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What is the Federal Family Education Loan Program?

Federal Family Education Loan Program (FFELP) loans are federally backed loans that were originally funded by private companies. The FFEL Program ended in 2010 to pave the way for Federal Direct Loans, but many borrowers still have them. If you took out federal student loans prior to 2010, you may have a FFELP loan.

These older loans may have a high interest rate and don’t qualify for certain federal student loan benefits and forgiveness programs. As a result, you may want to consider consolidating or refinancing FFELP loans.

Read on to learn how you can find out if you have a FFELP loan and, if you do, what your options are in terms of repayment, forgiveness, consolidation, and refinancing.

Does the Federal Family Education Program Still Exist?

Congress discontinued FFELP loans in 2010 and no new loans have been issued under the program since July 1, 2010. At that time, FFELP was replaced by the Federal Direct Loan Program.

Even though no new FFELP loans are being issued, they are far from paid off. As of June 2023, there was a total of $191 billion in FFELP loans remaining with 8.5 million borrowers. Borrowers of these loans are still responsible for making these payments, lenders are required to service them, and the federal government still insures them.


💡 Quick Tip: Ready to refinance your student loan? You could save thousands.

What Are FFELP Student Loans?

FFEL Program loans are student loans that were issued by commercial lenders but guaranteed by the federal government. That means if a borrower defaulted, the government would pay the lender an interest subsidy to make up for the loss.

The FFEL Program included:

•   Subsidized Federal Stafford Loans

•   Unsubsidized Federal Stafford Loans

•   Federal PLUS Loans (also known as FFEL PLUS Loans)

•   Federal Consolidation Loans (also known as FFEL Consolidation Loans)

The federal government purchased some lenders’ FFELP portfolios during the Great Recession (2007-2009). As a result, some FFEL Program debt is owned by the government. However, the majority of FFELP loans are privately held.

All federal student loans issued now are from the Direct Loan Program, which includes the same types of loans listed above. However, there are big differences in how the program is administered. The federal government itself now draws on its own capital to directly lend to students, while several federal contractors take care of servicing the loans.

Borrowers with FFELP loans might have had different terms and benefits compared with Direct Loans.

Recommended: Private Student Loans vs Federal Student Loans

How Do I Know if I Have FFELP Loans?

If you have federal student loans from prior to July 2010, you probably have FFELP loans.

To find out if you have a FFEL Program loan, simply log in to your studentaid.gov
account. Under the “Loan Breakdown” section, select “View Loans” to see the list of loans you’ve received. If a loan has “FFEL” at the front of its listing, it’s a FFEL Program loan.

Understanding Your FFEL Loan

If you have a FFELP loan, the biggest difference from a Direct Loan is the source of the money — you received it from a private lender instead of the federal government. Within the FFELP, you can have one of these types of loans (which are no longer offered):

•   Subsidized Stafford Loan This is a loan for undergraduate students where interest is covered by the federal government while the student is in school at least half-time, and during grace or deferment periods.

•   Unsubsidized Stafford Loan This is a loan for undergraduate, graduate, and professional degree students where interest is charged during the entire life of the loan.

•   Federal PLUS Loan This is a loan for either parents of dependent undergraduate students or for graduate or professional students. Interest is charged for the entire loan period.

•   Federal Consolidation Loan This is a loan designed for borrowers to combine multiple federal student loans into a single loan with a single payment.

If you’re not sure what type of loan you have, one place to look is the National Student Loan Data System . This database houses everything you need to know about your federal student loans, including your interest rate, balances, and payment plans.

Are FFEL Loans Eligible for Forgiveness?

FFELP loans are eligible for Income-Driven Repayment (IDR) forgiveness. With this plan, your monthly payment is based on your income and family size and after making payments for 20 or 25 years, the remaining loan balance is forgiven. The only exception is FFELP loans for parents, which do not qualify for this repayment plan.

However, FFELP loans are not eligible for:

•   Public Service Loan Forgiveness (PSLF)

•   Pay As You Earn (PAYE)

•   Saving on a Valuable Education (SAVE) — formerly the REPAYE Plan

•   Income-Contingent Repayment (ICR)

To access these programs, you’ll have to consolidate FFELP loans into a federal Direct Consolidation Loan.

Can I Still Consolidate or Refinance My FFEL Loans?

Yes, you can still consolidate or refinance your FFEL loans.

Most types of FFELP loans can be consolidated into a Direct Consolidation Loan. If you choose to consolidate, you may become eligible for additional income-driven repayment plans that offer loan forgiveness after 20 or 25 years of repayment. You can repay a Direct Consolidation Loan using the PAYE, SAVE, or ICR repayment plans.

Consolidating your FFEL loans also opens up access to PSLF, which forgives your remaining loan balance after 120 payments while working in a public service job.

In addition, consolidating multiple federal student loans simplifies and streamlines repayment, since you’ll only have one monthly payment to make.

However, student loan consolidation involves some risks. These include losing previously earned PSLF and repayment plan forgiveness credit. (However, the federal government has waived this penalty for those who consolidate before the end of 2023.)

It’s also important to understand that consolidation most likely won’t save you any money. Your new interest rate will be the weighted average of your federal loans’ interest rates, rounded up to the next one-eighth of the percentage point. While consolidation may extend your repayment term (and lower your payment), an extended repayment term means paying more in interest in the long run.

You also have the option of refinancing your FFELP loans. This involves getting a new student loan with a private lender and using it to pay off your FFELP student loans (you can also fold in any other private or federal student loans you may have).

If you have excellent credit, student loan refinancing may allow you to qualify for a lower interest rate. This is especially true of older federal loans, which were made at higher interest rates. Just keep in mind that refinancing federal student loans with a private lender will cause the loans to lose federal protections, such as forbearance and forgiveness programs.


💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

The Takeaway

The Federal Family Education Loan Program, or FFELP, was a loan program in which the U.S. Department of Education worked with private lenders to provide student loans that were backed by the federal government. The program ended on July 1, 2010, but if you have federal student loans from prior to that date, you may have a FFELP loan.

To become eligible for federal programs like PSLF and the new SAVE repayment plan, you’ll need to consolidate your FFEL loan into a Direct Consolidation Loan. If you’re looking to save money on your FFEL loan, you may want to explore refinancing the loan.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.



SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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What Is a Limit Order?

What Is a Limit Order?

A limit order allows investors to buy or sell securities at a price they specify or better, providing some price protection on trades.

When you set a buy limit order, for example, the trade will only be executed at that price or lower. For sell limit orders, the order will be executed at the price you set or higher. By using certain types of orders, traders can potentially reduce their risk of losses and avoid unpredictable swings in the market.

How Do Limit Orders Work?

In the simplest terms, limit orders work as a sort of restriction that an investor can choose (to either buy or sell) with “limits” on a minimum or maximum price. An investor places an order to buy a stock at a minimum price, for instance, or places an order to sell at a maximum price, in an effort to maximize their returns.

There are two types of limit orders investors can execute: buy limit orders and limit sell orders. An important thing to know is that while a limit order specifies a desired price, it doesn’t guarantee the trade will occur at that price — or at all.

When you set a limit order, the trade will only be executed if and when the security meets the terms of the order — which may or may not happen, depending on the overall market conditions. So, when an investor sets a limit order, it’s possible to miss out on other investing opportunities.

Types of Limit Orders

As mentioned, there are two types of limit orders investors can execute: buy limit orders and limit sell orders.

What is a Buy Limit Order?

For buy limit orders, you’re essentially setting a ceiling for the trade — i.e. the highest price you’d be willing to pay for each share.If a trader places a buy limit order, the intention is to buy shares of stock. The order will be triggered when the stock hits the limit price or lower.

For example, you may want to buy shares of XYZ stock at $15 each. You could place a buy limit order that would allow the trade to be carried out automatically if the stock reaches that purchase price or better.

What is a Sell Limit Order?

For sell limit orders, you’re setting a price floor — i.e. the lowest amount you’d be willing to accept per share. If a trader places a limit order to sell, the order will be triggered when the stock hits the limit price or higher. So you could set a sell limit order to sell XYZ stock once its share price hits $20 or higher.

What is a Stop-Limit Order?

A stop-limit order is a combination of a stop order and a limit order. Stop-limit orders involve setting two prices. For example: A stock is currently priced at $30 and a trader believes it’s going to go up in value, so they set a buy stop order of $33.

When the stock hits $33, a market order to buy will be triggered. But with a stop-limit order, the trader can also set a limit price, meaning the highest price they’re willing to pay per share — say, $35 per share. Using a stop-limit order gives traders an additional level of control.

Stop-limit orders can also help traders make sure they sell stocks before they go down significantly in value. Let’s say a trader purchased stock XYZ at $40 per share, and now anticipates the price will drop. The trader doesn’t want to lose more than $5 per share, so they set a stop order for $35.

If the stock hits $35 — the stop price — the stock will be triggered to sell. However, the price could continue to drop before the trade is fully executed. To prevent selling at a much lower price than $35, the trader can set a limit order to only sell between $32 and $35.

How to Set a Limit Order

When placing a limit order with your brokerage firm, the broker or trading platform might ask for the following information:

•   The stock or security

•   Is it a buy or sell order

•   Number of shares to buy or sell

•   Stock order type (limit order, market order, or another type of order)

•   Price

When setting up a limit order, the trader can set it to remain open indefinitely, (until the stock reaches the limit price), or they can set an expiration date.

Limit Order Example

Say a trader would like to purchase 100 shares of stock XYZ. The highest price they want to pay per share is $26.75. They would set up a limit buy order like this:

Buy 100 shares XYZ limit 26.75.

As noted above, the main upside of using limit orders is that traders get to name a desired price; they generally end up paying a price they expect; and they can set an order to execute a trade that can be executed even if they are doing other things.

In this way, setting limit orders can help traders seize opportunities they might otherwise miss because limit orders can stay open for months or in some cases indefinitely (the industry term is “good ‘til canceled,’ or GTC). The limit order will still execute the trade once the terms are met.

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When a Trader Might Use a Limit Order

There are several reasons why you might want to use a limit order.

•   Price protection. When a stock is experiencing volatility, you may not want to risk placing a market order and getting a bad price. Although it’s unlikely that the price will change drastically within a few seconds or minutes after placing an order, it can happen, and setting a limit order can set a floor or a ceiling for the price you want.

•   Convenience. Another occasion to use a limit order might be when you’re interested in buying or selling a stock but you don’t want to keep a constant eye on the price. By setting a limit order, you can walk away and wait for it to be executed. This might also be a good choice for longer-term positions, since in some cases traders can place a limit order with no expiration date.

•   Volatility. Third, an investor may choose to set a limit order if they are buying or selling at the end of the market day or after the stock market has closed. Company or world news could be announced while the market is closed, which could affect the stock’s price when the market reopens. If the investor isn’t able to cancel a market order while the market is still closed, they may not be happy with the results of the trade. A limit order can help prevent that.

Limit orders can also be useful when the stock being traded doesn’t have a lot of liquidity. If there aren’t many people trading the stock, one order could affect the price. When entering a market order, that trade could cause the price to go up or down significantly, and a trader could end up with a different price than intended.

Pros and Cons of Using Limit Orders

Each type of order has pros and cons depending on the particular situation.

Pros of Limit Orders:

•   The trader gets to name their price. One of the chief reasons traders rely on limit orders is to set baselines for profits and losses. They won’t end up paying a price they didn’t expect when they buy or get a price below their target when it’s time to sell.

•   The trader can set the order and walk away. Day trading can be time consuming and it requires a significant amount of knowledge. Investors who use limit orders don’t have to continuously watch the market to get the price they want.

•   Traders may pay less in fees. Commissions can take a bite out of your profits, something many investors would prefer to keep to a minimum. When trading illiquid stocks, sometimes the bid-ask spread is enough to cover broker fees.

•   Insulate against volatility. Volatility can cause you to make emotional decisions. Limit orders can give traders more control over their portfolio and ward off panic-buying or selling.

•   Ride the gaps. Stock prices can fluctuate overnight due to after hours trading. It’s possible to benefit from price differences from one day to another when using limit orders.

For example, if a trader places a buy limit order for a stock at $3.50, but the order doesn’t get triggered while the market is open, the price could change overnight. If the market opens at $3.30 the next morning, they’ll get a better price, since the buy limit order gets triggered if the stock is at or below the specified price.

Cons of Limit Orders:

•   The order may never be executed. There may not be enough supply or demand to fulfill the order even if it reaches the limit price, since there could be hundreds or even thousands of other traders wanting to buy or sell at the specified price.

•   The stock may never reach the limit price. For example, if a stock is currently priced at $20, a trader might set a limit order to buy at $15. If the stock goes down to $16 and then back up to $20, the order won’t execute. In this case, they would miss out on potential gains.

•   The market can change significantly. If a trader sets a shorter-term limit order they might miss out on a better price. For example, if a stock a trader owns is currently priced at $150, the trader may choose to set a sell limit order at $154 within four weeks. If the company then makes a big announcement about a new product after that period, and the stock’s price spikes to $170, the trader would miss out on selling at that higher price.

•   It takes experience to understand the market and set limit orders. New investors can miss out on opportunities and experience unwanted losses, as with any type of investment.

Limit Order vs Market Order

Limit orders differ from market orders, which are, essentially, orders to buy a security immediately at its given price. These are the most common types of orders. So, while a market order is executed immediately regardless of terms, limit orders only execute under certain circumstances.

Limit orders can also be set for pre-market and after-hours trading sessions. Market orders, by contrast, are limited to standard trading hours (9:30am to 4pm ET).

Remember: Even though limit orders are geared to a specific price, that price isn’t guaranteed. First, limit orders are generally executed on a first-come-first-served basis. So there may be orders ahead of yours that eliminate the availability of shares at your limit price.

And it bears repeating again: There is also the potential for missed opportunities: The limit order you set could trigger a trade. But then the stock or other security might hit an even better price.

In other words, time is a factor. In today’s market, computer algorithms execute the majority of stock market trades. In this high-tech trading environment, it can be hard as an individual trader to know when to buy and sell. By using certain types of orders, like limit orders, traders can potentially limit their losses, lock in gains, and avoid swings in the market.

Though limit orders are commonly used as a part of day trading strategies, they can be useful for any investor who wants some price protection around their trades. For example, if you think a stock is currently undervalued, you could purchase it at the current market price, then set a sell limit order to automatically sell it when the price goes up. Again, the limit order can stay open until the security meets your desired price — or you cancel the order.

However, speculating in the market can be risky and having experience can be helpful when deciding how and when to set limit orders.

Limit Orders vs Stop Orders

There is another type of order that can come into play when you’re trying to control the price of a trade: a stop order. A stop order is similar to a limit order in that you set your desired price for a stock, say, and once the stock hits that price or goes past it, a market order is triggered to execute the purchase or sale.

The terms of a limit order are different in that a trade will be executed if the stock hits the specified price or better. So if you want to sell XYZ stock for $50 a share, a sell limit order will be triggered once the stock hits $50 or higher.

A stop order triggers a market order once XYZ stock hits $50, period. By the time the order is executed, the actual stock price could be higher or lower.

Thus with a stop order there’s also no guarantee that you’ll get the specified price. A market order is submitted once the stop price is hit, but in fast-moving markets the actual price you pay might end up being higher or lower.

Stop orders are generally used to exit a position and to minimize losses, whereas limit orders are used to capture gains. But two can also be used in conjunction with each other with something called a stop-limit order.

When to Consider a Market Order vs a Limit Order

If you’re trying to parse out when a market order or a limit order is the best tool to use, consider the following.

A trader might want to use a market order if:

•   Executing the trade immediately is a priority

•   The stock is highly liquid

•   They’re only trading a small number of shares

•   The stock has a narrow bid-ask spread (about a penny)

A trader might want to use a limit order if:

•   They want to specify their price

•   They are trading an illiquid stock

•   They want to set a long-term trade (or even walk away for their lunch break and still have the trade execute)

•   They feel a stock is currently over- or undervalued

•   The stock has a large bid-ask spread

•   They are trading a larger number of shares

Is a Limit Order Bad?

Limit orders are not necessarily good or bad. As mentioned, they can offer advantages to investors who understand how to use them.

For example, limit orders can offer more control and flexibility than using market orders. And they can work well in a number of different trading situations. If the stock being traded is highly volatile, for instance, a limit order can help traders retain control and avoid paying an unexpected price.

Each time a trader does research on a stock and decides to buy or sell shares, they also consider their goals and the current market conditions to decide whether to place a market or a limit order.

What Happens If a Limit Order Is Not Filled?

A limit order can only be filled if the stock’s price reaches the limit price or better. If this doesn’t happen, then the order is not executed and it expires according to the terms of the contract. An order can be good just for a single trading day, for a certain period of time, or in some cases it’s possible to leave the limit order open-ended using a GTC (good ‘til canceled) provision.

So if you placed a buy limit order, but the stock does not reach the specified price or lower, the purchase would not be completed and the order would expire within the specified time frame.

And if you’re using a sell limit order, but the security never reaches the specified sell price or higher, the shares would remain in your trading account and the order would expire.

Limit Orders and Price Gaps

Price gaps can occur when stocks close at one price then open at a different price on the next trading day. This can be attributed to after-market or pre-market trading that occurs after the regular market hours have ended. After-hours trading can impact stock price minimally or more substantially, depending on what’s spurring trades.

For example, say news of a large tech company’s planned merger with another tech giant leaks after hours. That could send the aftermarket trading markets into a frenzy, resulting in a radically different price for both company’s stocks when the market reopens. Pricing gaps don’t necessarily have to be wide but large pricing swings are possible with overnight trading.

Limit orders can help to downplay the potential for losses associated with pricing gaps. Placing a buy limit order or limit sell order may not close the gap entirely. But it could help to mitigate the losses you may experience when gaps in pricing exist. Whether the gap is moving up or down can determine what type of limit order to place and where to cap your limit price.

The Takeaway

Limit orders can be an effective and efficient way for investors to set price caps on their trades, and also give them some protection against market swings. Limit orders offer other advantages as well, including giving traders the ability to place longer- or shorter-term trades that will be executed even if they’re not continuously watching the market. This can potentially protect investors against losses and potentially lock in gains.

That said, limit orders are complicated because they don’t guarantee that the trade will be executed at the set price. The stock (or other security) could hit the limit price — and there might not be enough supply or demand to complete the trade. There is also the potential for some missed opportunities, if the price you set triggers a trade, and subsequently the stock or other security hits an even better price.

Investors can also consider combining a limit order with a stop order. A stop-limit order can provide even more protection against potential losses.

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FAQ

Can I specify the price for a limit order?

Yes, investors can specify the price for a limit order. In fact, the price typically is the limit in a limit order, representing either a price ceiling or a price floor.

How long does a limit order stay active?

Generally, a limit order will stay active indefinitely, unless an investor cancels it or specifies otherwise. That means that if the limit is never reached, the order will not execute, and the limit order will remain active until the limit is reached.

Can I cancel a limit order once it’s placed?

Investors can cancel standing limit orders as long as conditions haven’t arrived that’s led to the order being actively executed. The cancelation process will depend on the specific exchange an investor is using, however.

What happens if the market price doesn’t reach my limit price?

If the market price of a stock does not reach the limit price — either a price floor or price ceiling — then the limit order will not execute, and the limit order will remain active until it does.

Can I place a limit order outside of regular trading hours?

It’s possible to place limit orders outside of regular trading hours, depending on the rules of a given exchange, and market conditions dictate. The order itself, of course, won’t execute until the market opens, assuming that the limit is reached.

Are there any fees associated with limit orders?

There may or may not be fees associated with limit orders, and it’ll depend on the specific exchange or brokerage an investor is using. Note that some brokerages may charge higher fees for limit orders than market orders — but some may charge no fees at all.

Are limit orders guaranteed to be executed?

No, there is no guarantee that a limit order will be executed, as it will only execute if the limit price is reached. If the limit is not reached, the order will remain active but not execute.


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How to Read Stock Charts as a New Trader

Learning how to read stock charts can feel similar to learning how to drive a car. It can be baffling at first, but once you learn the basics, including types of stock market charts, and the patterns they’re forecasting, you’ll hopefully get the hang of it.

With that in mind, learning how to read stock charts is a bit of a heavy lift, and can be difficult or intimidating for newer investors. Keep that in mind: It’ll take some time and practice before you feel comfortable! But the sooner you learn to decipher stock charts, the more useful that knowledge will be in your investment strategy.

The Art of Reading Stock Charts

Learning how to read stock charts can feel like you’re training in some sort of higher art. But again, with some practice, many investors can learn to do it and implement it into their investment strategy.

Understanding Chart Types

There are a handful of basic stock chart types, including line charts, bar charts, and candlestick charts. Thankfully, these charts are more or less exactly what they sound like.

For instance, line charts simply graph a financial security’s historical performance with a line, allowing investors to see the ups and downs over time. A candlestick chart, on the other hand, shows a stock’s high, low, opening, and closing prices for a specific time period. Bar charts also show a security’s price change over time, but there are some slight differences between bar charts and candlestick charts – often, bar charts aren’t color-coded, for example.

Decoding Stock Chart Data

Stock charts are relaying a lot of information about a stock’s performance over certain time periods. Taking that all into account can be difficult, but the main data points investors will want to try and utilize to guide their investment decisions involve prices, dates, and trading volume.

Before you proceed any further, though, you’ll want to make sure you know what stock symbols are.

Stock symbols, or tickers, are the series of letters, and sometimes numbers, by which a particular stock is uniquely identified. For example, the stock symbol for Apple is AAPL, and the stock symbol for Amazon is AMZN. Stock symbols are defined by the exchanges on which those stocks are traded — for instance, the New York Stock Exchange (NYSE) or the Nasdaq. These are the markets on which stocks and other assets are bought and sold. Stocks traded on the NYSE and Nasdaq can have tickers up to 5-letters long, but most are only 2-4.

With that in mind, using graphs and charts to figure out what’s happening in the stock market is the next step.
The first thing you’ll notice when looking at the chart itself is that it’s pretty much a line graph. Remember middle school math? You’re dealing with a basic X and Y axis—and the X axis refers to time.

On a stock line chart, the trend line is measuring the asset’s performance over that period of time. Investors might want to view the stock’s performance over a single day, week, or month, or see its long-run trend line over the past year or longer. It all depends on your personal trading goals.

Some stock charts may spell out the stock’s opening price, low price, high price, and closing price during a given time period, usually marked simply O, L, H, and C. Here’s what those figures each refer to:

•   The opening price is the first price at which the stock traded during the given time period.

•   The low price is the lowest price at which the stock sold during the given time period.

•   The high price is the highest price at which that stock sold during the given time period.

•   Finally, the closing price is the last price at which the stock sold before the exchange closed.

If the exchange is still open and the stock is being actively traded, the stock chart will likely display the last price, which is just what it sounds like: the last price at which the stock was successfully sold.

You might also see the change in that price from the one immediately before it, or last change, usually displayed as both a dollar value and a percentage.

For example, if you were looking at a chart for Company X (using a fictitious stock ticker, CMPNYX) stock, it might display the following string of letters and numbers:

CMPNYX 197.16 +0.05 (+0.04%)

In this example, CMPNYX is the ticker symbol, and $197.16 is the last recorded price of a single share sold on the exchange. That price was five cents higher than the trade immediately before it, meaning the value of the stock rose, in that time, by 0.04%.

By looking at how the trend line moves over the chart period, you can get a sense of the stock’s price and performance over time as well as its most recent statistics.

Volume corresponds to how many shares are bought and sold within a specific time period. In other words, it’s a measure of supply and demand. Volume is often represented as a series of bars running along the bottom axis of the chart. The bars’ size aligns with the number of trades made during that time period, and can be useful for guesstimating upcoming sales trends for that asset.

It’s not a perfect science, of course, but if a stock is trading at low volume — i.e., few shares are being bought and sold each day — it may indicate that the current price trend is about to change. Perhaps the stock is in poor demand because it’s valued too highly for the market. It could also just mean the investment is out of favor with investors.

On the other hand, a high trade volume might indicate that you’ll have an easier time selling the stock quickly if you’re considering short-term trading.

The Role of Technical Indicators

Investors and traders can use a variety of technical indicators to try and make sense of the market, too. That can include things like the 200-day moving average, which attempts to focus on overall pricing trends for a specific stock, or a variety of other trend and momentum indicators.

There are many technical indicators that investors can use to their advantage. It may be worth taking the time to learn more about each, and decide whether to fold them into your strategy.


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the 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.

Technical vs. Fundamental Analysis

We’ve discussed technical analysis, but fundamental analysis is another important element to introduce into the mix. Chart-reading, though, does rely heavily on technical analysis. For that reason, it may be worth revisiting some of the core reasons that investors will want to bone up on the subject.

The Case for Technical Analysis

Fundamental analysis focuses on a company’s underlying performance, whereas technical analysis is more focused on a stock’s performance. While there may be drawbacks to technical analysis, technical indicators are the type that will reveal patterns in stock charts that can be used to make investment decisions. While the buy or sell signals those patterns relay may or may not be faulty, those indicators are what investors are going to want to use when reading stock charts.

When Fundamentals Intersect with Charts

As mentioned, fundamental analysis concerns a company’s financial and operational health, more so than deciphering lines on a chart. Fundamental analysis involves looking at indicators such as earnings per share, price-to-earnings ratios, and return on equity, which can have an effect on how investors decide to buy, sell, or hold a stock. That, naturally, can dictate what a stock’s performance looks like on a chart – which is where it intersects with technical indicators, in many respects.

Essential Stock Chart Knowledge

When it comes down to it, investors may be best served by garnering essential stock chart knowledge involving the various styles of stock charts, their uses, and the language, or key terms, used to describe what those charts are displaying.

Stock Chart Styles and Their Uses

As mentioned, there are a few main types of stock charts: line charts, bar charts, and candlestick charts (there may be others, but we’ll stick with a few basic ones). Each shows the performance of a specific stock, albeit in different ways. Learning what those charts show, how they show it, and how to translate that information into action is ultimately what investors should aim to do when learning how to read stock charts.

Key Terms Every Trader Should Know

There are also a number of key terms that traders should know. The list can be lengthy, but should probably include words and phrases such as market capitalization (as discussed), price-to-earnings ratios, dividend yields, options, assets, and many more. You should become more familiar with them as you move through your investing journey – you’ll likely start using many of them yourself as your trading activity and strategies become more sophisticated, too.

Applying Your Stock Chart Skills

At the end of the day, learning how to read stock charts, for most investors, is all about one thing: applying that knowledge and making better-informed investing decisions.

How to Use Charts for Smarter Investing

There’s really no limit to the way that investors or traders can use charts to make smarter decisions. The more time you spend studying charts and learning what they show or say, the more information you’ll end up having at your disposal with which to make a decision. The issue, of course, is that all of that information still can’t tell you in all certainty what a stock’s value is going to do next.

That’s perhaps the most important thing to remember about stock charts: they are not a crystal ball, and there’s no guarantee that investors will achieve the outcomes they were hoping or planning for.

Can Charts Enhance Your Investment Strategy?

Stock charts can enhance your investment strategy by adding a whole new dimension – and pile of data and information about specific stocks – to your tool kit. But again, you can spend hours looking at charts, and that still doesn’t mean that a position or investment won’t blow up in your face. You may think of it this way – all investing involves a level of risk, but learning to use stock charts as a part of your strategy may help you gauge how big those risks are, and in some cases, avoid particularly risky investments.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.


SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Understanding Market Capitalization

What Is Market Capitalization?

Market capitalization (market cap) represents the total market value of a company’s outstanding shares. A company’s market capitalization, or market cap, provides a good measure of its size and value versus revenue or sales figures.

Knowing what the market cap is for a given company can help investors compare it to other companies of a similar size.

Note the market cap (the value of a company’s total equity) is different than a company’s market value, which is a more complex calculation based on various metrics, including return-on-equity, price-to-earnings, and more.

Key Points

•   Market capitalization (market cap) represents the total market value of a company’s outstanding shares and provides a measure of its size and value.

•   Market cap helps investors compare companies of similar size and evaluate their potential risk and reward.

•   Companies are categorized into small-cap, mid-cap, large-cap, and mega-cap based on their market cap range.

•   Smaller companies (nano-cap and micro-cap) can be riskier but offer growth opportunities, while larger companies (large-cap and mega-cap) tend to be more stable.

•   Market cap can be calculated by multiplying the current price per share by the number of outstanding shares.

Market-Cap Categories

Analysts, as well as index and exchange-traded fund (ETF) providers commonly sort stocks into small-, mid-, and large-cap stocks, though some include a broader range that goes from micro or nano-cap stocks all the way to mega cap on the large end.

The size limits of these categories can change depending on market conditions but here are some rough parameters.

Nano-cap and Micro-cap Stocks

Nano- and micro-cap companies are those with a total market capitalization under $300 million. Some define nano-cap stocks as those under $50 million, and micro-cap stocks as those between $50 million and $300 million.

These smaller companies can be riskier than large-cap companies (though not always). Many microcap stocks trade over-the-counter (OTC). Over-the-counter stocks are not traded on a public exchange like the New York Stock Exchange (NYSE) or Nasdaq. Instead, these stocks are traded through a broker-dealer network.

As a result there may be less information available about these companies, which can make them difficult to assess.

Small-cap Stocks

Small-cap companies are considered to be in the $300 million to $2 billion range. They are generally younger and faster-growing than large-cap stocks. Investors often look to small-caps for growth opportunities.

While small-cap companies have historically outperformed large-caps, these stocks can also be more risky, and may require more due diligence from would-be investors.

Mid-cap

Mid-cap companies lie between small- and large-cap companies, with market caps of $2 billion to $10 billion.

Some investors may find mid-cap stocks attractive because they can offer some of the growth potential of small-caps with some of the maturity of large-caps. But mid-cap stocks likewise can share some of the downsides of those two categories, being somewhat vulnerable to competition in some cases, or lacking the impetus to expand in others.

Large-cap

Large-cap stocks are those valued between $10 billion and $200 billion, roughly. Large-cap companies tend not to offer the same kind of growth as small- and mid-cap companies. But what they may lack in performance they can deliver in terms of stability.

These are the companies that tend to be more well established, less vulnerable to sudden market shocks (and less likely to collapse). Some investors use large-cap stocks as a hedge against riskier investments.

Mega-cap

Mega cap describes the largest publicly traded companies based on their market capitalization. Mega cap stocks typically include industry-leading companies with highly recognizable brands with valuations above $200 billion.

Recommended: Investing 101 Guide

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How to Calculate Market Cap

To figure out a company’s market cap, simply multiply the number of outstanding shares by the current price per share. If a company has 10 million outstanding shares of stock selling for $30 per share, the company’s market cap is $300 million.

Share prices fluctuate constantly, and as a result, so does market cap. You should be able to find the number of outstanding shares listed on a company’s balance sheet, where it’s referred to as “capital stock.” Companies update this number on their quarterly filings with the Securities and Exchange Commission (SEC).

Market Cap Formula

The formula for determining a company’s market cap is fairly simple:

Current price per share x Total # of outstanding shares = Market capitalization

Remember that the share price doesn’t determine the size of the company or vice versa. When measuring market cap you always have to look at the share price multiplied by the number of outstanding shares.

•   Company A could be worth $100 per share, and have 50,000 shares outstanding, for a total market cap of $5 million.

•   Company B could be worth $25 per share, and have 20 million shares outstanding, for a total market cap of $500 million.

Market Cap and Number of Shares

In some cases, market cap can change if the number of stocks increases or decreases. For example, a company may issue new stock or even buy back stock. When a company issues new shares, the stock price may dip as investors worry about dilution.

Stock splits do not increase market share, because the price of the stock is also split proportionally.

Changes to the number of shares are relatively rare, however. More commonly, investors will notice that changes in share price have the most frequent impact on changing market cap.

💡 Quick Tip: If you’re opening an investment account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

Market Cap Versus Stock Price

If you’re new to investing, you may assume a company’s share price is the clearest indicator of how large a company is. You may even assume it’s as important in choosing a stock as market cap.

While the share price of a company tells you how much it costs to own a piece of the company, it doesn’t really give you any hints as to the size of the company or how much the company is worth.

Market cap, on the other hand, might give you some hints about how a particular stock might behave. For example, large companies may be more stable and experience less volatility than their smaller counterparts.

Recommended: Intrinsic Value vs. Market Value

Evaluate Stocks Using Market Cap

Understanding the market cap of a company can help investors evaluate the company in the context of other companies of similar size.

For instance, as noted above market cap can clue investors into stocks’ potential risk and reward, in part because the size of a company can be related to where that company is in its business development. Investors can also evaluate how a company is doing by comparing its performance to an index that tracks other companies of a similar size, a process known as benchmarking.

•   The S&P 500, a common benchmark, is a market-cap weighted index of the 500 largest publicly traded U.S. companies.

•   The S&P MidCap 400, for example, is a market-cap weighted index that tracks mid-cap stocks.

•   The Russell 2000 is a common benchmark index for small cap stocks.

Within this system, companies with higher market cap make up a greater proportion of the index. You may often hear the S&P 500 used as a proxy for how the stock market is doing on the whole.

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What Market Cap Can Tell You

Here are some characteristics of larger market-cap companies versus smaller-cap stocks:

Volatility: Larger companies, also often dubbed blue-chip stocks, tend to be less volatile than smaller stocks and tend to offer steady returns. What’s more, compared to larger companies, they have relatively few resources, such as access to cheaper credit and access to liquidity.

Revenue: Larger stocks tend to have more international exposure when it comes to their sales and revenue streams. Meanwhile, smaller stocks can be more oriented to the domestic economy.

Growth: Smaller companies tend to have better odds of offering faster growth.

Valuation: Larger stocks tend to be more expensive than smaller ones and have higher valuations when it comes to metrics like price-to-earnings ratios.

Dividends: Many investors are also drawn to large cap stocks because companies of this size frequently pay out dividends. When reinvested, these dividends can be a powerful driver of growth inside investor portfolios.

Market Cap and Diversification

So how do you use market cap to help build a portfolio? Market cap can help you choose stocks that could help you diversify.

Building a diversified portfolio made up of a broad mix of investments is a strategy that can help mitigate risk.

That’s because different types of investments perform differently over time and depending on market conditions. This idea applies to stock from companies of varying sizes, as well. Depending on market conditions, small, medium, and large cap companies could each beat the market or trail behind.

Because large-cap companies tend to have more international exposure, they might be doing well when the global economy is showing signs of strength. On the flip side, because small-cap companies tend to have greater domestic exposure, they might do well when the U.S. economy is expected to be robust.

Recommended: Guide to Investing in International Stocks

Meanwhile, larger-cap companies could also be outperforming when there’s a downturn, because they may have more cash at hand and prove to be resilient. In recent years, the biggest companies in the U.S. have been linked to the technology. Therefore, picking by market cap can have an impact on what kind of sectors are in an investor’s portfolio as well.

What Is Free-Float Market Cap?

Float is the number of outstanding shares that are available for trading by the public. Therefore, free-float market cap is calculating market cap but excluding locked-in shares, typically those held by company executives.

For example, it’s common for companies to provide employees with stock options or restricted stock units as part of their compensation package. These become available to employees according to a vesting schedule. Before vesting, employees typically don’t have access to these shares and can’t sell them on the open market.

The free-float method of calculating market cap excludes shares that are not available on the open market, such as those that were awarded as part of compensation packages. As a result, the free-float calculation can be much smaller than the full market cap calculation.

However, this method could be considered to be a better way to understand market cap because it provides a more accurate representation of the movement of stocks that are currently in play. Many of the major indexes, such as the S&P 500 and the MSCI indices, use the free-float method.

Market Cap vs Enterprise Value

While market cap is the total value of shares outstanding, enterprise value includes any debt that the company has. Enterprise value also looks at the whole value of a company, rather than just the equity value.

Here is the formula for enterprise value (EV):

Market cap + market value of debt – cash and equivalents.

A more extended version of EV is here:

Common shares + preferred shares + market value of debt + minority interest – cash and equivalents.

The Takeaway

Market capitalization is a common way that analysts and investors describe the value and size of different companies. Market cap is simply the price per share multiplied by the number of outstanding shares. Given that prices fluctuate constantly, so does the market cap of each company, but the parameters are broad enough that investors generally know whether a company is a small cap vs. a mid cap vs. a large or mega cap.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).


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FAQ

What is the maximum market cap?

In theory there is no cap on market cap; i.e. there is no maximum size a company can be. As of Aug. 21, 2023, the top five biggest companies by market cap, according to Forbes, are: Apple ($2.744 trillion), Microsoft ($2.353 trillion), Saudi Aramco ($2.224 trillion), Alphabet (Google) ($1.624 trillion), Amazon ($1.336 trillion).

How does market cap go up?

A company’s market cap can grow if the share price goes up.

Are large-cap stocks good?

The market cap of any company is neither good nor bad; it’s simply a way to measure the company’s size and value relative to other companies in the same sector or industry. You can have mega cap companies that underperform and micro-cap companies that outperform.


SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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