invest Archives

Jan

2026

A man looks at his computer, reviewing stock market fluctuations in his financial portfolio.

Should You Pull Money Out of the Stock Market?

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

Table of Contents

Why Market Volatility Can Be So Stressful
The Case for Staying Invested: Time in the Market
The Biggest Risk of Selling: Missing the Market’s Best Days
3 Legitimate Reasons to Sell Your Investments
The Downsides of Selling Based on Fear
Alternatives to Selling Everything
FAQ

When markets are volatile, and you start to see your portfolio shrink, there may be an impulse to pull your money out and put it somewhere safe — but acting on that desire may actually expose you to a higher level of risk. In fact, there’s a whole field of research devoted to investor behavior, and the financial consequences of following your emotions (hint: the results are less than ideal).

A better strategy might be to anticipate your own natural reactions when markets drop, or when there’s a stock market crash, and wait to make investment choices based on more rational thinking (or even a set of rules you’ve set up for yourself in advance). After all, for many investors — especially those with longer time horizons — time in the market often beats timing the stock market. Here’s an overview of factors investors might weigh when deciding whether to keep money in the stock market.

Key Points

• Acting on emotions during market volatility may expose investors to higher risk and potentially lead to missed opportunities.

• Time in the market often beats timing the market, especially for investors with a longer time horizon.

• Legitimate reasons to sell investments include reaching a financial goal, needing cash for a near-term expense, or a change in an investment’s fundamentals.

• Selling based on fear can result in locking in losses and missing potential market rebounds.

• Alternatives to selling everything include rebalancing a portfolio, reviewing diversification, and reassessing long-term asset allocation.

Why Market Volatility Can Be So Stressful

An emotion-guided approach to the stock market, whether it’s the sudden offloading or purchasing of stocks, can stem from an attempt to predict the short-term movements in the market.

This approach is called timing the market. And while the notion of trying to predict the perfect time to buy or sell is a familiar one, investors are also prone to specific behaviors or biases that can expose them to further risk of losses.

When markets experience a sharp decline, some investors might feel tempted to give in to FUD (fear, uncertainty, doubt). Investors might assume that by selling now they’re shielding themselves from further losses.

This logic, however, presumes that investing in a down market means the market will continue to go down, which — given the volatility of prices and the impossibility of knowing the future — may or may not be the case.

Focusing on temporary declines might compel some investors to make hasty decisions that they may later regret. After all, over time, markets tend to correct.

Likewise, when the market is moving upwards, investors can sometimes fall victim to what’s known as FOMO (fear of missing out) — buying under the assumption that today’s growth is a sign of tomorrow’s continued boom. That strategy is not guaranteed to yield success either.

The Case for Staying Invested: Time in the Market

Whether you should sell your assets and pull money out of the market will depend on an investor’s time horizon, or, the length of time they aim to hold an investment before selling.

Many industry studies have shown that time in the market is typically a wiser approach versus trying to time the stock market or give in to panic selling.

One such groundbreaking study by Brad Barber and Terence Odean was called, “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors.”

It was published in April 2000 in the Journal of Finance, and it was one of the first studies to quantify the gap between market returns and investor returns.

• Market returns are simply the average return of the market itself over a specific period of time.

• Investor returns, however, are what the average investor tends to reap — and investor returns are significantly lower, the study found, particularly among those who trade more often.

In other words, when investors try to time the market by selling on the dip and buying on the rise, they may actually lose out.

The Biggest Risk of Selling: Missing the Market’s Best Days

By contrast, keeping money in the market for a long period of time can help cut the risk of short-term dips or declines in stock pricing. Staying put despite periods of volatility, for some investors, could be a sound strategy.

An investor’s time horizon may play a significant role in determining whether or not they might want to get out of the stock market. Generally, the longer a period of time an investor has to ride out the market, the less they may want to fret about their portfolio during upheaval.

Compare, for instance, the scenario of a 25-year-old who has decades to make back short-term losses versus someone who is about to retire and needs to begin taking withdrawals from their investment accounts.

And by staying invested, investors will experience both downturns and upswings. If they do sell, though, they’d have locked in their losses and could miss out on a potential market recovery.

3 Legitimate Reasons to Sell Your Investments

There are some reasonable situations in which an investor might sell their investments and walk away from the markets. Those could include the following.

You’ve Reached Your Financial Goal

If you’ve reached your financial goal, whatever that is, you may very well sleep better at night by taking your money out of the market and holding cash, though some investors may want to keep at least some money invested in one way or another. Again, this depends completely upon whether you’ve reached your goal, and don’t have any others that you may be working toward.

You Need to Cash for a Near-term Expense

If you need some cash to make a big purchase like a home or a vehicle, or maybe even for an emergency, you could consider the possibility of selling some of your investments. This may set you back a bit in reaching your goals, but the more immediate need may be more pressing.

The Investment’s Fundamentals Have Changed

It may also be time to sell if an investment’s fundamentals have changed. For instance, if you own several shares of Stock X, and Stock X’s revenue has taken a large dip for several consecutive quarters due to its products losing market share, it may be time to reallocate. There can be many reasons that could affect the investment’s fundamentals, and any one of them could be cause to sell.

The Downsides of Selling Based on Fear

There are a few disadvantages to pulling cash out of the market during a downturn.

You Could Lock in Your Losses

First, as discussed earlier, there’s the risk of locking in losses if you sell your holdings too quickly. It’s as simple as that: Selling your investments based on an emotional, fear-based reaction to the markets could mean you lock in a negative return.

It’s Nearly Impossible to Time the Market Correctly

While you could lock in your losses, you could, again, miss a potential rebound as well. Locking in losses and then losing out on gains basically acts as a double loss. When you realize certain losses, as when you realize gains, you will likely have to deal with certain tax consequences.

And while moving to cash may feel safe, because you’re unlikely to see sudden declines in your cash holdings, the reality is that keeping money in cash increases the risk of inflation.

Alternatives to Selling Everything

Here’s an overview of some alternatives to getting out of the stock market:

1. Rebalance Your Portfolio

Investors could choose to rotate some of their investments into less risky assets (i.e,. those that aren’t correlated with market volatility). Gold, silver, and bonds are often thought of as some of the safe havens that investors first flock to during times of uncertainty.

By rebalancing a portfolio so fewer holdings are impacted by market volatility, investors might reduce the risk of loss.

Reassessing where to allocate one’s assets is no simple task and, if done too rashly, could lead to losses in the long run. So, it may be helpful for investors to speak with a financial professional before making a big investment change that’s driven by the news of the day.

Sometimes, astute investors also choose to rebalance their portfolio in a downturn — by buying new stocks. It may be possible — if challenging — to profit from new trends that sometimes emerge during a financial crisis.

It’s worth noting that this investment strategy doesn’t involve pulling money out of the stock market, it just means selling some stocks to buy others. Also, for newer investors or those with low risk tolerance, attempting this strategy might not be a desirable option.

2. Review Your Diversification

Instead of shifting investments into safe haven assets, like precious metals, some investors prefer to cultivate a well-diversified portfolio from the get-go.

In this case, there’d be less need to rotate funds towards less risky investments during a decline, as the portfolio would already offer enough diversification to help mitigate the risks of market volatility.

3. Reassess Your Long-term Asset Allocation

During downturns, it could be worthwhile for investors to examine their asset allocations — or, the amount of money an investor holds in each asset type.

If an investor holds stocks in industries that have been struggling and may continue to struggle due to floundering demand, for whatever reason, they may opt to sell some of the stocks that are declining in value.

Even if such holdings get sold at a loss, the investor could then put money earned from the sale of these stocks towards safe haven assets, potentially gaining back their recent losses. Whenever considering a bigger shift, however, it can be wise to discuss options with a financial advisor.

The Takeaway

Pulling money out of the market during a downturn is a natural impulse for many investors. After all, everyone wants to avoid losses. But attempting to time the market (when there’s no crystal ball) can be risky and stressful. For many investors, especially investors with a longer time horizon, keeping money in the stock market may carry advantages over time.

One approach to investing is to establish long-term investment goals and then strive to stay the course, even when facing market headwinds. As always, when it comes to investing in the stock market, there’s no guarantee of increasing returns. So, individual investors will want to examine their personal economic needs and short-term and future financial goals before deciding when and how to invest.

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FAQ

In general, should I sell my stocks when the market is down?

Investors can sell their investments at any time, including when the market is down. Whether they should sell or not will depend on their goals and investment strategy, but generally, it’s likely more in line with most strategies to hold investments through downturns.

When is it smart to pull out of stocks?

It may be wise to pull out of stocks when you reach your financial goals, need cash for a short-term expense, or when a stock’s fundamentals have changed.

What are the tax implications of selling stocks?

Selling stocks triggers a taxable event, and investors will have a tax liability related to their capital gains. The rate will depend, in part, on how long they held the stock.

How long does it take to get my money after I sell investments?

There may be a short waiting period between when you get your money after you sell your investments. The length depends on the type of investment and your brokerage, but generally, it could take a day or two.

Instead of selling, should I invest more during a downturn?

One strategy during a market downturn includes buying more investments, which is sometimes called “buying the dip.” Some investors think of it as buying investments at a discount as values go down from previous highs.

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

SOIN-Q425-051

Jan

2026

A couple in an office space look at market data on a tablet computer.

What Is a Bear Market? Definition, Causes & Investing Tips

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is the Definition of a Bear Market?
Why Is It Called a Bear Market?
Characteristics of a Bear Market
History of Bear Markets
3 Examples of Bear Markets
What Causes a Bear Market?
Bear Market vs Bull Market
How to Invest and Manage Your Money During a Bear Market
FAQ

A bear market is defined as a broad market decline of 20% or more from recent highs, which lasts for at least two months. Although bear markets make for dramatic headlines, the truth is that bull markets tend to last much longer. The average bear market typically ends within a year.

While most investors might know the difference between a bull and a bear market, it’s important to know some of the characteristics of bear markets in order to understand how different market conditions may impact your portfolio and your investment choices.

Key Points

• Bear markets are defined as broad market declines of 20% or more from recent highs lasting at least two months, with average declines of 32.4% over approximately 355 days.

• Since World War II, the S&P 500 experienced 13 bear markets, with the most recent occurring from June 2022 to June 2023, resulting in a 25% market drop.

• Bear markets typically result from declining consumer and investor confidence driven by factors including interest rate changes, global events, falling housing prices, and broader economic shifts.

• Cyclical bear markets last a few months to a year, while secular bear markets persist for 10 years or more, often containing minor rallies that fail to create sustained recovery.

• Effective bear market strategies include reassessing risk tolerance, diversifying across asset classes, identifying buying opportunities during price declines, and employing dollar-cost averaging rather than panic selling.

What Is the Definition of a Bear Market?

Investors and market watchers generally define a bear market as a drop of 20% or more from market highs. So, when investors refer to a bear market, it usually means that multiple broad market indexes, such as the S&P 500 Index (S&P 500), Dow Jones Industrial Average (DJIA), and others, fell by 20% or more over at least two months.

Note, though, that 20% is a somewhat arbitrary barometer, but it’s a common enough standard throughout the financial world.

The term bear market can also be used to describe a specific security. For example, when a particular stock drops 20% in a short time, it can be said that the stock has entered a bear market. Bear markets are the opposite of bull markets, the latter of which is when the market is seeing a broad increase in asset values.

Bear markets are often associated with economic recessions, although this isn’t always the case. As economic activity slows, people lose jobs, consumer spending falls, and business earnings decline. As a result, many companies may see their share prices tumble or stagnate as investors pull back.

Why Is It Called a Bear Market?

There are a variety of explanations for why “bear” and “bull” have come to describe specific market conditions. Some say a market slump is like a bear going into hibernation, versus a bull market that keeps charging upward.

The origins of the term bear market may also have come from the so-called bearskin market in the 18th century or earlier. There was a proverb that said it is unwise to sell a bear’s skin before one has caught the bear. Over time the term bearskin, and then bear, became used to describe the selling of assets.

Characteristics of a Bear Market

There are two different types of bear markets:

• Regular bear market or cyclical bear market: The market declines and takes a few months to a year to recover.

• Secular bear market: This type of bear market lasts longer and is driven more by long-term market trends than short-term consumer sentiment. A cyclical bear market can happen within a secular bear market.

History of Bear Markets

The most recent U.S. bear market began in June 2022, largely sparked by rising interest rates and inflation. The bear market officially ended on June 8, 2023, lasting about 248 trading days, resulting in a market drop of around 25%.

Including the most recent bear market, the S&P 500 Index posted 13 declines of more than 20% since World War II. The table below shows the S&P 500’s returns from the highest point to the lowest point in a downturn. Bear markets average a decline of 32.4%, and generally last around 355 days.

Bear markets have occurred as close together as two years and as far apart as nearly 12 years. A secular bear market refers to a longer period of lower-than-average returns; this could last 10 years or more. A secular bear market may include minor rallies, but these don’t take hold.

A cyclical bear market is more likely to last a few weeks to a few months and is more a function of market volatility.

Peak (Start)	Trough (End)	Return	Length (in days)
May 29, 1946	May 17, 1947	-28.78%	353
June 15, 1948	June 13, 1949	-20.57%	363
August 2, 1956	October 22, 1957	-21.63%	446
December 12, 1961	June 26, 1962	-27.97%	196
February 9, 1966	October 7, 1966	-22.18%	240
November 29, 1968	May 26, 1970	-36.06%	543
January 11, 1973	October 3, 1974	-48.20%	630
November 28, 1980	August 12, 1982	-27.11%	622
August 25, 1987	December 4, 1987	-33.51%	101
March 27, 2000	Sept. 21, 2001	-36.77%	545
Jan. 4, 2002	Oct. 9, 2002	-33.75%	278
October 9, 2007	Nov. 10, 2008	-51.93%	408
Jan. 6, 2009	March 9, 2009	-27.62%	62
February 19, 2020	March 23, 2020	-34%	33
June 2022	June 8, 2023	-25%	248
Average		-34%	401

Source: Seeking Alpha/Dow Jones Market Data as of January 2026

https://seekingalpha.com/article/4483348-bear-market-history

3 Examples of Bear Markets

Here are a few examples of some of the more notable bear markets in history.

The Great Depression (1929)

The Great Depression started in 1929, and lasted for years. Between 1929 and when the market bottomed-out in 1932, the stock market shed roughly 90% of its value, and didn’t fully recover for decades, until 1954.

The 2008 Financial Crisis

The 2008 financial crisis, which was a part of the Great Recession, actually started in 2007, when the global economy contracted. Its origins are complicated, but in large part trace back to mortgage-related assets and a collapse of the housing market. The resulting bear market lasted for around 17 total months, with the market recovering in March 2009 after the market lost more than half of its value.

The COVID-19 Crash (2020)

Most recently, the COVID-19 pandemic in early 2020 sparked another bear market. The market plummeted starting in late February 2020, and in all, lost 37% of its value over the next month or so. It did rebound fairly fast, though, and the market regained momentum by April.

What Causes a Bear Market?

Usually bear markets are caused by a loss of consumer, investor, and business confidence. Various factors can contribute to the loss of consumer confidence, such as changes to interest rates, global events, falling housing prices, or changes in the economy.

When the market reaches a high, people may feel that certain assets are overvalued. In that instance, people are less likely to buy those assets and more likely to start selling them, which can make prices fall.

When other investors see that prices are falling, they may anticipate that the market has reached a peak and will start declining, so they may also sell off their assets to try and profit on them before the decline. In some cases panic can set in, leading to a mass sell-off and a stock market crash (but this is rare).

Bear Markets vs Recessions: What’s the Difference?

A bear market, as noted, marks a 20% or more decline in the stock market. A recession is a broader issue related to the economy. Specifically, a recession is when the economy shrinks or contracts, and we typically don’t know that it’s happening until well after it’s started contracting (and perhaps even after it’s started growing once again). In short, bear markets have to do with stock markets, while recessions refer to negative growth of the broader economy.

What Is a Bear Market Rally

Things can get tricky if there is a bear market rally. This happens when the market goes back up for a number of days or weeks, but the rise is only temporary. Investors may think that the market decline has ended and start buying, but it may in fact continue to decline after the rally. Sometimes the market does recover and go back into a bull market, but this is hard to predict.

If the bear market continues on long enough then it becomes a recession, which can go on for months or years. That said, it’s not always the case that a bear market means there will be a recession.

Once asset prices have decreased as much as they possibly can, consumer confidence begins to rise again, and people start buying. This reverses the bear market trend into a bull market, and the market starts to recover and grow again.

Bear Market vs Bull Market

A bull market is essentially the opposite of a bear market. As consumer confidence increases, money goes into the markets and they go up.

A bull market is defined as a 20% rise from the low that the market hit in a bear market. However, the parameters of a bull market are not as clearly defined as they are for a bear market. Once the bottom of the bear market has been reached, people generally feel that a bull market has started.

How to Invest and Manage Your Money During a Bear Market

There are a few different bear market investing strategies one can use to both prepare for a bear market and navigate through one.

1. Reassess Your Risk Tolerance

When preparing for a bear market, it’s a good idea to reduce higher-risk holdings such as growth stocks and speculative assets. One can move money into cash, gold, bonds, or other less risky investments to try and reduce the risk of losses if the market goes down.

These safe investments tend to perform better than stocks during a bear market. Types of stocks that tend to weather bear markets well include consumer staples and healthcare companies.

2. Diversify Your Portfolio

Another investing strategy is diversification. Rather than having all of one’s money in stocks, distribute your investments across asset classes, e.g., precious metals, bonds, real estate, or other types of investments.

This way, if one type of asset goes down a lot, the others might not go down as much. Similarly, one asset may increase a lot in value, but it’s hard to predict which one, so diversifying increases the chances that one will be exposed to the upward trend, and you’ll see a gain.

3. Look for Buying Opportunities

In a broad sense, if the market is at a high and assets are clearly overvalued, this may not be the best time to buy. And vice versa, if assets are clearly undervalued it may be a good time to buy and grow one’s portfolio.

A bear market can be a good time to identify assets that might grow in the next bull market and start investing in them.

4. Consider Dollar-Cost Averaging

Dollar-cost averaging is an investment strategy that involves making regular, relatively small investments at certain intervals regardless of what’s happening with the broader market or news cycle. In all, the various prices at which investments are purchased average out over time, so if an investor is buying at a fairly high price one week, they may be buying at a relatively low price another week. Over time, the buying prices average out.

That can help some investors lower their overall risk profile, and take some of the emotion out of investment decisions.

5. Understand Advanced Strategies (Like Short Selling)

Short selling is a very risky strategy that some investors take on in anticipation of a potential bear market. This involves borrowing shares and selling them, then hoping to buy them back at a lower price. It’s risky because there is no guarantee that the price of the shares will fall, and since the shares are borrowed, typically using a margin account, they may end up owing the broker money if their trade doesn’t work out as they hope.

Overall, it’s best to create a long-term investing strategy rather than focusing on short-term trends and making reactive decisions to market changes. It can be scary to watch one’s portfolio go down, especially if it happens fast, but selling off assets because the market is crashing generally doesn’t turn out well for investors.

The Takeaway

Bear markets can be scary times for investors, but even a prolonged drop of 20% or more isn’t likely to last more than a few months, according to historical data. In some cases, bear markets present opportunities to buy stocks at a discount (meaning, when prices are low), in the hope they might rise.

Also there are strategies you can use to reduce losses and prepare for the next bull market, including different types of asset allocation. The point is that whether the markets are considered bearish or bullish, any time can be a good time to invest.

Take a step toward reaching your financial goals with SoFi Invest.

FAQ

How long do bear markets last?

Bear markets may last a few months to a year or more, but most bear markets end within a year’s time. If they go on longer than that they typically become recessions. And while a bear market can end in a few months, it can take longer for the market to regain lost ground.

Is a bear market good or bad?

A bear market is probably going to be considered a bad thing by some investors, as it could negatively affect their portfolio value. However, others might consider it an opportunity to utilize strategies to take advantage and potentially, generate returns.

When was the last bear market in the U.S?

The most recent bear market occurred in 2022, and lasted into 2023. During that time, the market lost roughly 25% before recovering.

What are the best assets to hold in a bear market?

Some investors prefer to hold assets that are generally less volatile during bear markets, in the hopes that they’ll hold their value better than more volatile assets. That could include certain types of stocks or funds, bonds, or even commodities such as precious metals.

What was the worst bear market?

The worst bear market in history occurred after the market crash in 1929, and lasted for several years. During that time, the economy entered the Great Depression, and the market lost almost 90% of its value.

Photo credit: iStock/Morsa Images

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

SOIN-Q425-065

Jan

2026

A man wearing glasses sits at a desk, working on his laptop and trading forwards.

What Is a Forward Contract?

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

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

Table of Contents

How Do Forward Contracts Work?
What’s the Difference Between Forward and Futures Contracts?
Forward Contract Example
Pros and Cons of Trading Forwards
Who Uses Forward Contracts?
How Do Investors Use Forwards?
Frequently Asked Questions

A forward contract, also referred to as a forward, is a type of customizable derivative contract between a buyer and a seller that sets the sale of an asset at a specific price on a specific future date. Like all derivatives, a forward contract is based on an underlying asset.

Forward contracts are similar to options, as discussed below, but there are some key differences that investors will need to know if they plan to use forwards as a part of their investing strategy.

Key Points

• A forward contract is a customizable derivative setting a specific price and date for an asset trade.

• Forwards are settled once at expiration, unlike daily-marked futures.

• These contracts are traded over-the-counter, offering flexibility but higher risk.

• Typically, no upfront payment is required to enter a forward contract (though some may include collateral requirements).

• Forward contracts are typically used by institutional investors due to high risks and lack of transparency.

How Do Forward Contracts Work?

Forwards are similar to options contracts in that they specify a price, amount, and expiration date for a trade. However, most options give traders the right, but not the obligation, to trade. With forward contracts, the transaction must take place at expiration.

Unlike futures contracts, another type of derivative, forwards are only settled once on their expiration date, but specific terms may vary based on the agreement between parties. The ability to customize forwards makes them popular with investors interested in self-directed investing, since the buyer and seller can set the exact terms they want for the contract.

Many other types of derivative contracts have predefined contract terms.

There are four main aspects and terms to understand and consider before entering into a forward contract. These components are:

• Asset: This refers to the underlying asset associated with the forward contract.

• Expiration Date: This is the date that the contract ends, and this is when the actual trade occurs between the buyer and seller. Traders will either settle the contract in cash or through the trade of the asset.

• Quantity: The forward contract will specify the number of units of the underlying asset subject to the transaction.

• Price: The contract will include the price per unit of the underlying asset, including the currency in which the transaction will take place.

Investors trade forwards over the counter, or OTC, instead of on centralized exchanges, which may make them less accessible to individual investors. Since the two parties custom-create the forwards, they may be more flexible than other types of financial products. However, they carry higher risk due to a lack of regulation and third party guarantee.

Recommended: What Are Over-the-Counter (OTC) Stocks?

What’s the Difference Between Forward and Futures Contracts?

Futures and forwards have many similarities in that they are both types of investments that specify a price, quantity, and date of a future transaction. However, there are some key differences for traders to know, including:

• Futures are standardized derivative contracts traded on centralized exchanges, while forwards are customized contracts created privately between two parties.

• Futures are settled through clearing houses, making them less risky and more guaranteed than forwards contracts, which are settled directly between the two parties. Parties involved in futures contracts almost never default on them.

• Futures are marked to market and settled daily, meaning that investors can buy and sell them whenever an exchange is open.

• Forwards are only settled on the expiration date. Because of this, forwards don’t usually include initial margins or maintenance margins like futures do.

• It’s more common for futures to be settled in cash, while forwards are often settled in the asset.

• The futures market is highly liquid, making it easy for investors to buy and sell whenever they want to, whereas the forwards market is far less liquid, adding additional risk.

Forward Contract Example

Let’s look at an example of a forward contract. If an agricultural company knows that in six months they will have one million bushels of wheat to sell, they may have concerns about changes in the price of wheat. If they think the price of wheat might decline in six months, they could enter into a forward contract with a financial institution that agrees to purchase the wheat for $5 per bushel in six months time in a cash settlement.

By the time of the expiration date, there are three possibilities for the wheat market:

1. The price per bushel is still $5. If the asset price hasn’t changed in six months, the contract may expire without a financial settlement.

2. The price per bushel has increased. Let’s say the price of wheat is now $5.20 per bushel. In this case, the agricultural producer must pay the financial institution $0.20 per bushel, the difference between the current market price and the price set in the contract, which was $5. The agricultural producer must pay $200,000.

3. The price per bushel has decreased. Let’s say the price is now $4.50. In this case, the financial institution must pay the agricultural producer the difference between the spot price and the contract price, which would be $500,000.

Pros and Cons of Trading Forwards

Forwards can be useful tools for traders, but they also come with risks and downsides.

Pros of Trading Forwards

There are several reasons that investors might choose to use a forward:

• Flexibility in the terms set by the contract

• Hedge against future losses

• Useful tool for speculation

• Large market

Cons of Trading Forwards

Investors who use forwards should be aware that there are risks involved with these financial products. Those include:

• Risky and unpredictable market

• Not as liquid as the futures market

• OTC trading means a higher chance of default and no third party guarantees or regulatory oversight

• Details of contracts in the market are not publicly available

• Contracts are only settled on the expiration date, making them riskier than futures contracts that are marked-to-market regularly

Who Uses Forward Contracts?

Typically, institutional investors and day traders use forwards more commonly than retail investors. That’s because the forwards market can be risky and unpredictable since traders create the contracts privately on a case-by-case basis. Often the public does not have access to the details of such agreements. Forward contracts are typically not accessible by retail investors; they are primarily used by institutional investors.

Institutional traders often use forwards to lock in exchange rates ahead of a planned international purchase. Traders might also buy and sell contracts themselves instead of waiting for the trade of the underlying asset.

Traders also use forwards to speculate on assets. For instance, if a trader thinks the price of an asset will increase in the future, they might enter into a long position in a forward contract to be able to buy the asset at the current lower price and sell it at the future higher price for a profit.

How Do Investors Use Forwards?

Traders use forwards to hedge against future losses and avoid price volatility by locking in a particular asset price or to speculate on the price of a particular asset, such as a currency, commodity, or stock. Forwards are not subject to daily price volatility. These strategies involve types of trades that aren’t typically available to individuals.

The trader buying a forward contract is taking a long position, and the trader selling is going into a short position. This is similar to options traders who buy calls and puts. The long position profits if the price of the underlying asset goes up, and the short position profits if it goes down.

Locking in a future price can be very helpful for traders, especially for assets that tend to be volatile such as currencies or commodities like oil, wheat, precious metals, or natural gas.

The Takeaway

Forward contracts are a common way for institutional investors to hedge against future volatility or reduce exposure to potential losses. However, they are generally considered high-risk investments that may not be suitable for most retail investors.

Given the specialized nature of forwards contracts (and other types of options), the risks may outweigh the potential rewards for many investors. As such, it may be a good idea to consult a financial professional before dabbling with forwards, or incorporating them into a larger investing strategy.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

🛈 SoFi does not offer future or forward contracts at this time.

Frequently Asked Questions

What is a forward contract in simple terms?

A forward contract is a private agreement between two parties to buy or sell an asset at a set price on a future date. These contracts are often used to hedge against price changes.

What is the difference between a forward and future contract?

Forwards are customizable contracts traded privately over the counter, while futures are standardized contracts traded on public exchanges. Futures typically have daily settlements and lower counterparty risk.

What are the benefits of a forward contract?

Forward contracts can help buyers and sellers lock in prices ahead of time, reducing exposure to market volatility. They also offer flexibility in terms and structure.

Do you pay to enter a forward contract?

Entering a forward contract usually doesn’t require an upfront payment. However, parties may face gains or losses at settlement depending on how the asset’s price changes over time.

Photo credit: iStock/fizkes

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

SOIN-Q425-008

Jan

2026

A blue and purple line, reminiscent of a stock chart with a dip, drifts up and to the right.

What Does “Buying The Dip” Mean?

By Rachel Kim | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Does “Buying the Dip” Mean in the Stock Market?
Why Do Stock Dips Happen?
What Is the Potential Upside of Buying the Dip?
Risks of Buying the Dip
3 Ways to Manage Risk When Buying the Dip
Is Buying the Dip a Good Strategy for Beginners?
Buy the Dip vs. Dollar-Cost Averaging
FAQ

A down stock market could create an opportunity for investors to “buy the dip,” which, in simple terms, is a strategy that involves investing in the stock market when prices are lower than they were at a previous time. The price, in other words, has “dipped.”

Buying the dip is a way to try and capitalize on bargain pricing and potentially benefit from price increases in the future. But like any other investing strategy, buying the dip involves some risk, as it’s often a matter of market timing. Knowing when to buy the dip (or when not to) matters for building a solid portfolio while managing risk.

Key Points

• Buying the dip involves purchasing stocks when prices decline below previous trading levels, anticipating future price recovery and potential profits from buying low and selling high.

• Stock price dips can result from macroeconomic downturns, geopolitical events, market volatility, or company-specific news like disappointing earnings reports or unexpected leadership changes affecting investor confidence.

• Historical examples include the 2020 COVID-19 market crash, where the S&P 500 fell 34% in March but recovered completely by August and gained 114% through January 2022.

• Timing risks include purchasing before prices reach their lowest point or mistaking a declining stock for a temporary dip, potentially resulting in smaller profits or losses.

• Risk management strategies involve researching the reasons behind price drops, evaluating company fundamentals for long-term strength, and considering passive dollar-cost averaging as an alternative to active market timing.

What Does “Buying the Dip” Mean in the Stock Market?

As noted, to buy the dip means to invest when the stock market is down, anticipating that values will go back up. A dip occurs when stock prices drop below where they’ve previously been trading, but there’s an indication or expectation that they’ll begin to rise again at some point.

This second part is crucial; if there’s no expectation that the stock’s price will bounce back down the line then there’s little incentive to buy in.

Why Do Stock Dips Happen?

Stock market dips can happen for various reasons, including a macroeconomic downturn, unexpected geopolitical events, or general stock market volatility that causes stock prices to tumble temporarily on a broad scale.

For example, in early 2022, the stock market fell from all-time highs for several reasons, including high inflation, tighter monetary policy, and the economic fallout from the Russian invasion of Ukraine. Accordingly, the S&P 500 Index fell nearly 20% from early January 2022 through mid-May, 2022, flirting with bear market territory.

Stock pricing dips can also be connected directly to a particular company rather than overall market trends. If a company announces a merger or posts a quarterly earnings report that falls below expectations, those could trigger a short-term drop in its share price.

What Is the Potential Upside of Buying the Dip?

Many investors buy the dip because it may help increase their returns. But again, it’s not without risks. Buying the dip is, effectively, a form of buying low and selling high. If, that is, everything shakes out in the investor’s favor.

When you buy into a stock below its normal price, there is a potential — but not a guarantee — to generate returns by selling it later if prices rebound.

Example of Buying the Dip

A hypothetical example of buying the dip could play out like this: Company A releases a quarterly earnings report that does not live up to expectations. As a result, its share price falls 5% on the day that report is released. But some investors have a hunch that Company A’s stock price will increase in the coming days, and buy shares at a reduced price.

Share prices do rebound, increasing 10% over the next few days. Investors who bought at the dip sell, and reap a positive return.

As for a real-world example, the market experienced a larger dip and recovery during the spring of 2020 connected to economic fears surrounding the coronavirus pandemic. The S&P 500 Index declined about 34% in a little over a month, from February 19, 2020, to Mar. 23, 2020. The index then experienced a gradual rise, recouping its losses by August 2020 and increasing 114% through January 2022 from the March 2020 low.

If an investor bought at the lower end of the stock market crash, they would have seen substantial gains in the subsequent rally.

On an individual stock level, and as another hypothetical, say you’ve been tracking a stock that’s been trading at $50 a share. Then the company’s CEO abruptly announces they’re resigning, which sends the stock price tumbling to $30 per share as overall investor confidence wavers. So, you decide to buy 100 shares at the $30 price.

Six months later, a new CEO has been installed who’s managed to slash costs while boosting profits. Now that same stock is trading at $70 per share. Because you bought the dip when prices were low, you now stand to pick up a profit of $40 per share if you sell.

The potential to earn big gains is what makes buying the dip a popular investment strategy for some people.

Risks of Buying the Dip

For any investor, it’s important to understand what kind of risk you’re taking when buying the dip. Timing the market is something even the most advanced investors may struggle with, as it’s impossible to predict which way stocks will move on any given day.

Understanding technical indicators and what they can tell you about the market may help, but it isn’t foolproof.

For these reasons, knowing when to buy the dip is an inexact science. If you buy into a stock low and then are able to sell it high later, then your play has paid off. On the other hand, you could lose money if you mistime the dip or you mistake a stock that’s in freefall for one that’s experiencing a dip.

In the former scenario, it’s possible that a stock’s price could drop even further before it starts to rebound. If you buy in before the dip hits bottom, that can shrink the amount of profits you’re able to realize when you sell.

In the latter case, you may think a stock has the potential to recover but be disappointed when it doesn’t. You’ve purchased the stock at a bargain but the profit you’re able to walk away with, if anything, may be much smaller than you anticipated.

3 Ways to Manage Risk When Buying the Dip

For investors who are interested in buying the dip, there are a few things to keep in mind that may help with managing risk.

1. Research Why the Stock or Market Dipped

First, it’s important to understand how market volatility may impact some sectors or industries over others.

For example, take consumer staples versus consumer discretionary. Staples represent the things most people spend money on to maintain a basic standard of living, like food or personal hygiene products. Consumer discretionary refers to the “wants” people spend money on, like furniture or electronics.

In the event of a recession, people spend more on staples than discretionary expenses, so consumer staples stocks tend to fare better. But that may create a buying opportunity for discretionary stocks if they’ve taken a hit. That’s because as a recession begins to give way to a new cycle of economic growth, those stocks may start to pick back up again.

2. Focus on Strong, Long-Term Investments

Next, consider the reasons behind a dip and a company’s fundamentals. If you’ve got your eye on a particular stock and you notice the price is beginning to slide, ask yourself why that may be happening.

When it’s specific to the company, rather than something general happening across the market, it’s important to analyze the stock and try to understand the underlying reasons for the dip, as well as how likely the stock’s price is to make a comeback later.

3. Use Limit Orders to Avoid Overpaying

Limit orders are a type of order that allow investors to automate a stock purchase or sale at a designated price, typically, at a specific maximum or minimum price. In effect, an investor can designate a maximum price at which they’re willing to buy a stock, and a minimum price for which they’d sell, depending on the type of limit order they’d use.

As it relates to buying the dip, investors can use limit orders for down-market conditions. If the price of a stock is dipping, investors can set a limit order to execute when it reaches a price at which they want to buy. Or, if they’re holding a stock, the minimum at which they’d want to sell.

Note, however, that limit orders don’t necessarily guarantee that an order will be executed. So, keep that in mind.

Is Buying the Dip a Good Strategy for Beginners?

Buying the dip has the potential to reap returns for investors, but it may not be a good strategy for beginners. That’s because, as noted, it’s a risky strategy. What investors are doing, when it comes down to it, is trying to time the market. And since nobody knows what’s going to happen in the future, that’s more or less impossible.

However, as investors become more experienced and recognize certain indicators or market trends, they may be able to make more informed decisions regarding a “buy the dip” strategy. That’s not to say they’ll become good or successful at it, but they’d likely better understand the risks and potential payoffs of trying it.

Buy the Dip vs. Dollar-Cost Averaging

Buying the dip is more of a hands-on, active trading strategy, since it requires an investor to actively monitor the markets and read stock charts to evaluate when to buy the dip or when to sell. If an investor prefers to take a more passive approach or has a lower tolerance for risk, they might consider dollar-cost averaging instead.

Dollar-cost averaging is generally an investing rule worth keeping in mind. With dollar-cost averaging, an individual continues making new investments on a regular basis, regardless of what’s happening with stock prices. The idea here is that by investing consistently over time, an investor can buy more shares when prices are low and fewer when prices are high, essentially smoothing out the ups and downs of the market when buying stock.

Example of Dollar-Cost Averaging

For example, you might invest $200 every month into an index mutual fund that tracks the performance of the S&P 500. As time goes by and the S&P experiences good years and bad years, you keep investing that same $200 a month into the fund.

You’ll buy shares during the dips and during the high points, as well, but you don’t necessarily have to actively track what’s happening with stock prices. This may be a preferable strategy if you lean toward a buy and hold investing approach versus active trading or you’re an investing beginner learning the basics.

The Takeaway

Buying the dip refers to purchasing shares at a price that is lower than a previous price, with the anticipation that values will recover and potentially overtake the previous peak. It can help investors increase returns, but as a strategy, has risks and no guarantees.

Knowing when to buy the dip can be tricky — timing the market usually is — but there are times when it may pay off for some. If investors maintain an eye on stock market and economic trends, it may help in determining when to buy the dip and how likely a stock or the market will rebound. However, it’s still important to consider the downside risks of timing the market and buying the dip.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

How do you know when to buy the dip?

There is no way to know when it’s the right time to buy the dip. Buying the dip, as a strategy, is a form of market-timing, which is a high-risk tactic, and there’s no way to know when the market has reached a bottom, marking the ideal time to buy stocks.

What’s the difference between “buying the dip” and “catching a falling knife?”

Buying the dip refers to purchasing assets when their value has declined from a recent high. Catching a falling knife, on the other hand, refers to buying a stock that’s seen its value fall rapidly and continuously, which is an even higher-risk strategy than buying the dip.

Can you buy the dip with ETFs and mutual funds?

It is possible to buy the dip with ETFs and mutual funds, as both are exchange-traded and have specific prices that can dip, allowing for buyers to try and take advantage of price declines.

How long should you wait after a dip to buy?

Since trying to buy the dip is the same as trying to time the market, there is no designated or “right” amount of time to wait after a dip to buy. There’s also no guarantee that a price decline is a dip, and that an asset’s value will recover.

Does buying the dip actually work?

Buying the dip can work as a method for generating returns, but it has its risks. There’s also no guarantee that an asset’s value will recover to previous levels after it declines, or dips.

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

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

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

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

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 emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Mutual Funds (MFs): 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 clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

SOIN-Q425-067

Jan

2026

A woman writes on a pad with a pen while working on a laptop computer.

What is Paper Trading Stocks and How To Get Started

By Colin Dodds | Financial Independence, Growing Wealth, invest, Investing | Comments Off

Table of Contents

How Does Paper Trading Work?
What Are the Pros of Paper Trading
What Are the Cons of Paper Trading?
How to Start Paper Trading in 3 Simple Steps
FAQ

Paper trading is simulated trading, done for practice without real money. It’s a way to test different trading strategies without the risk of losing money, before an investor starts trading with real capital.

The practice gets its name from how investors would once mark down their hypothetical stock purchases and sales and track their returns and losses, on paper. But these days, investors typically use digital platforms to virtually test out hypothetical investment portfolios, day-trading tactics, and broader investing strategies.

Key Points

• Paper trading is simulated trading done for practice without using real money, allowing investors to test strategies without financial risk.

• Paper trading helps new traders build skills and make mistakes without risking real money, in both bear and bull markets.

• To start paper trading, choose a virtual trading platform, develop a practice plan, and analyze results to refine strategies.

• Paper trading allows investors to learn about investing, track trades, and examine stock performance in a low-stress environment.

• Paper trading has limitations, including not perfectly replicating market conditions and potentially encouraging bad habits due to lack of real financial consequences.

How Does Paper Trading Work?

In its most basic form, paper trading involves selecting a stock, group of stocks, or a sector, then writing down the ticker or tickers and choosing a time to buy the stock. The paper trader then writes down the purchase price or prices.

When they sell the stock or stocks, they write down that price as well, and tally up their return. Most modern paper traders can use a simulation platform to keep track of their trades, rather than a pen and paper.

What Are the Pros of Paper Trading

Paper trading has both benefits and drawbacks. Here are some of the pros of paper trading.

Practice Trading Without Risking Real Money

Paper trading is a way to learn and build trading skills in either a bear or a bull market. For new traders, a virtual trading platform offers a way to make rookie mistakes without risking real money.

In other words, paper trading is a method to get comfortable with the process of buying and selling stocks, and making sure you don’t enter a limit order when you mean to place a market order.

Learn the Mechanics of an Investing Platform

Similarly, investors can learn the mechanics, or ins-and-outs, of particular investing platforms. That can be helpful when you want to take certain actions, perhaps within a set time frame, and know exactly what to do.

Test and Refine Your Trading Strategies

Perhaps most importantly: paper stock trading allows for experimentation. For example, an investor might hear about shorting a stock. But they may not know how the process works, and what it actually pays out. Paper trading permits investors to learn how these trades work in practical terms. Or, they might want to try out other strategies, such as swing trading.

Further, you can test your own mettle. Paper trading can serve as a way for investors to learn about their own strengths and weaknesses. Traders lose money in the markets for a number of personal reasons. Some stick to their guns too long, while others give up too soon when the market is down. Some lose money because they panic, while others lose money because they ignore clear warning signs.

What Are the Cons of Paper Trading?

There are also some drawbacks to paper trading.

It Doesn’t Simulate Real Trading Emotions

The biggest drawback of paper trading is that it’s not real. An investor can’t keep the returns they earn paper trading. And those paper returns can lead the investor to have an unrealistic sense of confidence, and a false sense of security. Paper trading also doesn’t account for real-life situations that might require an investor to withdraw money from the market for personal reasons or the impact of an unexpected recession.

As such, hypotheticals don’t necessarily spur genuine emotions. You’d likely react differently with real money on the line, in other words, than you would knowing that you’re simulating market conditions. So, paper trading may not be helpful for some investors when trying to emotionally prepare for market volatility.

It Can’t Perfectly Replicate Market Conditions

While paper trading offers important lessons, it can also mislead investors in other ways. If a paper trading strategy focuses on just a few stocks, or using one trading strategy, they can easily lose sight of how broader market conditions actually drive the performance of those stocks, including stock volatility, or their strategy, or have an inflated confidence in their ability to time the markets.

They need to realize their holdings or strategy may offer very different results in a real-world scenario.

Another danger with paper-trading is that traders may overlook the cost of slippage and commissions. These two factors are a reality of actual trading, and they erode an investor’s returns. Slippage is the difference between the price of a trade at the time the trader decides to execute it and the price they actually pay or receive for a given stock.

Especially during periods of high volatility, slippage can make a significant impact on the profitability of a trade. Any difference, up or down, counts as slippage, so slippage can be good news at times. Since brokerage commissions and other fees always come out of a trader’s bottom line, paper traders should include them in their model.

It Can Encourage Bad Habits

To a certain extent, investing with hypothetical dollars can help investors practice keeping their emotions in check while the markets are going up and down. However, once an investor’s real money is in play, it can be much more difficult to remain calm and keep perspective when stressful situations arise, such as when the market plunges over the course of a trading day.

To prepare emotionally, as well as practically, for the volatility of markets, investors can also practice risk management techniques appropriate for the strategies they’re exploringÄ. It can also be wise for novice investors to trade in smaller amounts, at first, as they learn more about the markets and become more comfortable with the interface and tools of the brokerage they’re using.

How to Start Paper Trading in 3 Simple Steps

If you’d like to try paper trading, be sure to research your investments, just like you would if you were investing for real, and use the same amount of paper money you would use in real life. This will help mimic the actual experience.

With that in mind, here are a few steps to get started.

Step 1: Choose a Paper Trading Platform or App

If you choose to paper trade with a pencil and paper, you can simply choose a stock or group of stocks, write down the ticker, and pick a time to buy the stock. You then write down the purchase price, or prices. When you sell the stock you record that price and then figure out your return.

If you decide to use an online investing platform, you’ll need to choose a platform. There are many free platforms available. You may want to look for one that has live market feeds so that you can practice trading without delays.

Once you’ve selected a virtual trading platform, you’ll set up an account. Simply log onto the platform and follow the prompts to set up an account. Once you’ve done that, there should be a “paper trading” option you can click on.You’ll need to select a balance and then you should be able to start simulating trading.

Step 2: Develop a Practice Plan or Strategy

The entire point of paper trading is to practice and test out your strategies. So, have some in mind before you start. Find an investing calculator. Think about buy-and-hold tactics, or swing trading and daytrading techniques. Give it all some thought.

You don’t even need to worry about Securities Investor Protection Corporation protection, or SIPC protection, at first, since its paper trading is all a form of practice. That protection helps protect investors up to certain amounts if they are victims of fraud or firm failure, similar to FDIC protections. SIPC does not protect against market losses, however. Try enacting your strategies over a set period of time, and see what happens. Again, this is the time and place to make mistakes, so don’t worry too much about the outcomes.

Experiment with different types of market orders, after hours trading, the whole shebang.

Step 3: Analyze Your Results and Learn

After you’ve gotten the hang of the platform and done some practicing, take a look at what your strategy has yielded, and analyze the results. Did your trend trading technique work out as you had hoped? Did you let your emotions get the best of you during a bout of volatility?

Think about the decisions you made, and how you can use what you’ve learned to sharpen your strategy when you move to trading with actual money.

The Takeaway

Paper trading can be a way to learn about investing. By keeping track of all trades, and the losses or gains they generate, it creates a low-stress practice for examining why certain stocks, and certain trades, perform the way they do. That can be invaluable later, when there’s real money on the line.

However, remember that paper trading isn’t real. In real-life trading with an investment account, you’ll have the potential for gains, but also for losses. Make sure you are comfortable taking that risk.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

How realistic is paper trading?

Paper trading is very realistic as paper traders are working in and with actual market conditions. The only difference should be that they’re not trading or investing real money.

Is paper trading good for beginners?

Yes, paper trading can be good for beginners as it gives them a chance to refine their strategy, learn about their risk tolerances or tendencies, and learn how to use a given platform without fear of making a costly mistake.

How long should I paper trade before using real money?

The duration you should paper trade before using real money is completely dependent upon you and your specific comfort level. Some investors may not want to paper trade at all and jump right into the mix with real money, while others will want to practice for a prolonged period of time — so, there’s no single answer.

Can you make real money with paper trading?

No, paper trading is done with virtual or fake money. As such, there isn’t really a way to generate an actual return.

What is the 90% rule in trading?

In trading, the 90% rule refers to the belief that 90% of traders will lose 90% of their capital within the first 90 days of trading. This is largely due to inexperience, unproven strategies, and their inability to handle risk.

Photo credit: iStock/fizkes

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

SOIN-Q425-050

Should You Pull Money Out of the Stock Market?

Why Market Volatility Can Be So Stressful

The Case for Staying Invested: Time in the Market

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

The Biggest Risk of Selling: Missing the Market’s Best Days

3 Legitimate Reasons to Sell Your Investments

You’ve Reached Your Financial Goal

You Need to Cash for a Near-term Expense

The Investment’s Fundamentals Have Changed

The Downsides of Selling Based on Fear

You Could Lock in Your Losses

It’s Nearly Impossible to Time the Market Correctly

Alternatives to Selling Everything

1. Rebalance Your Portfolio

2. Review Your Diversification

3. Reassess Your Long-term Asset Allocation

The Takeaway

FAQ

In general, should I sell my stocks when the market is down?

When is it smart to pull out of stocks?

What are the tax implications of selling stocks?

How long does it take to get my money after I sell investments?

Instead of selling, should I invest more during a downturn?

What Is a Bear Market? Definition, Causes & Investing Tips

What Is the Definition of a Bear Market?

Why Is It Called a Bear Market?

Characteristics of a Bear Market

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

History of Bear Markets

3 Examples of Bear Markets

The Great Depression (1929)

The 2008 Financial Crisis

The COVID-19 Crash (2020)

What Causes a Bear Market?

Bear Markets vs Recessions: What’s the Difference?

What Is a Bear Market Rally

Bear Market vs Bull Market

How to Invest and Manage Your Money During a Bear Market

1. Reassess Your Risk Tolerance

2. Diversify Your Portfolio

3. Look for Buying Opportunities

4. Consider Dollar-Cost Averaging

5. Understand Advanced Strategies (Like Short Selling)

The Takeaway

FAQ

How long do bear markets last?

Is a bear market good or bad?

When was the last bear market in the U.S?

What are the best assets to hold in a bear market?

What was the worst bear market?

What Is a Forward Contract?

How Do Forward Contracts Work?

What’s the Difference Between Forward and Futures Contracts?

Forward Contract Example

Pros and Cons of Trading Forwards

Pros of Trading Forwards

Cons of Trading Forwards

Who Uses Forward Contracts?

How Do Investors Use Forwards?

The Takeaway

Frequently Asked Questions

What is a forward contract in simple terms?

What is the difference between a forward and future contract?

What are the benefits of a forward contract?

Do you pay to enter a forward contract?

What Does “Buying The Dip” Mean?

What Does “Buying the Dip” Mean in the Stock Market?

Why Do Stock Dips Happen?

What Is the Potential Upside of Buying the Dip?

Example of Buying the Dip

Risks of Buying the Dip

3 Ways to Manage Risk When Buying the Dip

1. Research Why the Stock or Market Dipped

2. Focus on Strong, Long-Term Investments

3. Use Limit Orders to Avoid Overpaying

Is Buying the Dip a Good Strategy for Beginners?

Buy the Dip vs. Dollar-Cost Averaging

Example of Dollar-Cost Averaging

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