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Guide to Exercising Stock Options

The employee stock option plans you may get through your employer can feel complicated, laden with technical terminology, and require strategic decision-making. It isn’t easy to know the best time to exercise stock options to reap the benefits of the plans. And it sure doesn’t help that the information sessions about stock purchase plans provided by work are usually dry and overwhelmingly unhelpful.

But being able to buy the shares of your company’s stock can be an ideal way to make and invest money. Thus, it is crucial to understand how stock options work, including knowing when to exercise stock options.

What Does It Mean to Exercise Employee Stock Options?

Employee stock options (ESOs) are rights to purchase an employer’s stock at a set price – called the exercise, grant, or strike price – for a set period of time. You exercise the option to buy the company’s stock at the strike price.

Employee stock options are similar to but different from exchange-traded stock options.

Companies may offer stock options to employees as part of a compensation plan, in addition to salary, 401(k) matching, and other benefits. In an ideal scenario, stock options allow an employee to purchase shares of their company’s stock at an exercise price lower than the current market price.

Employees should keep in mind that employee stock options are different from restricted share units (RSUs), another form of compensation.

💡 Recommended: How Are Employee Stock Options and RSUs Different?

Example of Exercising Stock Options

To exercise stock options, you must first be “vested,” meaning you have worked at the company for a specific period. As you vest, you can exercise your stock options.

For example, say you have 100 fully vested stock options after a three-year waiting period. These stock options have an exercise price of $10 and have a current market value of $20.

If you were to exercise your options right now, you would buy 100 shares of stock at $10 per share, or 50% off the stock’s current price. You could then turn around and sell the stock at $20 per share, earning $1,000 in the transaction. This discount is called the “bargain element.”

100 shares x $10 exercise price = $1,000 purchase price

100 shares x $20 market price = $2,000 market price

$2,000 – $1,000 = $1,000 profit

However, you don’t have to sell the stock when you exercise stock options; you may hold the stock as part of your investment portfolio.

Types of Employee Stock Options

Stock option plans come in two flavors: qualified and non-qualified, which refer to their taxation. Incentive stock options (ISOs) are qualified and have a more favorable tax treatment than non-qualified stock options (NSOs), which do not have as favorable taxation.

When you exercise ISOs and hold the shares for a certain period, you will be taxed at the more favorable capital gains tax rate when you sell the shares. You aren’t taxed when you exercise ISOs.

In contrast, NSOs are taxed as regular income when you exercise them and then taxed at the capital gains rate when you sell the shares.

You’ll want to consider these tax implications before you exercise your stock options.

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When To Exercise Stock Options

The first step to exercising stock options is determining whether you can exercise them. Under most stock option programs, employees can exercise the options after a designated vesting period outlined in an equity compensation agreement. These programs operate similarly to a 401(k) match program; the idea is to reward only employees who have been at the company for a certain amount of time.

Additionally, stock options usually come with an expiration date, which is the final date you can exercise the option. The expiration date is usually between 7 and 10 year from the date of the option grant, though it can be shorter if you leave the company. Many people wait until the last moment to exercise their options, but you may want to exercise stock options earlier. This means that you actively decide to exercise your options before the expiration date.

So, employees can exercise stock options after they vest and before an expiration date, a period known as the exercise window.

How to Exercise Stock Options

You can use three main strategies to exercise your vested stock options. Usually, your company will work with a third party to manage stock options, and you can initiate these transactions in your account.

Exercise and Hold

If you like the prospects of your company’s stock and want to add it to your investment portfolio, you can initiate an exercise-and-hold order. With this strategy, you purchase the shares at the exercise price with cash and hold on to them. You may need to deposit cash into your account or borrow on margin to pay for your shares. Additionally, you have to pay brokerage commissions, fees, and taxes.

An exercise-and-hold strategy allows you to benefit from the ownership of your employer’s stock, including any dividends and capital appreciation.

Exercise and Sell to Cover

Similar to exercise-and-hold, you may initiate an exercise-and-sell-to-cover order if you like the prospects of your company’s stock and want it as part of your portfolio. With an exercise-and-sell-to-cover order, however, you don’t necessarily need cash to buy the shares at the exercise price. Instead, an exercise-and-sell-to-cover order will sell enough shares to cover the purchase price, commissions, fees, and taxes.

An exercise-and-sell-to-cover order allows you to benefit from the ownership of your employer’s stock without using your cash to cover the transaction.

Exercise and Sell

If you are interested in making a cash profit rather than holding on to your employer’s stock, you can initiate an exercise-and-sell order. When you exercise with this transaction, you buy the company’s stock at the exercise price and sell the shares at the market price simultaneously. A portion of the proceeds cover the commissions, investment fees, and taxes, but you get to keep the rest of the cash profit.

Knowing Whether to Exercise Stock Options

Let’s say your stock options are vested, and any other required waiting periods are satisfied. Now, you have to decide whether to exercise your stock options now or wait until a later time.

From a stock valuation standpoint, deciding to exercise stock options is difficult. It is hard to know whether a company’s stock will go up or down in the near future — even the company you work for.

Here are a few reasons why people choose to exercise their stock options.

Options Have Lots of Value

When your stock options are in the money, meaning that your company’s stock price is above your stock option exercise price, you may be interested in exercising the option. In this situation, you can benefit from buying shares at a lower price to either make a profit or hold on to the stock.

Fits Your Financial Situation

Many people may choose to exercise their stock options and then sell the shares as a way to diversify their portfolios. You never want to be overly exposed to one stock, especially the stock of the company you work for. So, people will exercise their stock options, sell the shares, and use the proceeds to buy other securities as part of greater portfolio diversification.

Why Do People Not Exercise Stock Options?

Many people may not exercise stock options for a variety of reasons. One of the biggest reasons is that the stock options may be out of the money, meaning that the company’s stock price is below the stock option exercise price. If you exercised your stock options in this situation, you’d be buying the shares at a premium; you’d be better off buying the shares at the market price.

And even if your stock options are in the money, you may not exercise immediately, hoping your employer’s stock price will increase further.

Here are a few other reasons people may not exercise their stock options.

Fees

As mentioned above, you must account for commissions, fees, and taxes when exercising your stock options. And depending on an individual’s financial situation, they may not be able to pay the cash to cover those costs. Therefore they will hold off from exercising their stock options until they may be able to cover the expenses.

Expiration Date

Employee stock options often have an expiration date. Usually, the expiration date is between seven and ten years, but it may be shorter if you leave a company. Many employees do not know when they are nearing the expiration date of their stock options, so they may forget to exercise their options, potentially leaving money on the table.

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While employee stock options may seem like a great piece of a compensation plan, you should also consider the risks. Generally, experts recommend that investors don’t keep more than 10% of their wealth in any one stock. This is especially true for the company that you work at. If something happens to the company that puts you out of a job, it could be potentially devastating to have a large piece of your net worth tied up in that company.

Suppose you have a large piece of your investment portfolio tied up in company stock after you exercised your stock options. In that case, it is a good idea to have your eye on eventually moving at least some of this money into a diversified investment strategy. Fortunately, a SoFi Invest® online brokerage account can help. With SoFi, you can build a diversified portfolio by trading stocks, exchange-traded funds, and fractional shares with no commissions for as little as $5.

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FAQ

Can you exercise an employee stock option?

If you have an employee stock option plan through your employer, you can exercise your stock options as long as you’re vested and the options have not expired.

How soon should you exercise a stock option?

Knowing when to exercise a stock option is up to the individual, as everyone has different financial needs and goals. However, you want to ensure you exercise your stock options before expiration.

What are exercised stock options?

Exercised stock options are options that have been used to purchase shares of stock.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
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.
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.
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What Is a Fungible Investment?

Guide to Fungibility and Non-Fungibility

A fungible asset is interchangeable and indistinguishable from another asset of the same type. For example, units of the same currency are fungible: One U.S. dollar can be exchanged for another dollar (or four quarters, or 20 nickels), and each of those dollars can be used to make a purchase.

Crude oil is fungible, as one barrel is as good as the next, and can be used for the same purposes.

In finance, being able to understand and define fungible, and what constitutes fungible vs. non-fungible assets is important.

What Is Fungibility?

How do you define fungible? Fungible’s meaning boils down to “the ability to be copied or replicated, and thus, interchangeable.” That means that fungible assets, such as the aforementioned U.S. dollar, have equal value to other dollars. Again, one U.S. dollar is interchangeable with any other U.S. dollar or its composite parts (pennies, nickels, dimes, etc.).

So, one definition of fungibility would be units that are effectively identical in terms of their attributes such that one can be exchanged for the other with no loss of value.

Most of the types of assets traded in online brokerage accounts are fungible. Stocks, bonds, and options contracts are considered fungible assets. These assets are interchangeable with the assets of other investors; a share of Company A’s stock in one investor’s portfolio, for example, is identical or indistinguishable from a share in another investor’s portfolio.

The same holds true for options contracts. A contract for the same security with an identical strike price and expiry date will have the same value as another contract of its kind.

Fungible vs Non-Fungible

Looking at assets that are not fungible (or non-fungible) can also be helpful to understanding fungibility’s definition.

Many tracts of land or real estate are not fungible because no two are exactly alike — an acre of farmland in California is not the same as an acre of desert in Nevada.

Basketball cards are also non-fungible because they have different attributes and have unequal values, depending on a variety of factors such as age, condition, and rarity.

There may be two copies of the same basketball card, however, but depending on the condition of the cards, the two may have different values. That gives us a non-fungible definition: Items that do not possess the same value and therefore cannot be copied or exchanged for another of its type.

Examples of Fungible Goods

Fungible goods include fiat currencies and financial assets, like stocks. Many commodities and precious metals are also fungible. A pound of wheat, soy beans, or corn would be exchangeable for another pound of the same goods in most cases, assuming equal condition, age, and type. Similarly, a barrel of oil generally has the same value as any other barrel of oil, and can fetch the same price. Here is some more detail about some key fungible asset types:

Gold

An ounce of gold is generally worth the same as any other ounce of gold, with some exceptions. And gold is an interesting example because it demonstrates how thin the line between being fungible and non-fungible actually is.

Gold bullion — or, officially recognized pieces of gold having at least 99.5% purity — is typically fungible. A standard gold “round,” which is similar to a coin, but is not minted by a government, should have the same value anywhere in the world, and be worth almost exactly the same as any other round.

Actual gold coins can be different, however, as they may have different values, even if two coins both contain the same amount of gold. For instance, a rare, one-ounce gold coin from a historic shipwreck that took place in the 16th century might be worth much more than a new, one-ounce Gold American Eagle coin minted this year.

Sometimes, even gold bars that have all the same physical properties might not be fungible. The Federal Reserve Bank of New York, for example, holds gold bars for various governments around the world. Upon deposit, the bars are carefully inspected and weighed to meet certain specifications. The process is recorded (serial numbers may be written down, for instance), and countries deposit their gold with the expectation that they will be able to later withdraw the exact same bars — not the gold bars deposited by a different country.

As such, the specific gold bars stored at the Federal Reserve’s vault are not fungible.

💡 Recommended: Investing in Gold and Other Precious Metals

Fiat Currencies

Fiat currencies — or currency that is created and issued by a government — is also a fungible asset. As mentioned, you could exchange a one dollar bill for any other dollar bill, because they are valued the same, and there is no difference between the two in the eyes of a banker or cashier. But again, the currency has to be of the same type, as one U.S. dollar is not interchangeable with one Euro, for example.

Stocks and Financial Assets

Stocks do sometimes come in different variations, but more often than not, one share of a stock is going to be the same as any other share — that goes for other financial assets, too, like bonds or options contracts. There’s nothing that distinguishes the shares of Company A’s stock in your portfolio from the Company A shares in your friend’s portfolio, in other words.

Note, though, that shares of a Class A stock and a Class B stock in the same company would not be fungible, since they have different values and attributes.

Bitcoin

While each Bitcoin is unique in a technical sense, it is typically considered a fungible asset, as they’re valued the same and one BTC or altcoin is mostly indistinguishable from another. Since Bitcoin transactions are public, because they’re recorded on a blockchain, coins that have been used in criminal activity in the past could possibly be identified and deemed undesirable.

But if transactions were private rather than public? Then, in theory, all Bitcoins would be fungible, because there would be no way to distinguish them from each other. When you pay for something with cash, the transaction is fungible because the cashier can’t tell your dollars apart from anyone else’s dollars.

While some cryptocurrencies are fungible assets, other digital assets, such as non-fungible tokens (NFTs) are generally not — more on that below.

💡 Recommended: How to Invest in Bitcoin 101

Examples of Non-Fungible Assets

To recap, you can define fungible as assets that can be replicated, to some degree, and non-fungible assets are those that cannot — they are one-of-a-kind assets. As a result, they’re generally rare, and carry a lot of value. Here are some examples of non-fungible assets:

Art

Pieces of art are almost always one-off creations. There’s only one Mona Lisa, for instance, and even though you can buy a print of the painting, the print is not the painting itself, which is why it has far lower value.

Art can be recreated, to an extent, too, but there will always be one original piece, be it a painting or a sculpture, from which replicas draw their inspiration. It’s the rarity of pieces of art that make many of them so valuable.

Collectibles

Collectibles come in all shapes and forms, from sports memorabilia to fossilized dinosaur bones. If you own a rare sports collectible, like a baseball bat that was used by Babe Ruth, it’s non-fungible — it cannot be copied or replicated, or exchanged for another of a similar type. There may be other bats out there, but none carry the history of the one that you own.

Real Estate

Real estate may be the ultimate non-fungible asset. No two pieces of real estate or property are exactly the same, and more cannot be created. Each property is unique, and there’s no way to create copies — or exchange one property for another.

Non-Fungible Tokens

Non-fungible tokens, or NFTs, are yet another type of non-fungible asset. NFTs are just that: crypto tokens. These tokens often take the form of pieces of digital artwork that have been assigned specific pieces of code or data to ensure they can’t be copied, and effectively, remain non-fungible. They’re wholly unique, and different from every other non-fungible token out there.

While many people are familiar with NFTs as being associated with digital artwork, they can be used in many other ways too, including tokenizing pieces of music, and even information such as medical records.

Fungible vs Liquid Assets

An asset’s fungibility and its liquidity are two different things; fungibility refers to its ability to be copied or exchanged, and its liquidity refers to how easily it can be traded or exchanged. Some fungible assets are liquid, and some are not — conversely, some non-fungible assets are liquid, and some are not.

For example, consider a non-fungible asset, like real estate. A piece of land is non-fungible, but it’s also illiquid, in that it takes a long time to exchange it for something else (usually money). But for non-fungible assets like in-demand NFTs? Selling NFTs or other non-fungible assets can happen very quickly, making it non-fungible and highly liquid.

As such, there is not a strong relationship between fungibility and liquidity. It depends on the specific asset.

Arbitrage: A Benefit of Fungible Investments

One benefit of fungible investments is that astute investors can profit from something called arbitrage, which refers to the potential to profit from differences in price across multiple trading platforms.

For example, imagine a stock listed on both the Netherlands and German stock exchanges. Both countries use the Euro. If the stock were trading for 5 Euros in the Netherlands and 5.25 Euros in Germany, traders could buy shares from the Netherlands exchange and sell them on the German exchange. Then, they could keep the profit of 0.25 Euros per share.

Fungible stocks priced in different currencies can also have arbitrage opportunities. Because of fluctuating exchange rates, calculating the different prices would amount to an added layer of complexity. But the profit margins can be even, potentially, since there may be gains in both the arbitrage and the currency conversion, if both were favorable. Investors can also sometimes purchase futures contracts for fungible assets, based on your expectation of how its price will change in the future.

The Takeaway

Fungible assets are indistinguishable from, and can be exchanged for others of the same type — they can, in effect, be copied or reproduced. Non-fungible assets, on the other hand, are one-of-a-kind, or non-replicable. However, some assets can be both; Bitcoin and gold are two good examples of assets that can be fungible or non-fungible, depending on the circumstances.

Further, fungible assets can present arbitrage opportunities for astute traders. This is more of an advanced strategy, requiring awareness of multiple markets, and typically needs to take place at scale in order to generate a significant profit.

If you’re ready to start trading fungible and non-fungible assets, you can get started by opening an Active Invest account with the SoFi Invest stock trading platform, which allows new and experienced traders alike to trade stocks, exchange-traded funds (ETFs), and 30 different types of crypto. The SoFi investment app provides the convenience of being able to trade crypto 24/7.

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FAQ

What are some fungible things?

Fungible things, or fungible assets, are items or goods that can be exchanged because they are effectively identical and carry the same value. Examples would include U.S. dollar bills, basketballs, a barrel of oil, and most stocks or bonds.

What does fungible mean in finance?

Fungible refers to goods or items that are interchangeable and indistinguishable from other assets of the same type. If one item can be exchanged for another and retain the same value, it’s fungible.

What are some non-fungible assets?

Examples of non-fungible assets include non-fungible tokens (NFTs), real estate, artwork, and certain collectibles, such as fossils or sports memorabilia.


Photo credit: iStock/ferrantraite

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2022. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

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bitcoin vault

How to Get a Bitcoin (BTC) Loan

With a Bitcoin loan, a borrower typically offers up their Bitcoin holdings as collateral, and the lender gives them cash, and charges interest. If you’re curious, getting a crypto-backed loan is possible, and we’ll run through everything you need to know.

What Is a Bitcoin Loan?

Bitcoin loans allow borrowers to use their crypto as collateral to get their hands on fiat currency.

There are many online platforms that allow a borrower to take out loans against the Bitcoins they own. Some of these loan platforms work by connecting Bitcoin-investing borrowers with cash lenders, while others offer the loans directly to Bitcoin investors.

That means an individual can either be a cryptocurrency borrower or lender. It’s possible for investors to use lending platforms to lend money to Bitcoin investors, hold that Bitcoin as collateral, and then create an income stream from the interest payments of the borrowers.

Ways to Take Out a Bitcoin Loan

Bitcoin loans offer both speed and flexibility, in addition to cash liquidity — all of which may be attractive to some Bitcoin investors.

Over the years, Bitcoin and many other cryptocurrencies have delivered positive returns for individuals investing in cryptocurrency, despite the ongoing volatility and risks of this sector. (That said, past performance is no guarantee of future results.)

Long-term investors may be reluctant to liquidate their cryptocurrency digital assets, while at the same time, needing money for short-term needs, like a medical emergency. That’s where a Bitcoin loan can make sense for some people.

For borrowers, Bitcoin loans have a few advantages over traditional loans:

Fast Loan

One advantage of Bitcoin loans is that they may have faster turnaround times. That is, you can sign up on a platform, get verified, and get money in your hands in relatively little time. Conversely, with a conventional loan, there is usually some due diligence and a waiting period involved.

No-Strings Loans

Another advantage is that Bitcoin loans may serve as no-strings-attached types of lending. As opposed to the business, auto, or home-loan approval process, a Bitcoin lender may not have any interest at all in what you plan to use the money for.

No Credit Score Requirement

Some Bitcoin lenders may not care about your credit score. But there is something else that matters: A “trust score.” A trust score, as the name implies, is simply a way to verify your identity so that the lender feels a degree of trust, and is then more likely to lend to you.

Borrowers may be asked to present documentation that will increase that score, including but not limited to: government-issued identification; address verification, such as a gas or electric bill; email verification; verification of online financial accounts, such as PayPal; credit card verification.

Some borrowers can also improve their trust score with their social media presence. The more of a social media profile an individual has, the more it proves they are a real person, who can pay back the loan.

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4 Steps to Getting a Bitcoin Loan

If you’ve weighed the pros and cons, and think that taking on a Bitcoin loan is something you’d like to do, the process of getting one is pretty straightforward.

1. Select a Lending Platform

This will likely require some legwork, but you should look at the available lending platforms on the market, and decide which one you want to go with. There is no right or wrong answer here, but depending on factors like your risk tolerance, some might be more attractive than others.

While a borrower’s first impulse may be to borrow against their Bitcoins at the lowest available interest rate, there are other factors to keep in mind. For example, it is important to check if a given platform is reliable and secure.

2. Create an Account

Next, create an account on the platform of your choice. Borrowers will likely need to verify both the cryptocurrency collateral they’re offering, as well as their identity (“trust score”).

3. Select a Bitcoin Loan Type

The third step is to choose the type of Bitcoin loan you want to take out. Platforms may have options — for instance, on some platforms if a borrower agrees to a higher interest rate, they won’t have to put up as much bitcoin as collateral. In some situations, a lender can choose how much they want to lend, and set the interest rate themselves.

4. Receive and Accept Bitcoin Loan Offers

Finally: Wait for the BTC loan to come through! This can take just a few hours after submitting an application. Once a borrower accepts the terms of the loan, they should receive the money.

Reasons Not to Take Out a Bitcoin Loan

Just as there may be advantages to taking out a BTC loan or crypto-backed loan, there are also reasons not to. Here are a few things to take into consideration before signing up for a Bitcoin loan.

Bitcoin’s Volatility

Cryptocurrencies are volatile, there’s no getting around it. And Bitcoin volatility could mean that the amount of the digital currency that you have to put up as collateral may be many times the amount of actual cash you receive in the loan. That, in effect, multiplies the amount you could lose if you default.

To get a sense of how volatile Bitcoin’s value is, take a look at Bitcoin’s price history.

If the value of your collateral falls, some lenders can make a margin call, in which they ask for more collateral to return it to the original ratio of the loan, or ask that you repay the loan altogether (similar to a traditional margin call). While a borrower will get that Bitcoin back upon repaying the loan, that situation can come with financial penalties if they don’t have the Bitcoin to meet it.

Frequent Defaults

Additionally, there’s some evidence that Bitcoin loans tend to default frequently, which makes them both more expensive for borrowers, and riskier for lenders. Since Bitcoin lending isn’t regulated in the same way as ordinary loans, there is little recourse if an overseas borrower defaults.

The interest rates that crypto lending platforms charge to borrow against Bitcoin can be much higher than the average mortgage, and in some cases quite close to double-digit interest rates charged by credit cards.

More Fees

Finally, you need to take fees into account. Typically, borrowers also have to pay the lending platform a commission, along with other fees. It can be helpful to look closely at the interest rates and the fees, and think carefully about one’s own expectations for Bitcoin over the term of the loan before taking one out.

Bitcoin Loans: Pros and Cons

Pros

Cons

Loans can come through quickly Higher volatility vs. a fiat-based loan
Loans are often no-strings attached Increased chance of potential default
No credit score requirement High fees

The Takeaway

As new as Bitcoin and other cryptocurrencies are, Bitcoin lending is even newer. And while Bitcoin loans create a new set of possibilities for quick liquidity (e.g. you don’t have to worry about your credit score or other time-consuming underwriting procedures), they also come with their own set of possible pitfalls. Bitcoin loans often come at higher interest rates and typically require some collateral.

A lot should go into deciding whether a crypto-backed loan is right for you, including carefully researching possible lending platforms, and reading the fine print of a loan offer before accepting one. Also, you may want to look at borrowing against other crypto (Bitcoin vs. Ethereum, for instance) before making a decision.

If you’re interested in expanding your crypto holdings, SoFi Invest offers crypto trading for beginners and investors of any experience level. When you open an Active Invest account on SoFi Invest, you can set up your crypto trading account in minutes. While SoFi doesn’t offer a crypto wallet, you can trade dozens of different types of crypto 24/7 from SoFi’s secure platform.

Trade crypto and get up to $100 in bitcoin! (Offer is available through 12/31/22; terms apply.)

FAQ

Can you get Bitcoin loans?

Yes, it’s possible to get Bitcoin loans through various platforms. Prospective borrowers usually need to have crypto reserves to offer up as collateral in order to take out the loan.

Where can you take out loans against your Bitcoin?

There are a number of online and digital platforms that allow prospective borrowers to borrow money against their Bitcoin holdings. An online search will yield many, but it’s up to you to do your due diligence to choose the one that works for you.

Is it possible to get Bitcoin loans without collateral?

It may be possible, but getting a loan without collateral is just a collateral-free loan. It’s not necessarily a “Bitcoin loan,” since there’s no Bitcoin being offered up as collateral.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2022. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount Bonus Payout
Low High
$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

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Popular Monthly Dividend Stocks

Many investors seek out dividend-paying stocks as a way to build wealth. Rather than rely on just share price appreciation as a way to make money in the stock market, these investors seek regular dividend payments to grow their portfolios.

While most companies that pay dividends do so every quarter, many companies make monthly dividend payments. Getting these payments on a faster recurring schedule can appeal to many investors, especially those relying on dividends for a steady income stream. But before you jump up to buy popular monthly dividend stocks, you should know more about monthly dividends and the companies that pay them.

How Does Dividend Investing Work?

A dividend is a portion of a company’s earnings that is paid to its shareholders, as approved by the board of directors. Companies usually pay dividends quarterly, but they may also be distributed annually or monthly.

Most dividends are cash payments made on a per-share basis. For example, if the company pays a dividend of 30 cents per share, an investor with 100 shares of stock would receive $30.

Some investors may utilize dividend-paying stocks as part of an income investing strategy. These investors, many of whom are older and retired, rely on the regular payment of dividends to make up for the loss of regular labor income.

Younger investors may also use a dividend investing strategy to generate income, perhaps to help pay the bills or to save for a big vacation. But those who don’t need the income may choose to reinvest the money with the idea of boosting portfolio growth. Through dividend reinvestment plans (DRIPs), investors can reinvest the dividend payouts to buy more shares. And the more shares they own, the larger their future dividends could be.

Regardless of the purpose behind dividend investing, it’s usually a slow and steady process where investors benefit from regular income or compounding returns rather than expecting a stock’s price to skyrocket.

How to Invest in Monthly Dividend Stocks

As mentioned above, companies usually pay dividends quarterly. However, several companies pay dividends monthly.

Stocks that pay dividends monthly may appeal to investors who want reliable monthly income, which may help with paying bills like mortgage and utility payments. Additionally, monthly dividend stocks may help investors who reinvest the payments realize faster compounding benefits.

To invest in monthly dividend stocks, investors may look at companies in specific industries that tend to offer regular dividend payouts, including monthly payments. These companies usually have regular cash flow to sustain consistent dividend payments.

For example, real estate investment trusts (REITs) pay out regular dividends because they receive steady cash flow through rent payments. These companies are legally required to pay at least 90% of their income to shareholders through dividends. And some REITs will pay dividends monthly.

Energy and utility companies are other industries that pay regular and relatively high dividends, including some monthly dividends.

Additionally, investors may look to exchange-traded funds (ETFs) or mutual funds that offer monthly dividend payouts. These funds will invest in various dividend-paying stocks – not just companies that pay monthly dividends – and distribute dividends every month.

Examples of Monthly Dividend Stocks

Popular Monthly Dividend Stocks (Based on Market Capitalization)

Company

Ticker

Industry

Market Cap (in billions)*

Dividend Yield*

Realty Income Corp O REIT $41.5 4.21%
Pembina Pipeline Corporation PBA Energy $26.1 5.49%
Shaw Communications SJR Telecommunications $17.0 3.58%
AGNC Investment Corp AGNC REIT $6.2 13.07%
Agree Realty Corp ADC REIT $6.1 3.90%
*as of Aug. 31, 2022

Determining the Highest Dividend Stocks

Not all stocks that pay monthly dividends are created equal. Investors may seek stocks that pay out the highest dividends, but high dividends alone don’t mean that the stocks are wise investments.

Investors should also remember that dividends aren’t guaranteed; a company can skip or stop making payments at any time. This adds to the risk of investing in dividend stocks.

Investors may want to analyze several criteria to determine the dividend stocks ideal for a wealth-building strategy. Here are a few things investors can consider when looking for the highest dividend stocks:

Dividend Yield

Investors often analyze a stock’s dividend yield to determine if it’s a suitable investment. This metric shows how much an investor would earn from an investment based solely on dividend payouts.

Dividend yield is expressed as a percentage, representing a stock’s annual dividend payments per share divided by the stock’s current price.

Dividend yield (%) = annual dividend payout per share / stock price

Stocks that offer the highest dividend yields may appear to be the most promising; after all, it seems that a high dividend yield will result in the most generous dividend payouts. But companies with high dividend yields may be risky, especially for investors interested in the stability of dividend investing.

A stock’s dividend yield could be high because the share price is falling, which can be a sign that a company is struggling. Or, a high dividend yield may indicate that a company is paying out an unsustainably high dividend.

Investors will often compare a stock’s dividend yield to comparable companies in the same industry to determine whether a yield is attractive.

Dividend Payout Ratio

Investors will also factor in a stock’s dividend payout ratio when making investment decisions. This ratio expresses the percentage of income that a company pays to shareholders.

The dividend payout ratio is calculated by dividing a company’s total dividends paid by its net income.

Dividend payout ratio (%) = dividends paid / net income

Investors can also calculate the dividend payout ratio on a per share basis, dividing dividends per share by earnings per share.

Dividend payout ratio (%) = dividends per share / earnings per share

The dividend payout ratio can help determine if the dividend payments a company distributes make sense in the context of its earnings. Like dividend yield, a high dividend payout ratio may be good, especially if investors want a company to pay more of its profits to investors. However, an extremely high ratio can be difficult to sustain.

If a stock is of interest, it may help to check out the company’s dividend payout ratios over an extended period and compare it to comparable companies in the same industry.

Company Stability

Investors may also wish to focus on stable, well-run companies with a reputation for paying consistent or rising dividends for years. Dividend aristocrats – companies that have paid and increased their dividends for at least 25 years – and blue chip stocks are examples of relatively stable companies that are attractive to dividend-focused investors.

These companies, however, do not always have the highest dividend yields. Nor do these companies pay monthly dividends; most companies will pay dividends quarterly.

Furthermore, keep in mind a company’s future prospects, not just its past success, when shopping for high-dividend stocks.

Tax Implications

Dividends also have specific tax implications that investors should know. A “qualified dividend” is a type of dividend that qualifies for the capital gains tax rate, which is usually a more favorable tax treatment. An “ordinary dividend” doesn’t get that lower tax preference and is taxed at an individual’s income tax rate.

Investors will receive a Form DIV-1099 when $10 or more in dividend income is paid out during the year. (If the dividends are in a tax-advantaged account (an IRA, 401(k), etc.), the money will grow tax-free until it’s withdrawn.)

💡 Recommended: Ordinary vs Qualified Dividends

Pros and Cons of Investing in Monthly Dividend Stocks

As noted above, two of the most significant advantages to investing in dividend stocks are passive income (income that requires little to no effort to earn and maintain) and reinvestment (using dividend payments to buy more stocks, thus compounding returns).

Another plus for those who choose solid dividend stocks is that they may receive payments from those investments even if the market falls. That can help insulate investors during tough economic times. It might prevent investors who make regular or occasional withdrawals from their stock portfolio from selling at a low to get the money they need.

Regular dividends may also allow investors who reinvest the gains to buy stocks at a lower price while the market is down. Additionally, the stocks of mature, healthy companies that pay dividends also may be less vulnerable to market fluctuations than a start-up or growth stock.

But no investment strategy is perfect, and dividend stocks have some disadvantages.

💡 Recommended: Pros & Cons of Quarterly vs. Monthly Dividends

Dividends are not obligations; a company can decide to suspend or cut its dividends at any time. It could be that the company is truly in trouble or that it simply needs the money for a new project or acquisition. This is especially true for monthly dividend stocks; many REITs that pay monthly dividends suspended or cut dividends during the Covid-19 pandemic.

Either way, if the public sees the cut as a negative sign, the share price could fall significantly. And if that happens, an investor could suffer a double loss.

Then there’s the matter of double taxation. First, the company must pay taxes on its earnings. Then the shareholder must pay taxes again as an individual.

Finally, choosing the right dividend stock can be tricky. As noted above, the metrics for analyzing the most attractive dividend stocks are quite different from those for selecting growth stocks.

Pros and Cons of Monthly Dividend Stocks

Pros

Cons

Passive income Monthly dividend stocks are not common
Dividend reinvestment leads to compounding returns Share price appreciation may be limited compared to growth stocks
Investors may earn a return even when the stock price goes down Dividend payments can suddenly be cut or suspended
Qualified dividends have preferential tax treatment Tax inefficiency through double taxation

Things to Avoid When Investing in Monthly Dividend Stocks

When investing in monthly dividend stocks, there are a few things to avoid:

•   Avoid investing in a company that pays a monthly dividend solely because it pays a monthly dividend. Many companies pay monthly dividends, but not all are suitable investments. Do your research and only invest in companies that you believe will be successful in the future.

•   Avoid investing in a company or industry that you don’t understand. If you don’t understand how a company makes money, you should hesitate to invest in it.

•   Avoid investing all of your money in monthly dividend stocks. Diversify your portfolio by investing in other types of stocks, bonds, funds, and other securities.

The Takeaway

It may seem ideal to invest in monthly dividend stocks to get paid every month. However, this strategy shouldn’t be the ultimate way to reach your financial goals. A well-diversified portfolio with stocks that can reliably maintain or increase dividends may be a better way to look at your dividend investing strategy.

If you’re ready to build your portfolio with dividend-paying stocks, SoFi Invest® can help. A SoFi online brokerage account allows you to buy and sell stocks and ETFs with no commissions for as little as $5. With SoFi, you can invest in dividend-paying stocks and ETFs today.

Learn more about SoFi Invest today.

FAQ

How can you get stocks that pay monthly dividends?

To invest in stocks that pay monthly dividends, you need to research financial websites and publications to find companies that pay dividends monthly. There are not many monthly dividend stocks, especially compared with stocks that pay quarterly dividends.

How can you determine the stocks that pay the highest monthly dividends?

Investors use metrics like high dividend yields and dividend payout ratios to determine the stocks that pay the highest monthly dividends. However, stocks that pay the highest monthly dividends can change over time.

How do monthly dividend stocks work?

A monthly dividend stock is a stock that pays out dividends every month instead of the more common quarterly basis. This can provide investors with a steadier stream of income, which can be particularly helpful if you rely on dividends for living expenses.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
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.
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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Minimizing Cryptocurrency Trading and Exchange Fees

Getting into the cryptocurrency market brings with it certain costs, like paying crypto fees to trade or exchange it. Crypto trading fees can vary in a big way, too, from one exchange to the next, and from one crypto to the next. The timing of trades can also impact cost.

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

Determining Crypto Trading Fees

Most cryptocurrency exchanges design their fee schedules to incentivize bigger trades. So, fees tend to decrease as the size of trades increase — similar to getting a discount for buying in bulk. Some exchanges try to compete for the largest orders by charging no fees at all.

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

💡 Recommended: What Are Altcoins?

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

Examples of Cryptocurrency Trading Fees

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

Binance.US, like other crypto exchanges, may also charge a fee to exchange crypto for a fiat currency like USD.

The 0.1% standard fee Binance.US is only available for trades using assets on the Binance.US trading platform, and is likely subject to change. Other large exchanges will likely have similar fee structures. There are some differences between exchanges, and depending on the transaction involved.

💡 Recommended: 12 Factors to Consider When Choosing a Cryptocurrency Exchange

Factoring in Spreads

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

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

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

Types of Crypto Fees

Crypto fees come in a number of different types, but the main two are network fees and exchange fees. Read on to learn more about each type.

Network Fees

Network fees are fees paid to a blockchain network for facilitating a transaction. These fees actually end up in the hands of the miners, or validators in the network, who do the actual heavy lifting. They may be called miner fees, accordingly.

These fees are charged every time you send crypto to another wallet or address. What you end up paying depends on a few factors, including the specific blockchain network being used, and the time of day you’re executing a trade.

Exchange Fees

Exchange fees are the fees charged by crypto exchanges for using their platform. You can think of them as similar to a commission that a brokerage may charge for executing a stock trade. These fees also vary depending on the exchange being used, and can be charged for conducting specific actions on the exchange, such as trading, making a deposit or withdrawal, or borrowing money from the exchange (margin).

Trading

Trading fees are essentially commissions paid to an exchange for executing a trade. They’re often the biggest source of revenue for exchanges, too. They may be charged in the form of the crypto being traded, or in fiat currency.

Deposits

It’s possible that an exchange will charge you a fee for making a deposit, too. This is becoming less common, as most exchanges are trying to give users a reason to use the platform, and any barrier to entry — like a deposit fee — may scare some users off.

Withdrawals

Similarly, exchanges may charge withdrawal fees. These are more common than deposit fees, and are usually levied when users try to take money off of the platform, either by transferring crypto out and into a different wallet, or by taking fiat currency out of the user’s balance.

Loans

If you want to borrow money from an exchange to trade with — commonly called margin trading — you can likely expect to incur fees for doing so. These fees usually involve an interest rate and perhaps a flat fee depending on how much you want to borrow.

Safe and secure crypto trading.

With 30 coins available, our app offers a secure way to trade crypto 24/7.


5 Ways to Pay Less for Crypto Trades

While it may be tough to trade crypto without paying any fees whatsoever, there are strategies investors can use to lower the cost of their crypto trades.

1. Trade Less Often

One thing that transaction fees and bid/ask spreads have in common is that the more often you trade, the bigger an impact they’ll can have on your final return. That is, the more trades you make, the more you pay in fees.

Each trade comes with a fee, which the exchange deducts from your balance. And each trade also occurs with a spread, which leaves you with a lower return than you might expect when you look at the bid/ask price for the forms of crypto that you’re trading.

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

2. Use Lower-Cost Trade Types

Another way an investor can reduce the fees they pay for their crypto trades is to change up the types of trades they’re executing.

Limit orders, for instance, often come with lower fees. In a typical limit order, an investor agrees to buy or sell a stock at a specific price, or better. That means that a buy limit order executes at the limit price, or one that’s lower, while a sell limit order executes at the limit price, or one that’s higher.

Keep in mind though, that with limit orders, the investor has no certainty of order fulfillment. If the market moves away from the limit price, then no trade occurs.

3. Shop Around

There are a lot of platforms and exchanges out there, and they’re all jockeying for users’ money. As such, It can pay to do some comparison shopping, especially for investors who trade frequently, or for investors who expect to cash out in the near future. But do your homework, and keep security top of mind as well.

You’ll also want to think about which cryptocurrencies an exchange covers. Many exchanges might offer more popular cryptocurrencies, but not all of them may support smaller, less-popular altcoins.

4. Rewards and Promotions

Many cryptocurrency exchanges are still relatively new, and heavily competitive. There are a steady stream of new competitors offering investors low fees, or even fee-free trading in an effort to win new accounts. But being one of the first customers investing in crypto exchanges that are relatively new can be risky.

Also, be aware that those promotions usually have an expiration date. When the promotions expire, the investor has to decide whether to keep on trading at the exchange’s usual rates, or transfer their crypto assets to another exchange, which may incur additional fees.

5. Use Exchanges With Lower Fees

Finally, as mentioned, you can always shop around and start trading and investing on an exchange or platform with lower fees. Take advantage of the fact that many platforms are fighting for users by offering lower fees, and jump from one to another — just keep in mind that doing so can, again, incur additional fees.

Is It Possible to Trade Crypto With No Fees at All?

It is possible to trade crypto without fees, but the exchanges that allow you to do so typically make up for it by charging fees for actions aside from making trades. For instance, if you’re using an exchange or platform that doesn’t charge a trading fee, it may charge a deposit or withdrawal fee — whereas another exchange may charge trading fees, but no deposit fees.

Also remember that even if you’re moving money directly from one wallet to another, network fees still apply. There’s work being done on the blockchain, and at some point, someone needs to get paid to do it.

How Do ‘No Fee’ Exchanges Make Money?

Again, since exchanges that purport to be “no-fee” have to make money somehow, they generally charge other types of fees. Or, the exchange may be offering no-fee trading for a limited time, as a promotion, in order to attract new users. Then, the promotion ends, and the exchange has to wait and see how many users stick around.

Other, bigger platforms that may offer crypto trading along with other types of financial products or trading services — think of popular stock-trading apps, for instance — may offer no-fee crypto trading, and make up for it by charging users for other types of trades or services. They may also be doing some fancy footwork on the backend to funnel trade orders at the cheapest possible price.

Are There Any Downsides to No Fee Crypto Trading?

Potential downsides to a potential no-fee crypto purchase include paying higher fees for other actions or services, slower potential transaction times, and the fact that fee-free trading may only be a limited-time offering.

The fact is, all exchanges — fee-free or otherwise — will have their pros and cons, and you should do some research or homework into their fee schedules before signing up. A good rule of thumb, though, is to anticipate that you will be paying in some shape or form to use an exchange.

The Takeaway

Crypto fees are common on exchanges throughout the industry, and investors or traders should probably anticipate paying them in some shape or form. You may need to pay network fees, trading fees, and perhaps even fees for depositing money or making withdrawals — it’ll vary from platform to platform. You can minimize them, however, by reducing your trading activity, moving to a less-expensive platform, or taking advantage of promotional periods.

Managing crypto costs can be easier from an app like SoFi Invest. You can open an Active Invest account without a lot of hassle, and set up a crypto trading account from there. SoFi doesn’t offer a digital wallet or staking abilities, but you can trade crypto 24/7 from the convenience of your phone or computer.

You can start investing in crypto today by opening a SoFi Invest brokerage account to purchase cryptocurrency, as well as stock and exchange-traded funds. You can use the SoFi Invest online investment app to trade your first cryptocurrency with as little as $10.

Trade crypto and get up to $100 in bitcoin! (Offer is available through 12/31/22; terms apply.)

FAQ

Which crypto exchanges have very low fees?

Fees schedules change all the time, so it’s best to research various crypto exchanges to see what competitive fee rates are out there.

Is it possible to completely avoid crypto trading fees?

Not really. You’ll likely pay some form of fee no matter what exchange you choose. And even if you’re transferring assets between wallets, network fees will apply.

How can you minimize Bitcoin trading fees?

There are several ways to minimize your trading fees, including changing the types of trades you’re making, making fewer trades, switching to an exchange with lower fees, and taking advantage of promotions.


Photo credit: iStock/Pekic

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2022. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount Bonus Payout
Low High
$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

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