How to Calculate Stock Profit

If you’re wondering how to calculate stock profit, it’s simple: Take the original price you paid for the stock and subtract it from the price at which you sold it. So if you paid $50 per share and the stock is now worth $55, your profit would be $5 per share.

If you bought 100 shares of the stock and realized a gain of $5 per share, that would be $500 in profit (not including any trading fees or commissions).

If the stock price has dropped since you bought it, you would subtract the current price from the original price, to arrive at the amount of your loss.

Understanding the implications of those gains (or losses) in terms of dollar amounts as well as percentages — and what to do next — is another matter. In most cases you’ll owe taxes on your gains, and/or you can use losses to offset gains. But when and how is where investors need to pay attention.

How Do You Calculate Stock Profit?

Given the history of the stock market, and the constant price fluctuations of almost every company, most investors should expect the price of the shares they buy to change over time. The question is: Is the change positive (a profit) or negative (a loss).

Realized Gains vs Unrealized Gains

Another question: Are those gains/losses realized or unrealized?

When a stock in your portfolio gains or loses value, but you hold onto it, that is considered an unrealized gain or loss. You wouldn’t pay additional trading fees and you wouldn’t (yet) face any tax implications because you haven’t actually sold the shares.

If you sell the shares, that’s when you realize (or take) the actual cash profit or loss in your account. At that point trading fees and taxes would likely come into play.

Formula for Calculating Stock Profit or Loss

Calculating stock profit can be done as a dollar amount or as a percentage change. The same is true of losses. While knowing the dollar amount that you’ve gained or lost is relevant for long-term planning and tax purposes, calculating the percentage change will help investors gauge whether one stock had good return when compared with another.

(Price sold – Purchase price) / (Purchase price) x 100 = Percentage change

The important thing about this formula is to always have the purchase price in the denominator. That way the percentage change in the shares is always divided by what an investor paid for them.

Calculating Stock Profit Example

Here’s a hypothetical example using the formula above, but incorporating the number of shares an investor may hold. This will give the total dollar profit as well as the percentage move.

1.    Let’s say an investor owns 100 shares of Stock A, which they bought at $20 a share for a total of $2,000.

2.    The investor sells all of their shares when the stock is trading at $23, for $2,300.

3.    Ignoring any potential investment fees, commissions, or taxes in this hypothetical example, the investor would see a gain of $3 per share or $300 in profit.

4.    What’s the percentage gain? ($23 – $20) / $20 = 0.15 x 100 = 15 or a 15% gain.

Index Funds and Indices

As you may know, index funds are mutual funds that track a specific market index, which means they include the companies or securities in that index. An S&P 500 index fund mirrors the performance of the companies in the S&P 500 Index.

How to calculate the percentage change of your shares in an index fund? You can approach it the same way you would when you calculate profit or loss from a stock.

You can also calculate the difference between the percentage change of the index itself, between the date you purchased shares of the related index fund and sold them. Here’s an example, using the S&P 500 Index.

Let’s say the index was at 4,500 when you bought shares of a related index fund, and at 4,650 when you sold your shares. The same formula applies:

4,650 – 4,500 / 4,650 = 0.032 x 100 equals a 3.2% gain in the index, and therefore the gain in your share price would be similar. But because you cannot invest in an index, only in funds that track the index, it’s important to calculate index fund returns separately.

Calculating Stock Loss Example

Now let’s look at an example where Stock A declines.

1.    Here, an investor owns 100 shares of Stock B, which they bought at $20.

2.    This time, the investor sells all 100 shares at $18.

3.    This means, the investor has to subtract $18 from $20 to get a $2 loss per share.

4.    What’s the percentage loss? ($20 – $18) / $20 = 0.10 x 100 = 10, or a 10% loss.

If you’re wondering how the returns you’re seeing compare with the average stock return, that number has historically hovered around 9%, when considering the market as a whole, over time.

And if you’re wondering about how to calculate stock profit when shorting stocks, that is a more complex strategy that requires careful understanding.

Importance of Calculating Stock Profit

Why is calculating stock profit (and loss) important? It’s an investing fundamental: You need to know what you’ve earned, i.e. what your gains and losses are, because your returns can impact:

•   Taxes owed

•   Your overall tax strategy (more on that below)

•   Your asset allocation

•   Your long-term financial picture

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How Are You Taxed on Profit From a Stock?

You would start by subtracting the cost basis from the total proceeds to calculate what you’ve earned from a sale. If the proceeds are greater than the cost basis, you’ve made a profit, also known as a capital gain. At this point, the government will take a slice of the pie — you’ll owe taxes on any capital gains you make.

Capital gains tax rates are the rates at which you’re taxed on the profit from selling your stock (in addition to other investments you may hold such as bonds and real estate). You are only taxed on a stock when you sell and realize a gain, and then you are taxed on net gain, which is the difference between your gains and losses.

You can deduct capital losses from your gains every year. So if some stocks sell for a profit, while others sell for an equal loss, your net gain could be zero, and you’ll owe no taxes on these stocks.

Short-Term vs Long-Term Capital Gains Tax

There are two types of capital gains tax that might apply to you: short-term and long-term investment capital gains tax. If you sell a stock you’ve held for less than a year for a profit, you realize a short-term capital gain.

If you sell a stock you’ve held for more than a year and profit on the sale, you realize a long-term capital gain. Short-term capital gain tax rates can be significantly higher than long-term rates. These rates are pegged to your tax bracket, and they are taxed as regular income.

So, if your income lands you in the highest tax bracket, you will likely pay a short-term capital gains rate equal to the highest income tax rate — which is quite a bit higher than the highest long-term capital gains rate.

Long-term capital gains, on the other hand, are given preferential tax treatment. Depending on your income and your filing status, you could pay 0%, 15%, or a maximum of 20% on gains from investments you’ve held for more than a year.

Investors may choose to hold onto stocks for a year or more to take advantage of these preferential rates and avoid the higher taxes that may result from the buying and selling of stocks inside a year.

When Capital Gains Tax Doesn’t Apply

There are a few instances when you don’t have to pay capital gains tax on the profits you make from selling stock, namely inside of retirement accounts.

The government wants you to save for retirement, so they encourage people to set up certain tax-advantaged investment accounts, including 401(k)s and/or opening an IRA (an individual retirement account).

You fund tax-deferred accounts such as 401(k)s and traditional IRAs with pre-tax dollars, which may help lower your taxable income in the year you make a contribution. You can then buy and sell stocks inside the accounts without incurring any capital gains tax.

These tax-deferred returns can give your savings an extra boost, potentially helping it grow faster than it would in a regular brokerage account. As tax-deferred returns are reinvested, investors are able to take greater advantage of the magic of compounding interest — the returns investors earn on their returns.

Tax-deferred accounts don’t allow you to escape taxes entirely, however, when you make qualified withdrawals after age 59 ½, you are taxed at your regular income tax rate. Roth accounts, such as Roth IRAs function slightly differently. You don’t escape taxes here either, since you fund these accounts with after-tax dollars.

Then you can also buy and sell stocks inside a Roth account where any gains grow tax free. Once again, you won’t owe capital gains on profit you make inside the account. And in the case of a Roth, when you make withdrawals at age 59 ½ you won’t owe any income tax either.

Understanding Capital Losses

Now, let’s take a closer look at capital losses. You may be wondering why it would ever make sense to take a capital loss. However, capital losses could be an important tool to help you manage your taxes, thanks to a strategy called tax-loss harvesting.

Capital losses can be used to offset gains from the sale of other stocks. Say you sold Stock A for a profit of $15 and Stock C from another company for a loss of $10. The resulting taxable amount is now $5, or $15 minus $10.

In some cases, total losses will be greater than total gains (i.e. a net capital loss). When this happens, you may be able to deduct excess capital losses against other income. If an investor has an overall net capital loss for the year, they can deduct up to $3,000 against other kinds of income — including ordinary and interest income.

The amount of losses you can deduct in a given year is limited to $3,000. However, additional losses can be rolled over and deducted on the following year’s taxes.

There are other limitations with claiming capital losses. The wash-sale rule, for example, prohibits claiming a full capital loss after selling securities at a loss and then buying “substantially identical” stocks within a 30-day period.

The rule essentially closes a loophole, preventing investors from selling a stock at a loss only to immediately buy the same security again, leaving their portfolio essentially unchanged while claiming a tax benefit.

Another way investors try to defer taxes is through automated tax-loss harvesting, or strategically taking some losses in order to offset taxable profits from another investment.

Other Income From Stocks

You may receive income from some stock holdings in the form of dividends, which are unrelated to the sale of the stock. A dividend is a distribution of a portion of a company’s profits to a certain class of its shareholders. Dividends may be issued in the form of cash or additional shares of stock.

While dividends represent profit from a stock, they are not capital gains and therefore fall into a different tax category. (Different types of investment income are taxed in different ways.) Dividends can be classified as either qualified or ordinary dividends, which are taxed at different rates. Ordinary dividends are taxed at regular income tax rates.

Qualified dividends that meet certain requirements are subject to the preferential capital gains tax rates. Taxpayers are responsible for identifying the type of dividends they receive and reporting that income on Form 1099-DIV.

Brokerage Fees or Commissions

Then there are brokerage account fees or commissions that you might have paid when you bought the stock. You may have already forgotten about these costs, but they do have an effect on your investment’s profitability and, depending on the amounts involved, these fees could make a profitable trade unprofitable.

Tally all the fees you paid and subtract that sum from your profit to find out what your net gain was. Note that your brokerage account may do these calculations for you, but you might want to know how to do them yourself to have a better understanding of how the process works.

Some brokerage firms offer zero commission trading, but they may be engaging in a practice called payment for order flow, where your orders are sent to third parties in order to be executed.

When to Consider Selling a Stock

There are a number of reasons investors may choose to sell their stocks, especially when they may earn a profit. First, they may need the money to meet a personal goal, like making a down payment on a home or buying a new car. Investors with retirement accounts may start to liquidate assets in their accounts once they retire and need to make withdrawals.

Investors may also choose to sell stocks that have appreciated considerably. Stocks that have made significant gains can shift the asset allocation inside an investor’s portfolio. The investor may want to sell stocks and buy other investments to rebalance the portfolio, bringing it back in line with their goals, risk tolerance, and time horizon.

This strategy may give investors the opportunity to sell high and buy low, using appreciated stock to buy new, potentially cheaper, investments. That said, investors might want to avoid trying to time the market, buying and selling based on an attempt to predict future price movements. It’s hard to know what the market or any given stock will do in the future.

Sometimes investors may decide that buying a certain stock was a mistake. It may not be the right match for their goals or risk tolerance, for example. In this case, they may decide to sell it, even if it means incurring a loss.

The Takeaway

Assuming a stock’s price is higher when you sell it versus when you bought it, learning how to calculate stock profit is pretty easy. You subtract the original purchase price from the price at which you sold it. (If the selling price is lower than the purchase price, of course, you’d see a loss.)

It’s important to calculate stock profits and losses because it can impact your taxes. If you realize a gain, you may owe capital gains tax; if you realize a loss, you may be able to use the loss to offset your gains. Of course, if you’re trading stocks within an IRA, Roth IRA, or 401(k), you avoid any tax consequences.

It’s fundamental tactics like these that can help give you confidence as an investor. When you open an Active Invest account with SoFi Invest, you can start trading stocks right away, as well as ETFs, fractional shares, IPO shares, crypto, and more.

Start your stock portfolio with SoFi today.

FAQ

Why is it important to calculate stock profit?

Investing in stocks comes with a certain amount of risk. It may help you to know what your gains and losses are so that you can gauge the winners and losers in your portfolio. Calculating stock profit also helps with tax planning and portfolio rebalancing.

How can you calculate stock profit?

Calculating the dollar amount is relatively simple (you subtract the final selling price from the original purchase price, or vice versa). The formula for determining the percentage change is also straightforward:

(Price sold – Purchase price) / (Purchase price) x 100 = Percentage change

What is an example of calculating stock profit?

An investor owns 100 shares of Stock X, which they bought at $50 a share for a total of $5,000. The price rises to $55, a gain of $5, and the investor sells all their shares for a $500 profit ($5,500 total), excluding commissions, taxes, fees.

What’s the percentage gain? ($55 – $50) / $50 = 0.10 x 100 = 10 or a 10% gain.


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

How to Invest in the Metaverse: A Beginner’s Guide

The metaverse refers to an amalgamation of digital and virtual worlds where people will be able to collaborate, socialize, shop, and even work and learn in 3D spaces. It’s billed as a more embodied or immersive way of experiencing life on the internet, and it’s tied to Web 3.0 — the next iteration of the world wide web.

The metaverse includes cryptocurrencies, video games, Web3 platforms, and much more. And with established tech companies creating countless new products and possibilities, you can even invest in the metaverse. True, the metaverse is an evolving state of technology + reality. It’s really just getting started. But for those who want to seize the moment and invest in the metaverse in its early stages, here’s what you need to know.

Birth of the Metaverse

The concept of the metaverse can be difficult to wrap your head around, and yet in many ways it’s already here. There are numerous aspects of modern life that can be considered a part of the metaverse, including virtual infrastructure, multi-player video games, non-fungible tokens (NFTs), cryptocurrencies, and more.

In fact, it’s easier to think of the metaverse in more established terms like cyberspace or Web 3.0, which describe how existing technologies are evolving in new directions. Cyberspace helped define the emergence of interconnected digital spaces and devices. And Web 3.0 is now emerging as the term of art for where the internet is headed: more experiential, decentralized, and open.

Recommended: Web 3.0 Guide for Beginners

History of the Metaverse

You could argue that the origins of the metaverse date back to the creation of the first three-dimensional image in the 1830s — a primitive system that helped pave the way for stereoscopes and even today’s VR headsets.

The idea of 3D images combined with sensory experiences led to the first virtual reality products in the 1950s. Decades later, many remember when Google unveiled “Google Glass,” which never took off, but could also be thought of as an attempt to bring the metaverse to the masses.

As a result of nearly a century of digital innovation — including science fiction stories and movies that inspired real life technologies — augmented and virtual reality technologies are now fairly common. And many companies are hard at work intertwining virtual worlds with the physical world. That’s helping to fuel new opportunities in the metaverse, and potentially a trillion-dollar market by the end of the decade.

As such, it’s easy to see why investors may be interested in exploring new opportunities in order to get in on the ground floor and invest in the metaverse now.

3 Ways to Invest in the Metaverse

If you’re ready to put your money to work and wondering, How can I invest in the metaverse?, there are a few avenues to consider — and they are similar to investing in any other industry:

1.   Invest in companies or industries where business growth is related to the metaverse.

2.   Invest in metaverse cryptocurrencies.

3.   Invest in stocks and funds doing business in the metaverse.

For now, investors may want to consider investing in companies or industries that are focused on expanding or innovating products, technologies, and services that relate to the metaverse. In addition, there may be digital assets and currencies that will also grow as the metaverse expands.

Investors can also explore stocks of companies that are doing business in the metaverse as well as mutual funds and exchange-traded funds (ETFs) related to the metaverse,

Of course, the same caveats apply when you invest in the metaverse as when you invest in any other sector. It pays to do your research, to decide where metaverse investments fit into the rest of your financial portfolio, and to get expert guidance when needed.

Indeed, when you invest in the metaverse, even more caution may be required, given that these technologies and industries don’t have long track records.

Are There Metaverse ETFs?

Yes, there are a number of metaverse ETFs that are already available to investors.

Generally speaking, and as with many investments in the metaverse space, these ETFs offer exposure to companies working directly on technologies related to the metaverse, or in adjacent industries. Think: fintech, gaming, social media, tech giants, and similar companies.

Many of these ETFs are also being launched by established financial institutions, which can be a sign of a broader trend that investors may want to keep an eye on.

5 Metaverse Stocks to Watch For

If metaverse ETFs aren’t your preferred investment vehicle, you can buy some specific, individual metaverse stocks. Or, at least stocks that are metaverse related. Below are five of the biggest companies in the metaverse space. That doesn’t mean you should add them to your investment portfolio, but if you’re interested in the metaverse and the tech that powers it, you may want to keep an eye on these stocks:

1. Meta

With its new moniker “Meta,” the parent company of Facebook, Instagram, and Oculus is considered a leading metaverse-focused corporation. Meta (META) is dedicating a lot of resources to the metaverse, incorporating virtual reality, augmented reality, and more into its Oculus headsets and smart glasses. It even rolled out digital workrooms that allow users to participate in digital meetings using VR headsets. Meta is going all-in on the metaverse.

2. Microsoft

Microsoft (MSFT), the global software manufacturer, also has a large gaming division with its Xbox console and has become a leader in the metaverse. A big part of Microsoft’s activity in the metaverse space has to do with gaming and building virtual worlds, as it has been acquiring numerous video game studios (including Activision Blizzard and Bethesda, makers of popular IPs like “Call of Duty” and “Fallout,” among others) in recent years.

3. NVIDIA

NVIDIA (NVDA), a semiconductor producer known for inventing the GPU, is creating what may be considered the backbone of the metaverse with its powerful processors and chips. Plus, NVIDIA also launched the NVIDIA Omniverse, which is a simulation and collaborative platform in the existing metaverse.

4. Autodesk

Autodesk (ADSK) makes software that’s used by engineers and architects to design buildings and real estate projects. Now, it’s being used to create similar digital projects in the metaverse.

5. Roblox

Roblox (RBLX) is a video game ecosystem, where users can design their own characters, content, and games. In a sense, Roblox is a more established player in that it has already created a metaverse, with millions of people engaging in virtual experiences and creating their own virtual content. Thus may be appealing to investors in this space.

5 Metaverse Cryptocurrencies to Watch For

Similarly, here are some metaverse cryptocurrencies that may catch the eye of an enterprising metaverse investor. These are the largest metaverse cryptocurrencies by market cap, as of June 10, 2022:

1. Decentraland (MANA)

Decentraland is a popular metaverse project, and MANA is its native crypto token. Decentraland users can use MANA tokens to create and show off their NFTs, and it also allows users to buy virtual land and create other virtual assets.

2. The Sandbox (SAND)

SAND is the native token of The Sandbox platform, which is something of play-to-earn virtual game that is backed by gaming brands such as Atari. Participants can use SAND tokens to create NFTs on the platform, which is built on the Ethereum blockchain.

3. Theta Network (THETA)

The Theta Network aims to decentralize streaming services — it’s a unique blockchain that allows users to build apps for streaming, broadcasts, and more. For metaverse crypto investment outside of the Ethereum blockchain, Theta may be of interest to some investors.

4. Axie Infinity (AXS)

Axie Infinity is another play-to-earn metaverse game on the Ethereum blockchain which allows players to create little virtual creatures called Axies. They can also buy and exchange land plots, NFTs, and more in the game. AXS is the network’s native coin, which players can earn by playing.

5. Enjin Coin (ENJ)

Enjin Coin (ENJ) is a crypto that was created by Enjin, a software company that allows users to create and trade virtual goods like NFTs on the Ethereum blockchain. The coin, in effect, makes it easier to conduct in-game or in-virtual-world transactions, making it easy to see why it would be appealing to metaverse participants and investors.

The Takeaway

The metaverse, with its rapidly expanding virtual worlds and digital assets and NBDB technologies, is just beginning to take off. Yet so many established tech companies are already in this space, there are numerous opportunities for investors to consider, including mutual funds, exchange traded funds (ETFs), stocks, cryptocurrencies, and more.

Still, investing in the metaverse has some very clear and obvious risks because this sector is so new. It’s difficult to predict which products, services, and virtual currencies might succeed, and where the inevitable hurdles for this nascent industry will arise.

If you’re keen to get started, consider opening an investment account with SoFi Invest. From SoFi’s secure app, you can trade stocks, ETFs, IPOs, and more right from your phone or computer. And SoFi members are entitled to complimentary access to financial professionals who can help answer your investing questions.

Check out SoFi Invest today.


Photo credit: iStock/Prostock-Studio

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.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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FINRA vs the SEC

FINRA vs the SEC

The U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are critical regulating entities for the financial services industry in America. They oversee financial markets to ensure that they are fair and orderly, and to protect investors. The role of financial regulators is to facilitate a sound financial services industry that consists of markets, exchanges, and firms that comply with their laws and regulations.

These regulators exist to keep market participants safe from financial fraud and to help participants to manage their investment risk. There are many reasons why investors should understand the roles and responsibilities of both the SEC and FINRA, as well as how these regulatory bodies differ. Arm yourself with this vital information to help make better investment decisions.

What Is Financial Industry Regulatory Authority (FINRA)?

FINRA is a government authorized not-for-profit organization that oversees U.S. broker dealers. The organization’s purpose is to protect investors and uphold the integrity of financial markets to ensure the markets operate fairly. FINRA oversees more than 600,000 brokers throughout the U.S. and monitors billions of daily market events.

The SEC supervises FINRA in writing and enforcing investing rules that all registered broker dealers in the U.S. must follow. FINRA makes sure that these firms comply with these rules, as it facilitates market transparency and educates investors.

Specifically Regulates Margin Accounts

FINRA also regulates margin accounts, which involve a customer borrowing funds from a firm to make trades. Under FINRA margin requirements, some securities cannot be purchased on margin, in which case a cash account must be used to deposit 100% of the purchase price. FINRA rules require traders to have 25% or more of the current market value of securities in the account, otherwise they may be required to deposit more funds or securities to meet the 25% threshold. If this requirement is not met, the firm may need to liquidate the securities to bring the account to the required level.

What Is the Securities and Exchange Commission (SEC)?

The SEC is a market regulator whose purpose is to protect investors, maintain fair markets, and facilitate ways for businesses to access capital. This regulatory body consists of 11 regional offices and 6 divisions. It requires public companies, asset managers, and investment professionals to disclose important financial information, so investors are equipped to make the best investment decisions.

The SEC will also enforce federal securities laws to keep lawbreakers accountable in the name of protecting investors. In order to maintain fair and efficient markets, the SEC monitors the market and adjusts rules and regulations according to the evolving market environment.

FINRA vs the SEC

Both institutions were created to protect investors against investment fraud and maintain the integrity of U.S. financial markets, but there are differences between these regulatory agencies.

How Are FINRA and the SEC Different?

The SEC was created under the Securities Exchange Act of 1934 and one of its responsibilities is to oversee FINRA, which was created in 2007. FINRA is a self-regulatory organization that oversees and regulates its member’s actions. Unlike the SEC, FINRA is not mandated by the U.S. government. Rather, it’s a private or self-regulatory organization (SRO) consisting of the registered broker-dealers that FINRA oversees.

The SEC on the other hand focuses more on protecting the individual investor. The SEC was born of the Great Depression in 1929 with the goal of restoring investors’ confidence in financial markets, as well as enforcing the rules. FINRA’s role is narrower. It revolves around regulating brokerage firms and handles the testing and licensing requirements, such as the series 7 exam. All broker dealers must be licensed and registered by FINRA.

How They Are Similar

Both FINRA and the SEC have similar responsibilities of protecting investors. Both organizations play important roles in upholding the integrity of the U.S. financial system and take action to protect the public from fraud and other financial bad practices. And both agencies’ website offers tools and insights that help educate investors about how to secure their financial future.

The SEC is the ultimate regulatory watchdog of financial markets, and FINRA regulates the securities industry by overseeing stockbrokers. The work that comes out of the SEC and FINRA helps these agencies to function smoothly. The SEC reviews FINRA’s regulatory work — like managing required industry examinations and inspecting securities firms — which is vital to protecting investors and monitoring financial markets.

FINRA vs the SEC: Quick Look

FINRA

The SEC

What Is It? government authorized not-for-profit that oversees U.S. broker dealers (BDs) a U.S. government agency; ultimate regulatory watchdog of financial markets
What is it’s purpose? both uphold integrity of financial markets; maintain fair/ orderly markets; specific regulator for margin accounts focuses more on protecting individual investors; created to restore investors’ confidence in financial markets; helps firms to access capital
When/ how created? created in 2007 created with the Securities Exchange Act of 1934
Relationship with U.S. Government not mandated by U.S. government; a private SRO; consists of registered BDs a U.S. government agency; born of Great Depression,1929
Function? enforces rules; but narrower role than SEC’s; regulates BDs; manages testing/ licensing requirements (e.g., series 7 exam); all BDs must be licensed by FINRA enforces rules; oversees FINRA; creates and enforces securities laws
Public resources? yes, offers tools and insights that help educate investors about how to secure their financial future yes, offers tools and insights that help educate investors about how to secure their financial future

How to Avoid Trouble With FINRA and the SEC

The best way to avoid trouble with FINRA and the SEC is to abide by their rules and regulations. And, if you give your money to an investment professional to manage, you also may want to confirm that this professional is registered with the SEC and licensed to do business in your particular state. It also could be worthwhile to research whether this professional has ever been disciplined by the regulatory agencies, or if there are any prior complaints against these professionals.

If you want to take it a step further, you could examine which types of financial instruments this professional recommends. At all times, it’s best to know that you and your investment advisor are aligned with your investment goals; that they are choosing securities that are right for you, your future, and your financial goals.

Cash Accounts vs Margin Accounts

Two popular accounts that are typically opened by market participants are either cash accounts or margin accounts. Each type of account comes with its own regulations. With margin accounts — which are regulated by FINRA along with other financial institutions — you have the ability to borrow funds, but with a cash account, you cannot borrow funds. For investors using cash accounts to purchase securities, there are regulations to abide by. To avoid violations, remember that you can’t borrow funds from your brokerage firm to pay for transactions in your cash account. Transactions using borrowed funds can only be made in a margin account.

The Takeaway

The SEC and FINRA exist to manage U.S. financial markets with investor protection top of mind. Their rules and regulations can adjust according to how the market is evolving. Understanding their mandates and goals is a great tool for investors to understand their rights as market participants in the event they fall victim to fraud.

You can get started investing by opening a brokerage account with SoFi Invest. You might want to take advantage of its new features, like margin lending, which lets you borrow money against your current assets. If you are an active investor who prefers the do-it-yourself approach, SoFi offers all the tools needed so you can make the right investment decisions that are best suited for your investing style and future goals.

FAQ

Does FINRA approve SEC rules?

No. In the line of hierarchy, the SEC is the oversight authority over FINRA.

Is FINRA part of the U.S. federal government?

No. FINRA is an independent, private entity, while the SEC is a government-mandated organization.

Does FINRA report to the SEC?

FINRA is a self-regulatory organization that operates under the purview of the SEC.


Photo credit: iStock/damircudic

*Borrow at 5.25%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
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.
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Stablecoins vs Altcoins: A Comparison

Stablecoins vs Altcoins: A Comparison

Getting started with cryptocurrency investing can be overwhelming because there are a lot of technical terms to learn. One important distinction to understand is the difference between Bitcoin, altcoins, and stablecoins. Each of these types of crypto have their benefits and downsides.

In this article, we look at stablecoins and altcoins to see how they compare as crypto investments.

What Is An Altcoin?

An altcoin is simply any cryptocurrency that is not Bitcoin (BTC). Some people refer to altcoins as any cryptocurrency that is not Bitcoin or Ethereum (ETH). Bitcoin was the very first cryptocurrency, and is still the most dominant crypto. Usually, BTC is worth between 45% and 70% of the entire value of the multi-trillion dollar crypto market. In addition to its value and adoption, Bitcoin is the most widely known cryptocurrency around the world.

💡 For more details, check out: What Are Altcoins? A Guide to Bitcoin Alternatives

Although Ethereum is not as widely adopted as Bitcoin, it is also well-known and holds a large percentage of the market. Because the Ethereum network can be used to create smart contracts and other tokens, many blockchain and crypto transactions use the Ethereum network.

Because Bitcoin is such a dominant part of the crypto sector, all other crypto tokens have become known as altcoins. Thousands of altcoins are available for trade on various exchanges. It’s impossible to know exactly how many altcoins there are, as the industry is so decentralized and global, and anybody can create an altcoin. Industry watchers have observed patterns in the relationship between Bitcoin and altcoins. If Bitcoin increases a lot in value, often that is followed by altcoin season, in which altcoins also increase in value.

Bitcoin and altcoins have the same basic characteristics. They are digital currencies that use blockchain-based ledgers to keep track of transactions in a secure and transparent manner. However, each altcoin has different features that can make it a potentially attractive alternative to Bitcoin. For instance, some altcoins use different types of staking or proof systems; they can claim more anonymity than Bitcoin, or they have faster transaction times.

What Is a Stablecoin?

A stablecoin is a cryptocurrency whose value (of each coin) is pegged to an external asset — such as the U.S. dollar, the Euro, and even a commodity or another cryptocurrency. All stablecoins are also altcoins. They were originally brought to the crypto market in 2015.

💡 For more details, check out: What Are Stablecoins?

How Stablecoins Work

As the price of each coin is pegged to a particular asset, the price of the coin is always the same as the current market price of the asset. For instance, if a stablecoin is pegged to the U.S. dollar, the price of each coin will always remain as close as possible to $1. In order to maintain a stable price, the coin’s developers — or in some cases a government agency — can intervene, which generally takes the form of launching inflation production along with a guaranteed buyback.

For example, if a stablecoin XYZ is created and pegged to the U.S. dollar, the coin creators could hold the amount of USD that they have released in the token form in an account. This way, they can always guarantee that they could buy back XYZ coins for $1, even if they need to buy 100% of them back. Although backing guarantees a minimum value for XYZ, the market price of the coin could still go up. In order to keep it at $1, the creators can release more XYZ coins to reduce the price. Unbacked stablecoins are also known as non-collateralized stablecoins or “seigniorage-style” stablecoins.

Although this system works in theory, it takes a lot of capital to back 100% of a stablecoin. There is a risk that stablecoin developers claim to hold more than they really do. If enough people try to sell their stablecoin and there isn’t sufficient cash to back it up, the stablecoin price could collapse.

About “Seigniorage”

Another way that stablecoin developers can maintain a stable pegged token price is to use a system of algorithms that guides the expansion and contraction of a stablecoin’s money supply. In other words, algorithms can tell governments and economists when it might be beneficial either to inject money into or withdraw money from the economy.

Under certain conditions, creating new money within a particular country is cheaper than the money’s current face value. When this occurs, a government can claim as revenue the difference in price between printing new money and the current face value of the money.

In financial services, the revenue a government receives by creating new money is called seigniorage. The seigniorage strategy only uses supply as a regulating tool. If the price of XYZ drops below $1, the developers buy back coins from the market to increase the price, and vice versa. Although this requires less capital than the backing method, it tends to be slower, so the stablecoin may not hold quite as stable a price.

Stablecoins vs Altcoins

Although all stablecoins are altcoins, not all altcoins are stablecoins. Let’s look at some similarities and differences between the two.

Similarities

Both stablecoins and altcoins are cryptocurrencies that use the blockchain to record and keep track of transactions. They are digital currencies that can be traded on exchanges and stored in different types of hot or cold storage crypto wallets.

Differences

The main difference between stablecoins and altcoins is that stablecoins always remain at the same value, whereas altcoins can spike or dip in value.

Stablecoins provide a stable investment that will always remain the same value. Altcoins, on the other hand, offer different types of functionality, which makes them an attractive alternative to Bitcoin.

Similarities Differences
Both are cryptocurrencies Stablecoins’ value usually remains the same
Built on blockchain Altcoins’ value can rise or fall
Digital currencies
Can trade on crypto exchanges
Stored in different types of crypto wallets

Examples of Altcoins and Stablecoins

Below are examples of altcoins and stablecoins an individual can buy.

Altcoins: Examples

There are thousands of altcoins on the market; some popular altcoins are: Cardano (ADA), Dogecoin (DOGE), Litecoin (LTC), Monero (XMR), and Solana (SOL).

Some types of altcoins include mining-based altcoins, security tokens, utility tokens, and stablecoins.

•   Mining-based altcoins: This type of altcoin can be earned by users through a computer-based process known as mining. Bitcoin also uses a mining system for the minting of new coins and to keep the network running. Examples of mining-based altcoins are Ethereum and Litecoin.

•   Security tokens: These altcoins are similar to buying stock in a company. They are issued by businesses and released to buyers through an initial coin offering (ICO). Buyers who own security tokens can earn dividends or partial ownership in the issuing company. Examples of security tokens include Sia Funds, Blockchain Capital, and Science Blockchain.

•   Utility tokens: These tokens serve a use case within a specific ecosystem, such as a video game or an ecommerce store. They enable the owner to take certain actions in the network, such as buying a digital good within a video game world. The token is created just for use in that ecosystem and can be traded in the broader crypto market; but it only has real use within that ecosystem. Some examples of utility tokens are Basic Attention Token and Binance Coin.

Stablecoins: Examples

Some popular stablecoins are: Binance USD (BUSD), Dai (DAI), Digix Gold (DGX), Paxos Standard (PAX), and TrueUSD (TUSD).

Potential Advantages/ Disadvantages of Altcoins

Altcoins can be a great way to diversify away from Bitcoin, and they offer features that can be attractive to investors. It’s impossible to know which altcoins will ultimately survive and be mass adopted, so altcoins do come with some risk, but there are several altcoins that have already become widely used.

Potential Advantages Potential Disadvantages
Room to grow Can be volatile
Diversification away from Bitcoin Limited usage
May offer unique functions No guarantee that they’ll survive
Can have lower fees Hard to compete with Bitcoin for market share
Can have quicker transactions Can have low liquidity
Can offer more anonymity Second choice for many investors
Can offer lower energy usage

Potential Advantages/ Disadvantages of Stablecoins

Stablecoins make it easier to trade cryptocurrencies on an exchange. Instead of buying bitcoin (or another crypto) with fiat currency directly, traders often exchange fiat for a stablecoin — and then using the stablecoin, they execute a trade for another cryptocurrency. During times of market volatility, some investors might choose to park their money in stablecoins. However, stablecoins don’t offer the same potential upward price movement as altcoins.

Potential Advantages Potential Disadvantages
Fast processing time Require a third party
Lower fees Require external auditing
Transparency Low return on investment
Borderless transactions Locked to the value of an external asset
Easily programmable changes
Safer asset in which to store funds during volatile markets
Many are securely backed by external assets
Convenient to trade on an exchange

Crypto Investing With SoFi

Cryptocurrencies are an exciting new investment, and there are countless options to choose from. Stablecoins and altcoins are two popular types of crypto investments. If you’re looking to start investing in crypto, an easy way is to use the online trading platform, SoFi Invest. The SoFi Invest app lets you research, track, buy, and sell dozens of cryptocurrencies and other assets, right from your smartphone.

SoFi Invest also offers automated recurring investing if you want to invest the same amount into a particular cryptocurrency each week or month. Investors can trade cryptocurrencies with as little as $10. If you have any questions, SoFi has a team of professional financial advisors available to help you at any time.

Get started trading crypto on SoFi Invest today.

FAQ

Is XRP considered a stablecoin?

No. XRP is an altcoin, but it is not a stablecoin.

Can stablecoins be mined?

Yes, some stablecoins can be mined.

Are altcoins and stablecoins mutually exclusive?

All stablecoins are altcoins, but not all altcoins are stablecoins.


Photo credit: iStock/akinbostanci

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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Advisory services are offered through SoFi Wealth LLC, an SEC-registered investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .
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.
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Cross Margin and Isolated Margin in Trading

Cross Margin and Isolated Margin in Trading

There are two common ways to use margin in a trading account. Cross margin involves margin that is shared between open positions. Isolated margin, on the other hand, is margin assigned to a single position that is restricted from being shared.

Cross margin helps prevent quick liquidations and has a better capability to withstand portfolio losses. Isolated margin offers better flexibility in that other portfolio holdings will not be affected if a single position is liquidated.

What Is Cross Margin?

Cross margin was introduced in the late 1980s to reduce systematic risk in the market and to help traders better manage their portfolios when engaging in margin trading. At the institutional level, cross margin offsets the value of hedged positions maintained by firms at multiple clearinghouses. Cross margining recognizes intermarket hedged positions, thus it allows for reduced initial margin requirements, fewer margin variations, and smaller net settlements.

For individual traders, cross margin provides more leeway in how open positions in a portfolio move. Cross margin takes excess margin from one margin account and gives it to another to satisfy maintenance margin requirements. That sharing of margin allows the trader to use all available margin balances across their accounts.

How Does Cross Margin Work?

Cross margin is not a simple calculation, and it runs on sophisticated algorithms. By sharing margin across accounts, traders can access more exposure without depositing more capital. Clearinghouses, central counterparties, and brokers determine cross margin amounts and automatically move margin between accounts that have registered for the service. Traders might prefer cross margining, as a single losing position might not be liquidated quickly when market conditions change. Excess margin is transferred from another account to meet a minor shortfall in minimum maintenance. Cross margin helps to avoid quick margin calls and forced liquidations.

How to Use Cross Margin

Cross margin is best used when a trader has multiple margin trading accounts. A cash account and margin account work differently, and cross vs. isolated margin only apply to the latter type. For traders concerned about a single position being stopped out, it is generally better for them to use cross margin vs. isolated margin, as the former is a tool to help prevent unnecessary forced liquidations. So a trader must trade with a broker who offers this service.

Volatile markets demonstrate the benefits of cross vs. isolated margin. With cross margin, when there are extreme movements in single securities, it is hard to keep a handle on individual positions’ margin requirements. Cross margining can calculate amounts automatically and move excess margin to other accounts that need it.

What Is Isolated Margin?

Isolated margin is the margin assigned to a single position that is restricted to a specific amount. When the allocated margin drops below an unrealized profit and loss threshold or the maintenance margin requirement, the position is automatically liquidated. The upshot is that other positions in the account are not affected. Isolated vs. cross margin offers better flexibility because it can divide the trader’s funds, but stop-outs can happen quickly in volatile markets. Isolated margin vs. cross margin are different from each other, and both are used in crypto trading. It’s important to know what decentralized exchanges are when using either margin type when buying and selling crypto.

How Does Isolated Margin Work?

Isolated margin works by setting aside a margin amount for a single position. Volatile and speculative positions are sometimes good candidates for the use of isolated margin. It can be helpful when you don’t want other portfolio holdings to be impacted by a change in the value or margin requirements from that single position.

How to Use Isolated Margin

Traders have the flexibility to adjust their isolated margin amounts, which can be useful when managing their portfolio positions. You should consider isolated margin when you want more flexibility with a single position and seek to restrict a potential loss to only a small piece of your account. Isolated vs. cross margin can also require more nimble attention to the market, as you might need to actively adjust the isolated margin amount.

Cross- vs Isolated-Margin Compared

Let’s review the similarities and differences in cross vs. isolated margin. In general, cross margin is preferable for long-term strategies, as market- and single-asset volatility could always strike. Cross margin helps portfolios endure volatility with fewer automated stop-outs. The downside is that if there is an extremely volatile event, and liquidations occur, then total portfolio losses could be severe.

Similarities

Initial and maintenance margin rules apply to your account whether you use cross margin or isolated margin. The two strategies help to reduce the risk that your overall portfolio will experience fast liquidations.

Differences

The key difference between the two is that cross margin shares margin between positions and accounts. This can be a helpful feature for long-term investors and during periods of market volatility. Overall, cross margin can be a better risk-management tool for complex portfolios that consist of cryptocurrencies, options, and other derivatives.

Cross Margin

Isolated Margin

Margin shared between open positions Restricts margin to single positions
Reduces the risk of liquidations Tighter liquidation thresholds — more stop-outs possible
Ideal when used with intermarket hedged positions, as margin requirements can be offsetting Traders can actively manage margin amounts on single positions

Advantages and Disadvantages of Cross Margin

Cross Margin Advantages

Cross Margin Disadvantages

The entire portfolio can be used to margin a position, as excess margin is transferred from one position to another Cross margin amounts cannot be adjusted like isolated margin amounts can
The available balance can be added to isolated holdings Higher liquidation total portfolio losses if the market moves against the trader in an extreme way
Useful in a volatile market to avoid quick stop-outs One position change can negatively impact other holdings

Advantages and Disadvantages of Isolated Margin

Isolated Margin Advantages

Isolated Margin Disadvantages

Liability is limited to the initial margin posted Excess margin won’t be transferred to a losing position
Ideal for a single speculative position Volatility can cause fast liquidations
Dividing funds between assets can reduce risk of major loss across a portfolio Leverage can be adjusted quickly

The Takeaway

It’s important that traders who engage in margin trading understand the concept of cross- vs. isolated margin. Cross margining is a feature that increases a firm’s or individual trader’s liquidity and trading capability by reducing margin requirements and lowering net settlement values. It provides flexibility when owning many positions. Isolated margin is the margin assigned to just one position — if it is liquidated, the account positions are not affected.

You can take a simpler approach to trading and investing by trading with SoFi. Using SoFi’s trading app, you can buy and sell stocks, exchange-traded funds (ETFs), and fractional shares right from your phone, with 24/7 convenience.

FAQ

How is cross margin calculated?

In options trading, cross margin is calculated by clearinghouses and their clearing members, including prime brokerages that offer margining services. At the end of each trading day, organizations such as the Intercontinental Exchange and the Options Clearing Corporation (OCC) perform routing calculations and run reports for their clearing members.

Sophisticated algorithms calculate cross-margin levels. The OCC uses a program known as System for Theoretical Analysis and Numerical Simulations (STANS).

Is isolated margin the same as isolated leverage?

Isolated margin and isolated leverage are similar concepts. Isolated leverage is sometimes employed in cryptocurrency trading.

In isolated leverage mode, each cryptocurrency pair has a specific isolated margin account. Each margin account can only use margin on a specific trading pair.

What is the main benefit of cross margin?

Cross margining is when excess margin is transferred to another margin account to satisfy maintenance margin requirements. It allows traders to use their available margin balances across all their accounts. It makes it possible to have more exposure without extreme risk of liquidation should the market move against the trader.


Photo credit: iStock/Mirel Kipioro

*Borrow at 5.25%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
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.
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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. 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.
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