Jan
28
2022
What Are Binary Options? How to Trade Binary Options

What Is Binary Options Trading? How to Trade Binary Options

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is Binary Options Trading? How to Trade Binary Options


Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Binary options are a type of trading option in which investors either end up making up to $100 or they make nothing. Once the investor enters into the options contract, they don’t have to do anything else.

Below, we’ll give you the full rundown about binary options, including what they are, how they work, how to trade binary options, how to make money with binary options, and finally, why it’s so important to understand their ins and outs before making any moves.

What Are Binary Options?

A traditional binary option is a type of options contract, in which investors bet whether the price of the underlying stock will be above or the option’s strike price. In industry terms, they’re either “in the money,” or “out of the money.” Prices, of course, can be hard to predict, which is what makes binary options something of a gamble.

Recommended: In-the-Money (ITM) vs Out-of-the-Money (OTM)

Here’s a fairly straightforward example: You think that the price of Stock X will be $10 or more on January 4, at 4 PM ET. You acquire a binary option contract with that stipulation — the other party on the contract holds the other position, that the price of Stock X, on the agreed upon time and day, will be less than $10.

When the clock strikes 4 pm ET on January 4, Stock X’s price is either $10, or it’s less than $10. Depending on what it is, one person is “victorious.” There’s no middle ground.

International traders may offer other variations of binary options as well.

How Binary Options Work

The inner workings of traditional binary options requires a baseline knowledge of their key elements. That includes a few things:

•   The strike price. This is the price at which the option will execute, and when it comes to binary options, is the fulcrum point at which traders must choose a position — above, or below.

•   The underlying asset, security, or market. This is the security (stock, commodity, etc.) upon which the options contract is based. Since options are derivatives, they’re tied to an underlying asset.

•   The expiration date. The day and time when the contract executes.

•   The expiration price. The price of the underlying asset when the contract executes.

These elements (along with a few other minor ones) comprise a basic binary options contract. Now, as far as how the option actually works, it’s pretty simple.

In effect, an options trader buys a binary option contract from another party who has taken the opposite position. That is, if you were to buy a contract with the position that the option’s underlying asset will exceed the strike price on the agreed expiration day and time, the other trader would have the equal and opposite position — they’re betting that the underlying asset’s value will not exceed the strike price when it expires.

When the clock does strike midnight, so to speak, on the expiration date, one of the two positions will have made the correct choice. The value of the underlying asset will either be above or below the strike price. The successful trader then receives a payout.

That payout is either $100, or nothing, regardless of how much higher or lower the value of the security is compared to the strike price. It’s like betting $100 on a World Cup match — your team either wins, in which you get your buddy’s $100, or your team loses, and you have to fork over $100.

Like all options, pricing on binary options reflects the time value of money, and their price, though always less than $100, will fluctuate depending on their current price and the length until expiration.

How Binary Options Trading Works

If you have any experience investing online, it should be pretty easy to get started. But before you do that, of course, you’ll want to make sure that you know what you’re getting into. That means doing some homework about how binary options work, the risks involved, and considering whether binary options trading jives with your overall strategy.

With all of that in mind, actually trading options contracts is almost as simple as trading stocks. You’ll want to find a binary options broker (which are usually specialized brokers such as
Nadex , Pocket Option , and BinaryCent ), open and fund an account, and from there, start executing trades.

Pros and Cons of Binary Options Trading

As with any type of investment or trade, binary options have pros and cons. Here’s a quick look at them:

Binary Options: Pros and Cons

Pros

 Cons
Risks are capped Rewards are capped
Fast and efficient Highly speculative
Known payouts Fraud Concerns

Pros of Binary Options

There are some positives to trading binary options.

•   Limited risks. Traders can only lose so much if they end with the short straw.

•   Efficient process. Binary options trading is usually a fast, efficient, and easy process, and they expire quickly.

•   Known payouts. Since binary options are capped at $100, you know in advance what’s at stake. It’s always nice to know where things might land, right?

Cons of Binary Options

There are also some potential disadvantages to trading binary options.

•   Limited gains. There’s only so much “winning” a trader can do with a given binary options contract.

•   Speculative nature. You may get the feeling that you’re simply placing a bet at the roulette table when trading binary options, so prepare for that.

•   Unregulated markets. Some brokerages and exchanges that offer binary options operate outside of the United States, and away from regulators. That could increase the risk of fraud.

3 Potential Binary Options Frauds to Watch For

The risk of fraud is a bit more pronounced in the binary options sphere because many platforms and brokerages that allow traders to trade binary options are unregulated. That means they’re not conducting business under the authority of the Securities and Exchange Commission (SEC) or other regulators.

It’s worth noting that if you trade with a well-regarded broker, your chances of getting scammed are probably pretty slim. Even so, here are a few types of fraud that you may run into when trading binary options.

1. Identity Theft

You’re likely familiar with identity theft, and some traders have lodged complaints with regulators that certain online trading platforms have been collecting personal data (credit card numbers, etc.) and then using it as they will.

How might this play out in the wild? Let’s say you want to do some binary options trading, and after a bit of Googling, find a platform that looks fun and easy to use. You sign up, fork over some personal information, and start trading.

A while later, you might get alerts that your credit has been compromised, or something similar. This could be a sign of identity theft, and it may all stem back to when you gave your personal information to that trading platform.

It’ll require some investigation to get to the culprit (if it’s even possible), but the point is that some sites play fast and loose with personal information. Or, they may not do a good job of securing it.

As a rule, it’s generally a good idea to keep your personal data to yourself, and not upload it to unfamiliar platforms.

2. Trade Manipulation

You can’t win if the game is rigged, right? This is another common complaint lodged against certain brokerages. Specifically, some traders say the exchanges manipulate the software used to execute trades to ensure the trader ends up on the wrong side of the trade.

In effect, this would be a case of the dealer taking a peek at the next card in the deck during a game of Blackjack, seeing that you’re going to hit “21,” and replacing the winning card with another.

3. Refusing to Credit Accounts

Another common complaint is that some platforms accept customer deposits, but then don’t allow them to withdraw the funds. Platforms may cancel withdrawal requests, or ignore them, leaving traders unable to access their money.

If this happens and the brokerage or platform you’ve been dealing with is in a foreign country (or its location is unknown), you might be out of luck. Again, stick to well-known brokerages or platforms, and you’re less likely to run into these types of issues.

Binary Option Fees

The fees for trading differ depending on the platform or brokerage you’re using, so that’s something to keep in mind when deciding where you want to execute trades.

Some platforms make money through commissions, and as such, will incorporate fees into contract spreads. Others simply charge a per-contract fee. Check your preferred platform or brokerage’s pricing guidelines to make sure you’re comfortable with any applicable fees.

The Takeaway

Whether you’re interested in trading binary options or stocks and bonds, it’s important to do your homework first. That means understanding a financial instrument, be it a binary option, or a vanilla stock, before you add it to your portfolio.

An options trading platform like SoFi’s can make it easier to understand what you’re getting into, thanks to its library of educational resources about options. The platform’s intuitive and approachable design allows you to trade options through the mobile app or the web platform, depending on what you prefer.

Explore SoFi’s user-friendly options trading platform.

Photo credit: iStock/dinachi

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

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Jan
10
2022
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How Much Life Insurance Do I Need?

By | Insurance, Life & Career, Terminology | Comments Off on How Much Life Insurance Do I Need?

If you’re reading this, you’ve probably already decided that you are going to buy life insurance. Smart move: Life insurance will, in the case of your untimely death, protect your loved ones. If you keep up with your monthly premiums, your beneficiaries will receive a lump sum payment that will help them replace the money you would have otherwise earned. Expenses like your mortgage, a child’s education, monthly utilities and more need to be factored in.

Wondering how to do the math? Let us help you out with some simple methods for calculating that amount of coverage that will give you peace of mind.

How to Manually Calculate How Much Life Insurance You Need

Here’s a great way to get started: Take out a piece of paper or open a document on a computer and start making lists. In one list, you are going to look at all the financial obligations that lie ahead. In another, you’ll consider all the assets you have that could be used to fund these expenses for your loved ones if you were not around.

For the financial obligations ahead, make sure you come up with a figure that includes:

•   Your income over the term of the insurance policy.

•   Daily living expenses (food, utilities, medical care) if you don’t think the income in the line above would cover that sufficiently.

•   Your mortgage. If this is covered by your income, you don’t need to add this, but if not, you want to make sure your loved ones can pay this loan off over the years.

•   Any other debts. Do you have a chunk of credit card debt? Student loans? Those will need paying. Also think about end-of-life costs. Grim as it may be, you don’t want loved ones struggling to pay for funeral costs. These are not insignificant. In 2021, the cost of a funeral and burial was typically almost $8,000. In addition to that, there may be additional costs for gravestones, an obituary, and the like.

•   Tuition. Think about how many children you have or plan to have. The current annual cost for an in-state student at a public 4-year institution is $25,615; for a private university, that number rises to $53,949. Don’t forget to account for inflation, too.

•   Childcare if applicable. Think about whether your income alone would cover this, or if more funds would be needed to pay for these costs.

Add these costs up, and those are your life insurance needs. But now, let’s look at assets that might go towards paying these costs were you not alive. Include the following:

•   Savings. What do you have in savings (include your retirement accounts if you believe your loved ones would tap into those versus keeping them aside)? Also look at any investment accounts you may own.

•   Other insurance policies. You may already have some insurance. Just keep in mind if it is something you have via a group life insurance policy at work, it will probably end if and when you change jobs.

•   College funds. If you already have, say, a 529 account that will help pay for your children’s higher education, add that to the assets list.

To find out how much insurance you need, take the first number (your financial obligations to be covered) and subtract from it the assets you have (the second number). Ta-da: You now have a number that you’d like your life insurance policy to at least equal.

Life Insurance, Made Easy.

Apply in minutes with a simple online application. No medical tests are required for many eligible applicants.*

*While medical exams may not be required for coverage up to $3M, certain health information is required as part of the application to determine eligibility for coverage.

3 Ways to Quickly Estimate Your Life Insurance Needs

Not everyone wants to do the math above, we get it. Here are a few other ways that may be a better match for you when it comes to estimating how much life insurance you need.

1. The DIME Formula

The DIME formula — an acronym that stands for debts, income, mortgage, and education — is a time-tested way to determine the right amount of life insurance to buy. Here’s how it works:

Debts Add them up, including car loans, student loans, personal loans, credit card balances (even if it’s a cringe-worthy number you plan on whittling down, you’ve got to include it), and so forth. Include everything except mortgage payments — because that’s the “M” portion of this formula — and add them up. What’s the total?

Income The goal of having a life insurance policy is to replace income that was coming in but would stop because of the death of the policy holder. Multiply your income and the potential number of years you want covered by life insurance.

Mortgage If you’re a homeowner, what balance remains on your home loan? If you are considering buying a home, what size mortgage would you get?

Educational costs If you have or are planning to have kids, estimate how much tuition would cost for each and determine the total needed to fund higher education.

Add up these D, I, M, and E amounts, and that’s how much life insurance coverage you need. Worth noting: This technique doesn’t recognize any assets you might have, so it might tend to have you buy more life insurance than you need.

2. Use an Online Calculator

Sometimes it’s easier to use a digital tool that holds your hand through calculations like these. If you love clicking your way to answers, try a life insurance calculator to help streamline the process. Many are available online.

3. Try the Multiplication Trick

Some people like to use a formula to figure out how much life insurance they should get. Typically, this says to take your income, multiply it by a number (usually 10, but sometimes much lower or higher) and bingo! That’s the amount. Prevailing wisdom, though, is that this can be a very inaccurate figure. And it certainly doesn’t take into account the subtleties of your situation, whether that means you have to pay whopping student loans from grad school, alimony, caregiving expenses for a parent, or another expense. So while you may hear about this shortcut, it’s not considered reliable.

Who Needs Life Insurance?

Many people would benefit from life insurance, and most Americans do have a policy. Buying life insurance protects your dependents in the event of your dying; it provides a lump sum payment that can keep them financially afloat.

If, however, you are a person without dependents or any shared debt (such as being a co-signer with your parents for a student loan or with a partner on a mortgage), then you may not need to buy a policy. But for those who do have people depending on their earning power, life insurance can be a wise buy.

Many people get a policy when they are anticipating the major “adulting” milestones of marriage or parenthood. It’s likely to be particularly important if you are the primary earner in your marriage. If tragedy were to strike and you died, your spouse could be hard-pressed to maintain their standard of living and pay the bills. The rule of thumb is that the sooner you get insurance, the better. Rates go up as you age.

Next Step: Buying Life Insurance

Once you know how much life insurance you need, it’s almost time to start shopping. Almost. Let’s take a quick look at the two main types of life insurance, term life versus whole life insurance — and the key differences between them.

Although they share the same goal of protecting families financially when a tragic loss occurs, the elements of the policies, how much they cost, their terms, and more can be quite different.

Term Life Insurance

As the name suggests, this kind of policy lasts for a certain period of time, or term. The policy is taken out for a designated dollar amount, usually with fixed premium payments — and, if the policy holder dies during that time frame, then designated beneficiaries can receive the payout they’re due. This can work well for people who think that, at the end of the term, they’ll have saved enough money that they no longer need income replacement. Or, they may believe that beneficiaries will have gained financial independence by the time the policy ends.

Whole Life Insurance

This option offers coverage for your “whole life” as the name suggests, and is a popular choice among the different kinds of permanent, or lifelong, insurance policies. Payments are typically higher, perhaps as much as five to 15 times more than the same amount of coverage as a term life policy, but part of this whole life premium is a contribution to the policy’s cash value account. This savings vehicle can grow and may be borrowed against if needed.

Choosing Term or Whole Life Insurance

If affordability is especially important, then term life insurance can make more sense. Term life may also be the right choice if coverage is only needed for a certain period of time, perhaps while money is still owed on a mortgage or young adult children are in college.

Another reason why some people may choose term insurance is because they take the difference between that premium and what they’d pay for a whole life premium, and then invest those dollars in another way.

That said, some people prefer the ongoing coverage of whole insurance and the peace of mind it can bring. Others may like watching their cash account grow. It’s a personal decision; only you can judge which kind of life insurance best suits your specific needs.

The Takeaway

Buying life insurance is an important step. It secures the financial future of your loved ones who rely on you and your income. Figuring out just how much life insurance you need is a necessary part of the process that can feel complicated. Fortunately, there are a number of different ways to get a solid estimate for that figure. The ideas we’ve shared not only help you do just that, they may also give you a deeper understanding of you and your family’s financial future.

Let SoFi Help Protect You

Once you have a rough idea of how much life insurance you’d like to buy, why not consider what SoFi is offering: affordable term life insurance in partnership with Ladder. Applicants can receive a quote in just a few minutes for policies that range from $100,000 to $8 million. It’s quick and easy to set up a policy, and the coverage amount and associated premiums can be adjusted at any time with just a couple of clicks. No hassles.

Rates are competitive with Ladder and, because the agents do not work on commission, there are no fees. Plus there are no medical exams required for qualifying applicants buying $3 million or less in coverage.

Interested in the fast, easy, and reliable route to life insurance? Check out what’s offered by SoFi in partnership with Ladder.

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.
Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

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Dec
23
2021
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What is Ripple XRP? Everything to Know for 2022

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What is Ripple XRP? Everything to Know for 2022

Cryptocurrency is a fast-moving space with new technologies and names arising on a daily basis. One of the largest and more polarizing subjects in the space is Ripple XRP, a private-company-founded platform and cryptocurrency launched in 2012. It has gained notoriety for its unique founding, structure, and operations.

Ardent supporters back its real-world adoption and growth potential. Dissenters contend that because of many of these same factors, it’s philosophically misaligned with cryptocurrency ideals and fundamentals.

Despite these contentions, Ripple XRP has grown to become a household name in cryptocurrency. Here’s everything you need to know about this cryptocurrency, and how to invest in it.

What Is Ripple?

Ripple is both a currency-exchange system designed to allow fast and low-cost transactions, and a cryptocurrency in its own right. Ripple’s primary goal is to connect financial institutions, payment providers, and digital asset exchanges to provide faster and cheaper global payments.

Created in 2012 by Jed McCaleb and Chris Larsen, Ripple is perhaps better known for its open-source, peer-to-peer decentralized platform, RippleNet, which enables money to be transferred globally in any fiat or cryptocurrency denomination between financial institutions.

Ripple makes some improvements on common shortfalls associated with traditional banks. Transactions on the Ripple Network are settled in seconds even under the regular stress of millions of transactions. Compare this to banks’ wire transfers which typically can take days to weeks to complete and can cost anywhere from $15 to $30 or more if sending or receiving internationally. Fees on Ripple vary based on the transaction size but overall are minimal, with the minimum cost for a standard transaction at 0.00001 XRP.

Whereas top cryptocurrencies like Bitcoin, Ethereum, and Litecoin are designed to be used primarily by individuals, Ripple’s system is designed to be adopted by banks, funds, and institutions.

What Is XRP?

XRP is the currency issued and managed by Ripple (though users can also create their own currency on the platform). Ripple began selling XRP in 2012 to fund company operations, allowing its users to buy cryptocurrency, though it has taken a backseat to the company’s primary objective of developing RippleNet.

Throughout Ripple’s lifespan, leadership has reframed how XRP fits into the company’s business model, originally proclaiming it as the fuel on which its borderless payments technology runs, and later as a more efficient medium of exchange than Bitcoin.

XRP tokens represent the transfer of value across the Ripple network and can be traded on the open cryptocurrency market by anyone. Unlike Bitcoin’s popular store-of-value narrative use-case, XRP is primarily used for payments and borderless currency exchange. While Ripple’s centralized infrastructure concerns some in the cryptocurrency space, its fast transaction speeds, low transaction costs, and low energy usage provide superior performance as a medium of exchange compared to many blockchain-based cryptocurrencies.

(Need a crash course on crypto before you can read any further? Check out our guide to cryptocurrency.)

What is the XRP Price?

At the time of reporting, the XRP price is $0.474494. It’s all-time high was $3.8419 in January 2018. It went as low as $.0041 in November 2015.

How Does Ripple Work?

There are two main technologies to be aware of when it comes to Ripple and XRP. Specifically, the XRP ledger (XRPL) and the Ripple Protocol Consensus Algorithm (RPCA). Here’s how they work.

XRP Ledger (XRPL)

RippleNet is built on top of its own blockchain-like distributed ledger database, XRP Ledger (XRPL), which stores accounting information of network participants and matches exchanges among multiple currency pairs. The transaction ledger is maintained by a committee of validators who act like miners and full-node operators to reach consensus in three to five seconds—versus Bitcoin’s 10 minutes. Because there are no miners competing to confirm transactions for block rewards, validators verify transactions for no monetary reward.

Anyone can become an XRP validator, but in order to gain trust and be used by others on the network, validators must make Ripple’s unique node list (UNL), deeming them a trusted Ripple validator. These centralized validators are critical to prevent double-spending and censorship of transactions. There are only 35 active XRP validators; six are run by Ripple.

Ripple Protocol Consensus Algorithm (RPCA)

XRP’s design is predicated on speed and cost, as opposed to decentralization. Unlike different types of cryptocurrency like Bitcoin and Ethereum, which are built on the blockchain and validated by miners through the Proof of Work consensus mechanism, Ripple confirms transactions through its own consensus mechanism, the Ripple Protocol Consensus Algorithm (RPCA).

By avoiding Proof of Work’s energy-intensive mining, Ripple transactions require less energy than Bitcoin or Ethereum, are confirmed faster, and cost less. However, this speed is ultimately achieved because of XRP’s centralized infrastructure, which some argue makes the network less secure, censorship-resistant, and permissionless than open-source blockchain networks.

Ripple Cryptocurrency Token Supply

Unlike many other cryptocurrencies, XRP is not mined. The token’s entire supply was created when the network first launched in 2012 and Ripple executives intermittently tap into an escrow to release segments of the supply to sell on the open market.

In other words, unlike Bitcoin’s decentralized economy, XRP’s supply and issuance is centralized and governed by a few authorities. Because the total supply already exists, no more will be created into existence, thus making XRP fixed in quantity and not inflationary.

As of January 2021, only 45 billion XRP tokens are in circulation, out of the maximum total 100 billion. Due to the vast circulating supply, XRP has had one of the largest market caps of any cryptocurrency, even briefly eclipsing that of Ethereum’s second-largest cap late in the 2017-2018 bull market.

Ripple Crypto and Regulatory Trouble

In late 2020, Ripple became the target of an SEC investigation . The regulatory body determined that Ripple Labs Inc. and two of its executives, Co-Founder Chris Larsen and CEO Bradley Garlinghouse, had raised over $1.3 billion through an “unregistered, ongoing digital asset securities offering” to finance the company’s operations. Consistent with recent cryptocurrency rules set by the SEC, Ripple’s leaders were charged with unlawful issuance of securities in the form of sales of its XRP token, raising questions about compliance with cryptocurrency taxes.

The XRP price crashed amid the fallout, from over $0.60 to under $0.30, as prominent crypto exchanges began delisting the token and Ripple executives, including Founder Jed McCaleb, sold off personal XRP holdings worth millions.

Is Ripple a Good Investment?

Though XRP has been impacted by Ripple’s legal blow, XRP is an independent token that can and does function somewhat outside of Ripple’s business model. The crash in price and soured fundamental outlook may not paint a bright picture of XRP as an investment to some. Whether XRP recovers and continues to evolve with the rest of the crypto herd remains to be seen, but as investors look for value in undervalued assets, it doesn’t hurt to do further research and form an educated conclusion.

Pros and Cons of Ripple XRP

Because Ripple is different in some ways from other cryptocurrencies, it makes sense to review its perceived pros and cons before making any investing decisions.

Pros of Ripple XRP

•  Fast speeds
•  Low fees
•  Interest/tentative adoption by financial institutions

Cons of Ripple XRP

•  Centralized infrastructure, governance, issuance
•  Corruptible validators
•  Unsupported by many exchanges

How to Invest in XRP

To start investing in Ripple, you first need to join a crypto exchange. Signing up for an account could include different verification processes, depending on the exchange. Once you’re signed up, you’re ready to trade or buy Ripple XRP. You can trade any current crypto you own, or you can buy a major cryptocurrency like Bitcoin or Ethereum and then use that to buy Ripple XRP.

The Takeaway

Ripple XRP is a global digital payments system that sacrifices decentralization for performance. The network and technology is owned and at least partly run by Ripple, the private company, which controls the underlying infrastructure, supply, and some of the limited network validators. While Ripple strays from the conventional decentralization model adopted by leading cryptos Bitcoin and Ethereum, it conforms to some degree through its own specially — designed infrastructure.

Although Ripple’s primary goal is providing a borderless payments and currency exchange gateway for financial institutions, its native cryptocurrency XRP has taken on a life of its own and is actively traded and analyzed by investors. With high-ranking metrics such as fast and inexpensive transactions, some investors argue XRP is a strong competitor to large cryptocurrency blockchains such as Bitcoin and Ethereum. Conversely, Ripple XRP’s centralization has been a major philosophical and security concern for others — including US regulatory bodies.

Cryptocurrency is an exciting new technology that’s disrupting money as we know it. With SoFi Invest®, members can trade some of the most popular cryptocurrencies, like Bitcoin, Ethereum, Cardano, Dogecoin, and Litecoin.

Find out how to invest in cryptocurrencies with SoFi Invest.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

CRYPTOCURRENCY AND OTHER DIGITAL ASSETS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE


Cryptocurrency and other digital assets are highly speculative, involve significant risk, and may result in the complete loss of value. Cryptocurrency and other digital assets are not deposits, are not insured by the FDIC or SIPC, are not bank guaranteed, and may lose value.

All cryptocurrency transactions, once submitted to the blockchain, are final and irreversible. SoFi is not responsible for any failure or delay in processing a transaction resulting from factors beyond its reasonable control, including blockchain network congestion, protocol or network operations, or incorrect address information. Availability of specific digital assets, features, and services is subject to change and may be limited by applicable law and regulation.

SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. SoFi Bank does not provide investment, tax, or legal advice. Please refer to the SoFi Crypto account agreement for additional terms and conditions.

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Mar
29
2021
What Is An HDHP Plan?

What Is An HDHP?

By | relay, Terminology | Comments Off on What Is An HDHP?

A high deductible health plan, or HDHP, has a higher deductible than other types of insurance plans, as the name implies.

In return for higher deductibles, these plans usually charge lower premiums than other types of health plans.
You can combine a HDHP with a tax-advantaged health savings account (HSA). Money saved in an HSA can be used to pay for out-of-pocket, qualified medical expenses before the deductible kicks in.

An HDHP can be a good, affordable health insurance option for people who are relatively healthy and don’t see doctors or receive medical services frequently.

But these plans may not be the best choice for everyone. Read on for important things to know about HDHPs.

How Does a High Deductible Health Plan Work?

When you sign up for an HDHP, you will pay most of your medical bills out of pocket until you reach the deductible (with some exceptions, explained below).

Your deductible is the amount you’ll pay out of pocket for medical expenses before your insurance pays anything.

Under current law, in order to be considered an HDHP, the deductible must be at least $1,400 for an individual, and at least $7,000 for a family.

But deductibles can be significantly higher than these minimums, and are allowed to be as high as $2,800 for an individual and $14,000 for a family.

As with other insurance plans, HDHPs come with out-of-pocket maximums. This is the most you would ever have to pay out of pocket–that includes your deductible, copayments, and coinsurance (but exclude premiums and medical costs not covered by your plan).

Out-of-pocket maximums for HDHP plans can’t exceed $2,800 for an individual and $14,000 for a family.
Despite the high deductible with HDHPs, some health care costs may be covered 100 percent even before you meet your deductible.

The government requires all HDHPs sold on the federal insurance marketplace and many other HDHP plans to cover a fair number of preventive services without charging you a copayment or coinsurance, even if you haven’t met your deductible.

You can find a list of those covered services for adults , specifically for women , and for children at HealthCare.gov.

How Does an HDHP Work With a Health Savings Account?

When you purchase a high deductible health plan, whether it’s through the federal marketplace, an employer, or directly through an insurance company, you may also open a health savings account (HSA).

You can put aside pre-tax income in the HSA to help pay your deductible or other qualified health care expenses. However, HSA funds typically can not be used to pay for health insurance premiums.

Earnings also grow tax-free in an HSA account, and withdrawals used to pay for qualified healthcare expenses are not subject to federal taxes. As a result, HSAs can result in significant tax savings.

Currently the maximum you can save in an HSA each year and receive the tax benefits is $3,600 for an individual and $7,200 for a family. Some employers make contributions to employee HSA accounts as part of their benefits package.

HSAs are also portable, meaning you take your HSA with you when you change jobs or leave your employer for any reason. Your HSA balance rolls over year to year, so you can build up reserves to pay for health care items and services you need later.

You may contribute to an HSA only if you have an HDHP.

What are the Pros and Cons of HDHPs?

As with any health insurance plan, there are both advantages and disadvantages of HDHPs. Here are some to consider.

Advantages of HDHPs

•  Lower premiums. In exchange for the high deductible, HDHPs typically charge lower premiums than traditional healthcare plans like PPOs.
•  You can combine an HDHP with an HSA. This can help you cover out-of-pocket medical expenses with pre-tax dollars, which make these costs more affordable. And, these accounts never expire.
•  You get the same essential benefits and no-cost preventive care as other plans. HDHPs are required to cover the same types of healthcare expenses as other plans (after you meet the deductible). And, they offer the same no-cost preventive services as their more expensive counterparts.

Disadvantages of HDHPs

•  High out-of-pocket costs due to high deductibles. You will need to pay for medical expenses out of pocket (because of the high deductible), while also paying your monthly premiums.
•  A disincentive to receive care. You might be inclined to skip doctor visits because you’re not used to having such high out-of-pocket costs. Forgoing treatment, however, could cause more serious health problems down the line.
•  Emergencies can be expensive. If you need unexpected care or go to the hospital, an HDHP will not pay anything until you have met your high deductible. This can mean having to come with a significant amount of cash to cover your medical bills.

HDHPs vs. PPOs

A preferred provider organization, or PPO, is a traditional type of health plan that usually has a lower deductible than an HDHP, but charges higher premiums.

With a PPO, you will typically only have to pay a copayment, or “copay,” when you see a doctor or fill a prescription.

For other medical services and treatments, you will likely have to pay out of pocket until you reach the deductible, but that will happen sooner than it would with a HDHP.

Both PPOs and HDHPs typically have a network of providers you can work with to get the best rates.

In a PPO, however, the provider list may be smaller than it is with an HDHP. To get the best rate on your care, members of either type of plan will want to be sure they are sticking to that list.

A PPO may be advantageous if you go to the doctor a lot and/or run into unexpected medical expenses, since you start to get help from the health plan much earlier in the year than you might with an HDHP.

A PPO could end up costing you more, however, if you end up having a year with low medical expenses.

The Takeaway

So are HDHPs worth it? With an HDHP, you will likely pay a lower monthly premium than you would with a traditional health plan, such as a PPO, but you will have a higher deductible. If you combine your HDHP with an HSA, you can pay that deductible, plus other qualified medical expenses, using money you set aside in your tax-free HSA. If you are young and/or generally healthy with no chronic or long-term conditions, an HDHP may be the most affordable option for you.

On the other hand, if you have a medical condition and you make frequent doctor visits, you may find you need coverage that kicks in sooner than it would with an HDHP plan. It can be a good idea to estimate your health expenses for the upcoming year and get a rough idea of how much you will be responsible for out of pocket with an HDHP before you sign up. You might want to use a budgeting app, such as SoFi Relay, which makes it easy to categorize and track all of your expenses in one mobile dashboard.

Health insurance is just one way to protect your budget, but making sure you have insurance on your home can also help you avoid expenses in the future. SoFi Protect and Gabi offer insurance for both renters and homeowners, so you can be sure that your home, and the things inside you care about, are protected.

Check out insurance offerings with SoFi Protect today.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
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SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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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2020
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5 Trend Indicators to Know

By | Growing Wealth, invest, Investing, Terminology | Comments Off on 5 Trend Indicators to Know

Financial markets are notoriously fickle. Trying to time the market is a difficult task that few non-professional investors do with repeatable success. Still, there are some ways to make more educated investment picks based on publicly available data.

Once an investor selects which securities to buy, how do they decide a good price to enter into a trade at? One of the simpler ways to make a more informed decision regarding when to buy or sell a stock involves using trend indicators.

Trend indicators give investors a sense about which direction the market has moved and for how long it has been heading that way. Trend analyses aim to anticipate futures based on previous patterns in buying, selling, and pricing over time.

Understanding Trend Indicators

Trend indicators are an aspect of technical analysis. Technical analysis uses either computer-generated mathematical information (indicators) or looking for visible patterns in the charts of stock prices.

This investment approach isn’t guaranteed and doesn’t always boost investors’ returns. But, trend analysis can provide investors with one way to try to appraise the market’s next move.

Although technical analysis involves the use of objective data rooted in mathematics and historical price movements, this kind of analysis also relies on human interpretation of that data.

So, it can be said that using indicators and patterns involves aspects of both art (aka interpretation and intuition) and science (aka data and math).

Commonly Used Trend Indicators

Here’s an overview of five commonly used trend indicators that investors may want to look into:

1. Moving Averages

A “moving average” (aka MA) is defined as the mean of time series data. In finance, this technical trading term means the average price of a security (aka a monetary instrument, like stocks, with monetary value)—as calculated over a certain timeframe.

When prices begin trading above a moving average, this can sometimes be seen as a bullish signal, but doesn’t always produce reliable returns over time. A much stronger signal comes when two moving averages of different time lengths cross paths.

When a shorter-time-frame moving average crosses above a longer-time-frame moving average, the move is referred to as a “golden cross.” The general consensus among traders is that the most significant golden cross involves the 50-day MA moving above the 200-day MA. Put another way, it’s when a security’s short-term average is heading above it’s long-term valuation average.

While a single moving average can convey some important information, MAs can be much more useful when used in conjunction with additional MAs of different lengths or with other trend-following indicators.

2. Relative Strength Index (RSI)

The Relative Strength Index (aka RSI) provides insight into whether a security might be overvalued or undervalued. This indicator oscillates between extremes, which is a fancy way of saying that it moves up and down.

The RSI is as straightforward as they come. It’s represented by a single line plotted on a graph with values that range from 0 to 100.

The higher the Relative Strength Index value, the more overbought a security is thought to be. In contrast, lower values are generally thought to indicate oversold conditions. So, for some investors, a low reading on the RSI could signal a potential buying opportunity.

Just how low should this indicator drop before it can be considered a buy signal? The answer to this question might depend on who you ask.

Fortunately, there is an easy way to estimate when the RSI becomes overextended in either direction. Between 30 and 70 is a shaded area sometimes called “the paint.” When the line breaches this zone, it’s thought that trading momentum in a given security has begun to reach its limits, and a trend reversal could be in the cards soon.

In other words:

•  an RSI reading of below 30 is generally thought to indicate oversold conditions, meaning prices could be getting ready to move higher sometime soon.
•  An RSI above 70 is generally thought to indicate overbought conditions, meaning a move downward could be coming soon.

As with most other trend following indicators, the RSI works best when used in conjunction with other metrics of a stock’s overall trading sentiment.

3. Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (aka MACD) illustrates the relationship between two moving averages. While the Relative Strength Index (aka RSI) noted above tracks changes in pricing in a single stock or asset (typically represented as a fluctuating line graph), the MACD shows two lines in addition to a histogram that indicates trend strength.

This indicator is used in a similar way as the RSI, although there is a little more information contained in the MACD. Both indicators are known as momentum indicators because they try to gauge the strength of a trend.

Whereas the RSI oscillates between 0 and 100 based on average price gains and losses over a set period, the MACD measures the relationship between two exponential moving averages.

Subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA is how the MACD is calculated. This calculation results in the MACD line. A nine-day EMA of the MACD, which is often referred to as the “signal line,” is shown on top of the MACD line. The lines are plotted atop a histogram meant to give traders an idea of momentum strength.

As with most trend indicators, there are multiple ways to interpret the MACD. One of the most common interpretations involves the MACD crossing its signal line.

A cross above the signal line is considered to be a potential buy signal, while a cross below the signal line is considered to be a potential sell signal.

4. On Balance Volume (OBV)

On balance volume (OBV) is a measurement of the selling and buying pressure on a given security. Volume gets added on up days and subtracted on down days.

On a day when the security closes at a higher price than its previous closing price, all of that day’s volume is considered upward volume. When the security closes lower than its previous closing price, that day’s volume is considered downward volume.

The numerical value of the OBV isn’t really important – it’s the direction that counts. Declining volume tends to indicate declining momentum and price weakness, while increasing volume tends to indicate rising momentum and price strength.

While the RSI is an indicator that signals bullishness when weak, OBV works in the opposite way. One of the most striking signs of a potential pullback in price can be seen using OBV. This can happen when the price of a security continues making higher highs even as OBV stalls or begins declining.

When this happens, it’s referred to as a negative divergence, and may mean that fewer traders are pouring money into a trade—potentially indicating that prices could start falling.

Here are a few other quick notes about OBV:

•  When both OBV and price make higher highs and higher lows, there’s a higher likelihood that the upward trend may continue.
•  When both OBV and price make lower highs and lower lows, it’s likely the trend could continue.
•  When prices are confined to a tight range, and OBV is rising, this may signal a period of accumulation. An upward breakout could be on the horizon.
•  When prices are confined to a tight range, and OBV is falling, this may signal a period of distribution. A downward breakout could be on the horizon.

5. Average Directional Movement Index (ADX)

The ADX is another trend indicator that aims to measure trend strength. It works by averaging the differences in price range over time. So, if an asset’s price barely move from day-to-day, the ADX will show a lower reading—while a big change in price will show a higher reading.

The Average Directional Movement Index is represented by a simple line graph beneath a stock chart. This trend line is even easier to use than most. It’s thought that an ADX above 25 indicates a strong trend and an ADX below 20 indicates little to no trend.

Here are some notes about potential ways to interpret the ADX:

•  When the ADX nosedives from a high point, it could signal a coming trend reversal.
•  A downward trend in the ADX could suggest that trends are dissipating overall. And, so, using any trend-following indicators could prove less reliable.
•  If the ADX rises by 5 points or more after a long period of staying low, this could be interpreted as a trade signal (a time to potentially buy or sell, depending on the direction of price movement).
•  A rising ADK generally means the market is entering into a stronger trend. The slope of the ADX line will be steeper when prices change faster. Steady, gradual trends tend to lead to a flattening of the ADX.

Keeping Tabs on Market Trends

There’s an old saying among traders—“the trend is your friend.”

Simply put, trends tend to keep moving in a certain direction when they have enough momentum. That’s why traders try to take note of them by studying trend-following indicators.

Trend indicators are a key way that many traders try to discern things like:

•  Which way a trend is moving
•  How strong that momentum is
•  How long the trend is likely to continue.

Some traders even go as far as trying to pick the exact time when a trend will change, using advanced strategies like options and futures contracts to try and profit from market volatility.

For most novice investors, adopting this kind of exact-timed technical strategy could prove highly risky, and might not always be necessary to earn returns over time. Individual investors might find it easier to use trend indicators to try determine when to buy and sell orders.

Whether an investor is brand new to the markets or has been building a portfolio for years, SoFi Invest® lets users take care of their investment needs in one secure app – including, trading stocks, buying crypto, and automated investing.

Learn more about building a financial future with SoFi Invest.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, LLC and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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