionals who assess the condition of paper money and bills, and give them a specific grade to convey that condition.

The grade includes a number between one and 70 (70 indicates that the bill is in mint condition), and a letter, signifying that it is either in good, very good, very fine, extremely fine, about uncirculated, or gem uncirculated condition. The absolute best condition you could hope for would be a “70 Gem Unc.”

Beyond the condition and grade of a silver certificate, the value could be affected by its age, its denomination, and even its serial number, or whether or not it contains a minting error (bills with errors are rarer than those without errors, increasing their value to collectors). Further, where a bill was produced can affect its value, as can its specific design – again, some are more scarce than others.

Recommended: Alternative Investments, Explained

Common Silver Certificate Denominations and Their Worth

The most common silver certificate denominations on the market are $1, $5, and $10 varieties, although older bills may come in a wider range of denominations. And while their values depend on some of the factors discussed (most importantly, their grading), potential investors or collectors may want a ballpark figure of what they might pay to get their hands on one — or what they could reap if they were to sell it.

It’s likely worth it to speak with a specialist or numismatist to get a more accurate valuation of a specific bill.

•   $1 silver certificates: Depending on the certificate (grading, year, etc.), $1 silver certificates may be worth a bit more than their face value, or they could be worth hundreds of dollars.

•   $5 silver certificates: For the more common $5 silver certificates on the market, values are likely to be somewhere between 10% and 30% above face value. But again, some may be worth much more, into the hundreds of dollars, for rarer bills.

•   $10 silver certificates: Values for common $10 silver certificates are similar to $5 varieties, typically 10% to 30% above face value. For specific, rare certificates, the values could be much higher.

Owing to the wide range of factors that come into play regarding the actual current value of a silver certificate, it may be best to consult with a professional before buying, trading, or investing in silver certificates.

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Rare and Valuable Silver Certificates

As mentioned, there are some rare and more valuable silver certificates out there, too. While the more common certificates are not worth much more than their face value, these hard-to-find bills can fetch hundreds, or even perhaps thousands of dollars from the right buyer. Here are a few examples.

•   1896 $1 Silver Certificate Educational Series: Featuring an elaborate design and portraits of George and Martha Washington, this rare bill has sold for as much as $10,000.

•   1886 $5 Silver Certificate (Ulysses S. Grant): This certificate, featuring a portrait of Ulysses S. Grant on the front, is another old, rare bill. These specific certificates often sell for tens of thousands of dollars at auction, and sometimes more.

•   1891 Series $20 Silver Certificate: This bill has a portrait of Daniel Manning, and there are only a handful of them that still exist. Given its rarity, these bills might sell for tens of thousands of dollars at auction.

How to Determine the Value of Your Silver Certificate

Determining the value of a silver certificate isn’t easy, and may best be left up to professional numismatists to ensure you’re getting an accurate estimate. But you could begin by trying to assess the grade yourself – that is, determining the overall condition of the bill. Again, this may not be easy to do, but if the bill is damaged in specific ways, you may be able to use a grading guide to help you figure things out.

Beyond that, you can also look up the specific mintage or production information to get a sense of how rare a certificate is. That may also help you get a ballpark idea of the value of your certificate. But again, you may want to go to a professional – perhaps at a local coin shop or auction house – to get a professional appraisal, or more information.

Collecting vs. Investing in Silver Certificates

Perhaps the primary difference between collecting and investing in silver certificates is that investors are actively trying to generate a positive return. So, while a collector may be willing to pay higher prices, or even lose some money in order to get their hands on a specific silver certificate, an investor looking at various types of alternative investments likely won’t be willing to do the same, owing to the lack of transparency and liquidity.

Recommended: Why Alternative Investments?

Where to Buy and Sell Silver Certificates

Whether you’re collecting or investing in silver certificates, there are many online stores or retailers that sell silver certificates, and there are even auction houses that may offer the chance to buy rarer bills. Many physical coin or bullion stores may have silver certificates available for purchase, too, and be willing to buy them as well.

Preserving Silver Certificates

In order to keep silver certificates safe and their condition intact, it’s best to try and put them in some sort of protector, and control the environment in which they’re stored. That means likely purchasing currency sleeves – which can be purchased from many retailers – made of rigid plastic. That will help protect the bill from physical damage.

But you’ll also want to aim to keep your silver certificates in a place that is relatively cool, dry, and dark. Heat, humidity, and direct sunlight can and will damage paper bills, so if you can find a safe spot to keep them, it should help keep their integrity for longer.

The Takeaway

Silver certificates are paper bills that, at one time, could be exchanged for silver coins or silver bullion. They have not been produced since the mid-1960s, and as such, are something of a rarity on the market today – although they can still be used as legal tender to make purchases. Some are rarer than others, naturally, and can have higher values, and that’s made them attractive to investors and collectors alike.

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FAQ

Can silver certificates still be redeemed for silver?

No, silver certificates can no longer be redeemed for silver coins or bullion, but can be used as legal tender to conduct transactions or purchased as a collectible.

What makes some silver certificates more valuable than others?

The primary variables that determine the value of a silver certificate are its denomination, grade, age, and mintage or production information – in general, the rarer a bill, the higher its value.

How do you determine if a silver certificate is genuine?

The best thing to do in order to determine whether a silver certificate is genuine or not is to take it to a professional numismatist.

Photo credit: iStock/svetikd

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As a student, you must submit a new Free Application for Federal Student Aid (FAFSA®) each school year to determine the federal financial aid you qualify for, including grants, work-study programs, and student loans. Many colleges and states also use FAFSA information to award their own institutional and state-based aid, so skipping the FAFSA could mean missing out on thousands of dollars in free or low-cost funding.

The FAFSA for the 2027-2028 academic year opened on September 23, 2026, earlier than the traditional October 1 launch date. While the federal deadline to submit the FAFSA is June 30, 2028, it’s wise to complete the form as early as possible. Many states and schools award aid on a first-come, first basis and have much earlier deadlines.

What follows is a detailed guide to completing the 2027-2028 FAFSA.

Documents You’ll Need

Before you sit down to complete the online FAFSA application, gather the following documents and information you’ll likely need to make the process smoother:

•   Your Social Security number

•   Your Alien Registration Number (A-Number), if you’re not a U.S. citizen

•   Your federal income tax return

•   Records of child support received

•   Current balances of cash, savings, and checking accounts

•   Bank statements and records of investments (if applicable)

•   Records of net worth of investments, businesses, and farms

•   Records of untaxed income (if applicable)

If you’re a dependent student, your parent(s) will need most of the same information to complete their portion of the FAFSA.

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How to Fill Out the FAFSA in 6 Steps

Ready to file the FAFSA? Most applicants complete the form in less than one hour, including the time needed to gather personal and financial information.

Here’s how to fill out the FAFSA step by step.

Step 1: Create an Account

Before completing the FAFSA online for the first time, you need to create a StudentAid.gov account. This account provides you with a username and password that allow you to securely log in, complete the FAFSA electronically, and sign the form digitally.

Any required contributor(s) must also create their own StudentAid.gov account. A contributor is anyone required to provide consent and financial info for your FAFSA, such as a parent, stepparent, or spouse. Contributors are not required to pay for your college education, but their financial information may be necessary.

Step 2: Provide Personal Information

After logging in, select “student” to indicate that you are completing the form as the student applicant.

You’ll begin by reviewing and confirming basic personal information, including:

•   Name

•   Date of birth

•   Social Security number

•   Email address

•   Mobile phone number

•   Mailing address

Next, you’ll answer questions about your personal circumstances in a section recently renamed “Background.” These include whether you are a veteran, have dependents of your own, or are a legally emancipated minor. These questions determine whether you’re classified as a dependent or independent student for financial aid purposes.

You’ll also be asked about:

•   Race and ethnicity (used for research purposes only and not factored into your aid eligibility)

•   State of residence

•   Parent education status

•   High school information

•   Any federal benefits you or your family members have received

Step 3: Add Student Financial Information

To be eligible for federal student aid, you must provide consent for the FAFSA to import your tax information directly from the Internal Revenue Service (IRS) through the IRS Direct Data Exchange. The 2027–2028 FAFSA uses 2025 federal tax information. Once you give consent, your relevant tax information will automatically populate the form.

You’ll also need to report:

•   Your tax filing status (e.g., single or married filing jointly)

•   Any child support you received

•   Your financial assets, such as cash in bank accounts and investments you own

Do not include your parents’ financial assets in this section. Those should be reported separately by your parent(s), detailed below. If you are married, your spouse’s financial information may also be required.

Step 4: Select Colleges

Next, choose the colleges, universities, and career schools you’re considering. When completing the FAFSA application online, you can list up to 20 schools where you want your FAFSA information sent. Schools can be searched by name, city, and state or school code.

Recommended: How Many Colleges Should I Apply To?

Step 5: Review and Sign

You’ll then review the terms and conditions of the FAFSA, confirm that all the information you provided is accurate to the best of your knowledge, and electronically sign the application. Once signed, your portion of the FAFSA is complete. However, in general, the entire form isn’t officially submitted until all required contributors (like parents or spouses) also complete and sign the form.

Step 6: Parents Add Information

If you’re a dependent student, you usually must invite your parent(s) to complete their portion of the FAFSA. You’ll do this by providing their email address, which sends them an invitation to access the form. This year, you can also invite parents by text message for the first time.

If your parents are married and filed a joint tax return, only one parent needs to fill out the FAFSA. If they’re married but filed separately, both parents are considered contributors. If your parents are divorced or separated and live apart, the parent who provided the most financial support during the past 12 months is the required contributor.

Parents will need to provide contact information, household size details, the number of family members attending college, and any federal benefits received. They’ll also be required to consent to importing tax data from the IRS and report financial assets, including:

•   Total balances of checking and savings accounts

•   Total value of investments, minus debts.

•   Current value of businesses or farms, minus debts

Retirement accounts — such as 401ks, IRAs, and pensions — should not be included on the FAFSA. After reviewing their information, parents will sign and submit the form.

Recommended: Quick FAFSA Tips and Mistakes to Avoid

If You Need Additional Help Filling Out the FAFSA

If you need assistance, click the white question mark icon next to any FAFSA question to view guidance. You can also visit the FAFSA Help Center, watch the FAFSA tutorial video, or chat with Aidan, the virtual assistant within the application.

Additional help is typically available through the Federal Student Aid Information Center, our FAFSA guide, or the financial aid office at the college or career school you plan to attend.

What Happens After You Submit the FAFSA?

Usually within one to three days of submitting your FAFSA, you’ll receive a FAFSA Submission Summary. This document summarizes your responses and includes your Student Aid Index (SAI), which schools use to calculate your financial aid eligibility.

Each college you listed on your FAFSA and are accepted to should send you a financial aid award letter. This may include federal aid such as:

•   Direct Unsubsidized Loans

•   Direct Subsidized Loans

•   Work-Study

•   Pell Grants

•   TEACH Grants

•   Federal Supplemental Educational Opportunity Grants (FSEOG)

Who Should Complete the FAFSA?

Almost every student planning to attend college or graduate school should complete the FAFSA. This can include students from middle- and high-income households, part-time students, and those who believe they won’t qualify for federal aid.

Many scholarships, grants, and institutional aid programs require a completed FAFSA regardless of income level. Even if you don’t qualify for need-based grants, you may still be eligible for federal student loans, work-study opportunities, and school-specific financial assistance. Completing the FAFSA can ensure you don’t miss out on any funding options available to you.

What If I Don’t Qualify for Any or Enough Aid?

If your financial aid offer doesn’t fully cover your education costs, you may still have several options. You can appeal your financial aid award if your family’s financial situation has changed due to circumstances such as job loss, medical expenses, or other unexpected hardship.

You can also apply for private scholarships and grants, which are offered by organizations, employers, and nonprofits and don’t need to be repaid. In addition, working part-time during the school year or over the summer can help offset education and living expenses.

Private student loans can be another option for covering remaining costs. However, they should be used carefully since they often have higher interest rates and offer fewer repayment protections than federal student loans.

The Takeaway

Completing the FAFSA application doesn’t have to be overwhelming. In many cases, the application can take approximately a half hour to an hour from start to finish. By following this step-by-step guide, you can confidently submit your FAFSA and understand what types of financial aid you may be eligible to receive for the upcoming school year.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What’s the due date for the FAFSA?

The FAFSA typically opens on October 1st each year for the following academic year. For the 2027–2028 academic year, the FAFSA opened early (September 23, 2026). The federal deadline is June 30, 2028. However, be aware that many states and individual colleges have much earlier deadlines, so it’s always best to complete the FAFSA as soon as possible.

Can I fill out the FAFSA myself?

Yes, you can fill out the FAFSA yourself by visiting the official StudentAid.gov website. The online application is designed for the student to begin the process, and this is generally the fastest and most accurate way to submit the form. Whether you can complete the FAFSA form using only your information depends on your dependency status. If you are considered to be a dependent student for financial aid purposes, you’ll need to invite your parent(s) or other required contributor(s) to complete their own section of the FAFSA, providing their financial information and consent.

How long does it take to fill out the FAFSA?

The FAFSA form typically takes most applicants less than one hour to complete from start to finish, including the time spent gathering necessary documents. Gathering information like tax returns, Social Security numbers, and asset information beforehand can reduce the time to 30 minutes or possibly less.

What disqualifies you from getting FAFSA?

Certain factors can disqualify an applicant from receiving federal student aid through the FAFSA. These may include:

•   Not being a U.S. citizen or eligible noncitizen

•   Not having a high school diploma or equivalent

•   Not providing consent and to have your federal tax information transferred directly into form

•   Having defaulted on a federal student loan.

Additionally, maintaining satisfactory academic progress (SAP) is usually a requirement for continued aid eligibility.

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Not all repayment options may be available for all loans. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is current as of 3/2/2026 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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