Jan
08
2023
A Guide to Gift Letters for Mortgages

A Guide to Gift Letters for Mortgages

By | Home Ownership, mortgage | Comments Off on A Guide to Gift Letters for Mortgages

If you’re fortunate enough to have a family member or close friend who is giving you funds to put towards a down payment, congratulations. But in this scenario, a gift letter can be an important part of validating money given to you for the down payment or closing costs on a home.

Approximately 22% of first-time homebuyers received gift funds to help with the purchase of a home, according to a 2022 National Association of Realtors® (NAR) survey.

Properly documented gift funds will help the mortgage loan to pass underwriting so your loan may be approved. In this guide, you’ll learn the story on gift letters, how they differ for various types of mortgages, plus other important details.

What Is a Gift Letter?

A mortgage gift letter is a legal document whose primary purpose is to state that down payment funds given to the borrower are not expected to be repaid. The lender wants to ensure that the borrower is not taking on more debt to help finance the mortgage, even if it is money from family or friends. The letter is required to pass underwriting.
It’s essential that a gift letter include all the necessary elements to be considered in your loan application.


💡 Quick Tip: You deserve a more zen mortgage loan. When you buy a home, SoFi offers a guarantee that your loan will close on time. Backed by a $5,000 credit.‡

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

What Should Be Included in Gift Letters?

Lenders usually provide a standard gift letter for you and the donor to complete, but it’s helpful to know what needs to be stated. Gift letters should include the following details:

•   Dollar amount of the gift

•   Name of the donor, address, phone number, and details of the account from which the money will be or was drawn

•   Relationship to the borrower

•   Name of the borrower, address, and phone number

•   Address of the home associated with the down payment

•   The donor’s signed statement saying the funds will not need to be repaid by the borrower

•   Language saying the funds were not made available to the donor by any party interested in the sale of the property

•   The dated signatures of borrower and donor.

Note: Along with a gift letter, the lender may want to see proof of funds in the donor’s account and evidence the money was deposited into the borrower’s account.

Does Timing and Amount of a Gift Matter?

When it comes to gift letters, when and how much you received may need to be documented.

Amount

There typically is no limit on the amount of gift money, but when a deposit is more than half of your monthly household income, lenders usually will want an explanation.

For USDA loans and FHA loans, you’ll need to explain any amount over 1% of the purchase price or appraised value of your home that was deposited in your account recently. There are exceptions, including tax refunds and bonuses, that do not need to be “seasoned” or explained.

Timing

A lender will look at bank statements for the past 60 to 90 days. Amounts that existed in your account before this time are considered seasoned, and you may not need to provide a gift letter for that money. The amount of a deposit inside that time frame may need a letter of explanation.

If you have money in other places, you’ll want to deposit it into your bank account for proper seasoning.

Who Can Give Down Payment Gifts?

Down payment gift regulations vary by loan type, but generally, gift funds are allowable on many mortgage types from close family members or friends. There are some key differences between regulation for down payment gifts for conventional and government home loans (USDA, VA, and FHA mortgages).

FHA Loans

Under Federal Housing Administration guidelines, gift funds for the down payment are allowable from the following donors:

•   Relatives of the borrower

•   The borrower’s employer or labor union

•   A close friend with a clearly defined and documented interest in the borrower

•   A charitable organization

•   A government agency or public entity that provides homeownership assistance to low- and moderate-income families or first-time homebuyers.

The gift must not come from an entity that has an interest in the sale of the property, such as the seller, the builder, the real estate agent, or the broker.

Buying a fixer-upper? This guide to FHA 203(k) loans and options could be a good read.

Conventional Loans

Under conventional loan guidelines (meaning non-government), gift funds are allowable from these sources:

•   A relative, which Fannie Mae defines as someone related by blood, marriage, adoption, or legal guardianship

•   A domestic partner or fiance.

The donor may not be anyone with an interest in the transaction, such as the builder, developer, or real estate agent.

USDA or VA Loans

With loans backed by the Department of Agriculture or Veterans Affairs, the only people who cannot provide gift funds are those who would benefit from the sale, such as the seller, lender, real estate agent, or developer. The gift funds must be properly sourced, which means the lender wants to see a paper trail from the bank account of the donor to that of the borrower.


💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.1

Are There Limits on Gifts?

No, but some loans may require borrowers to come up with a portion of the down payment. This is what’s known as a minimum borrower contribution, and it applies to conventional loan financing. It is different based on what type of real estate is being purchased, be it a primary residence, second home, or investment property.

Primary Residences

For primary residences, there is no minimum borrower contribution. All of the money needed to complete the transaction can be a gift. This is true whether the loan-to-value ratio is above or below 80% for conventional financing.

Second Homes

For second homes, if the loan-to-value is above 80% (meaning the down payment was less than 20%), borrowers must make a minimum contribution of 5% from their own funds. This is also true on principal units with two to four units.

Investment Properties

Gift funds are not allowed on conventional mortgages for investment properties. Fannie Mae also states that gift funds are not to be used for investment properties.

Recommended: How to Buy a House From a Family Member

How Does This Affect Taxes?

Taxes may affect the donor of the funds, unless the home purchaser makes special arrangements to pay taxes on the gift funds.

The money gifted may be excluded from tax as per the annual exclusion amount. The IRS says the annual exclusion for gifts is $17,000 for 2023. This is per person, so if buying real estate with a partner, the amount doubles to $34,000.

If the gift is from a set of parents, each parent can gift that amount to each of the borrowing partners. This allows for $68,000 to be gifted before triggering the gift tax. In other words:

•   Parent 1: $17,000 for borrowing partner 1, $17,000 for borrowing partner 2 = $34,000

•   Parent 2: $17,000 for borrowing partner 1, $17,000 for borrowing partner 2 = $34,000

Adding the amount for both parents contributing for both borrowers equals $68,000.

If that amount is exceeded, each donor can also claim it as part of the lifetime exclusion on estate taxes, which has a limit of $13.61 million for 2024.

Gift Equity Letters vs Gift Letters for Mortgages

A gift of equity is when the seller gives a portion of the home’s equity to the buyer. It is transferred to the buyer as a credit in the transaction and may be used to fund all or part of the down payment on principal or second homes.

If there is a gift of equity, a gift of equity letter is required. A signed gift letter and settlement statement with the equity gift will be retained in the loan file.

While there are similarities, there are also some differences.

Gift of Equity

 Gifts for Mortgages
Must be applied as a reduction in purchase price or credit Gifts can be an unlimited amount but are not accepted for investment properties
Borrower may not receive cash back at closing for gift equity Borrower can receive funds back at closing
Required to notify appraiser of equity gift Appraiser doesn’t need to know about it
Is from the seller, who can be a relative. For FHA loans, only equity gifts from family are acceptable Is from a donor related to the borrower
Can be used to fund the down payment and closing costs Can be used to fund the down payment and closing costs
Permitted for principal and second homes Permitted for principal and second homes

Whether you’re fortunate enough to receive a gift or you’re making your own way toward homeownership, this mortgage calculator may come in handy.

Recommended: Mortgage Loan Help Center

The Takeaway

A gift letter ensures that the money, or equity, you receive when buying a home is validated when your mortgage loan goes through underwriting. It’s a necessary step on your way to loan approval that a good mortgage lender may be able to help you with.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

Photo credit: iStock/Pictac

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more 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.

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.

SOHL0124006

Read more
Jan
08
2023
What Are Futures? A Guide to Futures Trading

Exploring Futures in Financial Markets: A Comprehensive Guide

By | Growing Wealth, invest, Investing | Comments Off on Exploring Futures in Financial Markets: A Comprehensive Guide

Some investors may trade futures contracts in order to hedge against risk, or to speculate on the price movements of a given asset or security — or because their business will benefit if they lock in a commodity at a certain price. Trading futures can provide opportunities for a range of investors.

A futures contract requires both parties to honor the terms, no matter what the price is in the market when the contract expires. If you want to trade futures, there are various ways they can fit into your portfolio or plan.

What are Futures?

Futures are derivatives that take the form of a contract in which two traders agree to buy or sell an asset for a specified price at a future date. Popular underlying assets for futures may include physical commodities like gold, corn, or oil, as well as currencies, or financial instruments like stocks.

The most commonly traded futures contracts use standardized terms, and are traded on a futures exchange. For example, if you want to buy or sell corn futures, one contract would equal 5,000 bushels and be traded via the Chicago Board of Trade (CBOT). Oil is traded on the Chicago Mercantile Exchange (CME), and one oil futures contract equals 1,000 barrels of oil.

Traders buy and sell in increments specified by the contract. To buy 50,000 bushels of corn or 10,000 barrels of oil, you’d buy 10 contracts of each. Given the quantities and dollar amounts of these trades, investors often use leverage, thereby paying only a fraction of the total cost of the position.


💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.

Understanding How Futures Work

Futures work by obligating a buyer or seller to purchase or offload an asset — it’s a contract.

Mechanism of Futures Trading

A futures contract obliges the buyer to buy a certain asset, or the seller to sell an asset, at an agreed-upon price, by a certain date. Each party must fulfill the terms of the contract, no matter what the market price or spot price is when the contract expires (or trade the contract before the expiration).

Futures contracts are standardized, as noted above, and each contract also spells out the contract terms, which includes among other things:

•   The unit of the trade (e.g., tons, gallons, bushels, etc.).

•   The grade or quality of the commodity, where relevant. For example, there are different types of corn, oil, soy, etc.

•   Terms of settlement (e.g., physical delivery or a cash settlement).

•   Quantity of goods covered by the contract.

•   Currency in which the contract is priced.

Recommended: How Does a Margin Account Work?

The Role of Futures in Markets

A futures contract allows investors to speculate on the direction of the underlying asset, either long or short, using leverage. (Leverage means the trader doesn’t have to put up the full amount of the contract. Instead, futures traders use a margin account.) As such, they’re a tool that allows investors to use leverage and speculation.

Types of Futures Contracts

There are numerous types of futures contracts, including those tied to underlying assets such as equities and commodities. They can even be tied to other futures.

Equity, Commodity, and Other Futures

Futures contracts allow investors to make bets on the prices of a wide array of assets:

•   Commodity futures, which allow investors to buy or sell physical goods like crude oil, pork bellies, natural gas, orange juice, corn, wheat, and more.

•   Financial futures, including index contracts and interest rate or debt contracts.

•   Precious metal futures allow investors to bet on the future prices of gold, platinum, and silver.

•   Currency futures for fiat currencies like the euro, yen, the British pound, and more.

•   U.S. Treasury futures allow investors to make bets on the future value of government bonds.

What are stock futures? Like futures contracts where the underlying is a physical commodity, some futures are tied to shares of a single stock or ETF. Stock index futures, however, are tied to the price movements of an index like the S&P 500 index.

Trading and Speculating with Futures

There are two key aspects to futures trading, which are hedging and speculating. Both play an important role in the markets, and determining whether futures are actually traded or not. There are also trading strategies to keep in mind, too.

Strategies for Futures Trading

There are many strategies for trading futures contracts, just as there are many strategies for trading almost any other type of security or derivative. To name a few of the basic strategies, investors can look at strategizing around price pullbacks, breakout trading, or even spread trading — each requires its own gameplan, and some background research to get started.

Futures as Speculation and Hedging Tools

Hedging is a big reason why investors buy futures contracts: It’s a way to protect against losses resulting from price changes in commodities.

Among the businesses that hedge using futures, the goal is to reduce the risk they face from unexpected price movements, and to guarantee the price they pay or receive for a particular asset.

If a large food manufacturer wants to lock in the price of corn, for example, they might enter into a contract for $10 a bushel. Since corn contracts are typically standardized at 5,000 bushels per contract, the total amount of the futures contract would be $50,000 ($10 x 5,000), to be delivered in six months. Entering into this futures contract would offer the buyer some protection against the possibility of rising corn prices in the future.

Let’s say the price of corn does rise to $12/bushel by the time the contract expires. In that case, the buyer still only pays the agreed-upon price of $10/bushel, even though the spot price is now $12/bushel.

For the corn producer in this scenario, even though it turned out that the futures contract terms weren’t quite as favorable as the actual market price — the contract guaranteed they would get at least $10/bushel, which provided a hedge against a potentially bigger loss.

Although it’s possible to settle a futures contract for the physical asset specified in the contract, most futures contracts are cash-settled. That’s because speculation on price movements is one of the main reasons that investors purchase futures contracts. A futures contract gives traders the opportunity to speculate whether a commodity will go up or down and potentially profit from the price change.

If the underlying asset of the futures contract — such as gold, oil, or corn — is above the price specified in the futures contract, then the investor can sell that contract for a profit before it expires. In that case, the contract would sell for the difference between the market price of the underlying commodity and the purchase price as specified in the contract.

In such a transaction, the underlying commodities don’t change hands between the counterparties of the contract. Instead, the trade would be cash-settled in the brokerage account of the investor.

Alternatively, an investor using futures for speculation could lose money if the price of the commodity is lower than the purchase price specified in the futures contract.

Risks and Benefits of Trading Futures

Futures trading has some significant risks and potential rewards — investors would be wise to know what they’re getting into, accordingly.

Understanding the Risks

Owing to the nature of futures trading, i.e., the binding nature of the contracts and the use of leverage, there are some obvious risks to bear in mind.

In a speculative trade, a futures contract allows you to bet on a commodity’s price movement. If you bought a futures contract, and at expiration the price of the commodity was trading above the original contract price, you’d see a profit. However, you could also lose if the commodity’s price was lower than the purchase price specified in the futures contract.

The potential risks here can be greater than they seem, because trading on margin permits a much larger position than the actual amount held by the brokerage. As a result, margin investing can amplify gains, but it can also magnify losses.

Imagine a trader who has $5,000 in their brokerage account and is in a trade for a $50,000 position in crude oil. If the price of oil moves against the trade, the losses could far exceed the account’s $5,000 initial margin amount. In this case, the broker would make a margin call requiring additional funds to be deposited to cover the market losses.

Speculators can also take a short position if they believe the price of the underlying asset will decline. An investor would realize a gain if the underlying asset’s price was below the contract price, and a loss if the current price was above the contract price. Again, using leverage to place these bets, long or short, can potentially expose investors to more risk than they intended.

Potential Benefits and Rewards

Some of the potential benefits of trading futures include the fact that investors can use leverage to try and generate outsized returns, the markets are liquid (meaning there’s plenty of trading action) and it offers up a chance to make some relatively quick (and potentially large) returns. That should, of course, be weighed against the aforementioned risks.

Futures vs Other Derivative Instruments

There are other financial derivatives with similar characteristics to futures contracts, such as options and forwards.

Comparing Futures with Options and Forwards

American-style options grant the buyer the right, but not the obligation, to buy or sell the contract’s underlying asset at any time until the contract expires.

Unlike a futures contract, however, option contracts don’t require the investor to purchase or sell the underlying asset. The investor can simply let the option expire. A futures contract, on the other hand, obligates the buyer to purchase the underlying asset, or to pay the seller of the futures contract the cash equivalent of that asset at the time of the contract’s expiration.

Similarly, a forward contract looks and functions a lot like a futures contract, with the primary difference being that forward contracts are only settled once — on their expiration date. Forwards are also often settled in the underlying asset (as opposed to cash), and the forwards market tends to be less liquid.


💡 Quick Tip: In order to profit from purchasing a stock, the price has to rise. But an options account offers more flexibility, and an options trader might gain if the price rises or falls. This is a high-risk strategy, and investors can lose money if the trade moves in the wrong direction.

Opening and Managing Futures Positions

Opening and managing futures positions can be relatively simple, granted you’re using a platform that allows for futures trading, and can follow a few steps.

Steps to Start Trading Futures

It’s common for some brokerages to have their own futures-trading capabilities, as well as their own rules about what an investor needs in terms of assets in order to trade futures contracts. Be sure to verify what those requirements are before selecting a broker.

Once you’re eligible to open a margin account and trade futures, those contracts trade on different exchanges, such as the Chicago Mercantile Exchange (CME), ICE Futures U.S. (Intercontinental Exchange), and the CBOE Futures Exchange (CFE).

From there, depending on the brokerage or platform being used, investors should be able to open and swap futures positions.

Managing Futures Contracts Effectively

Most investors in futures contracts have no interest in either receiving or having to deliver the physical commodities that underlie these contracts. Rather, they’re interested in the cash profit. The means of doing so is to trade the futures contract before its expiration date.

The standardized nature of most futures makes it so that a great many (but not all) futures contracts will expire on the third Friday of each month. Some commodities are seasonal, and only trade during specific months. High-grade corn trades on the CBOT in March, May, July, September, and December, for example.

As with any type of trading or investing, making sure you know what you’re dealing with when it comes to futures — and paying attention to the market — is going to be paramount to finding success as a trader. There are risks at play, and there’s no guarantee that the chips will fall your way. But for some, futures trading has proven fruitful.

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

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

Photo credit: iStock/hopeist

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

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

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN1023183

Read more
Jan
07
2023

Guide to Bitcoin Halving

By | Growing Wealth, invest, Investing | Comments Off on Guide to Bitcoin Halving

“Bitcoin halving” refers to an event that happens every four years when the block rewards for Bitcoin miners get cut in half. This reduces the supply of new bitcoins by 50%.

The crypto halving process was built into the Bitcoin protocol to ensure that Bitcoin would be a good store of value by remaining a deflationary currency. Read on to learn more about halving, why it matters, and the effect it has on Bitcoin’s value.

What Is Bitcoin Halving?

Bitcoin halving — also referred to as “the halvening,” in some instances — is a periodic event where the number of new Bitcoins that enter circulation as a result of crypto mining is reduced by half.

Bitcoin halving occurs once every four years, and as time goes on, the potential rewards for mining become less and less — while, in theory, helping to maintain Bitcoin as a store of value.

For example, when Bitcoin was first introduced, miners could mine as many as 50 Bitcoins every ten minutes. But since then, after several halvings, rewards have been reduced to 6.25 Bitcoins. Other types of cryptocurrencies may use other methods for maintaining value, including coin burning.

How Does Bitcoin Halving Work?

Halving Bitcoins is, as mentioned, built into the Bitcoin blockchain network’s protocol. It is, in a sense, a feature of the system, or a critical component to how Bitcoin works.

By decreasing mining rewards every four years or so, the network made it more enticing for early adopters to start mining early. That is, since the rewards were relatively high early after Bitcoin hit the market, more miners were likely interested in getting involved. But as the rewards are reduced with time, more miners compete for those rewards.

This adds more hashing power to the network, and also ensures that the market isn’t flooded with Bitcoin all at once.

Bitcoin Mining 101

To better understand halving, it may help to have a basic understanding of crypto mining — the process by which new Bitcoins are created. The Bitcoin network functions in a way that requires no centralized planning or authority. People can send value to each other peer-to-peer, for a small cost.

On the network, “mining” facilitates transactions. Bitcoin “miners” are computers that process transactions for the network. They verify that transactions are valid and keep the network secure. In exchange, miners receive new Bitcoins as they are created as rewards.

Bitcoin transactions form groups known as “blocks.” Each block gets attached to all the previous blocks, forming what’s known as a blockchain. A new block gets created once every ten minutes or so, and miners compete to “find” the next block and earn its rewards, with the miners who put in the most work rewarded with new coins.

Miners can also team up and participate in mining pools, which effectively means that miners are pooling their resources to earn reward.

The most recent halving occurred in 2020, which set the reward for finding the next block as 6.25 Bitcoins. This won’t change until the next halving, which will happen sometime in 2024. This is critical to know, especially if you’re actively investing in Bitcoin, as it could have market repercussions.

Recommended: How Many Bitcoins Are Left?

When Does Bitcoin Halving Occur?

Bitcoin halving happens approximately once every four years. The first halving occurred in 2012, when the block reward was reduced to 25 BTC per block from the original 50 BTC per block. Subsequent halvings dropped the reward from 25 BTC to 12.5 BTC, and then to 6.25 BTC. The next halving will set the reward at 3.125 BTC.

By constantly reducing the supply of new currency, the theory is that Bitcoin will remain a deflationary currency, rather than an inflationary one.

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

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

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

Why Does Bitcoin Halving Happen?

Again, the logic behind halving is that it allows the system to have a set schedule for introducing new BTC into the market, and a set limit for new coins (as well as the total 21 million overall Bitcoin limit). By sticking to a set schedule, Bitcoin can avoid an overabundance problem, and retain value.

Given that there’s no regulatory body that can change that schedule, politics or economic pressure have no effect on the overall amount of BTC in circulation — something that differs when discussing fiat currencies.

Who Chose the Bitcoin Distribution Schedule?

In order to retain its value, a new currency must have a limited supply and be difficult to create. Bitcoin’s creator, Satoshi Nakamoto – whose identity remains a mystery — made the decision to halve Bitcoin’s block reward every four years, according to the project’s original whitepaper.

Halvings have occurred in the following years, with the block rewards being reduced as follows:

•   2012: 25 Bitcoins

•   2016: 12.5 Bitcoins

•   2020: 6.25 Bitcoins

When is Bitcoin halving next? As mentioned, the next halving will occur in 2024, when the block reward will be reduced to 3.125 Bitcoins.

Is Bitcoin Halving a Good or Bad Thing?

Bitcoin halving has its upsides. It has been said that halving is one of the reasons Bitcoin still has value.

When Bitcoin was created, it was the advent of a form of currency that has been created that is profoundly deflationary, and has a fixed supply limit (only 21 million bitcoins will ever exist).

Some say that Bitcoin is the “hardest” money ever known, meaning that Bitcoin is hard to create and has a limited supply. In this sense, Bitcoin is sometimes compared to gold or other precious metals.

Gold also has to be mined and has a scarce supply. This is why Bitcoin is sometimes referred to as “digital gold,” but Bitcoin is not correlated with the price or supply of gold, nor is it considered a precious metal. There is, however, a crypto on the market called “Bitcoin Gold,” which, again, is not the same as actual, out-of-the-ground gold.

Recommended: Bitcoin vs. Gold

Does Halving Bitcoin Have Any Effect on Its Price?

Historically, the price of Bitcoin has increased in the 18 months following a halving. After the first halving occurred in 2012, Bitcoin hit a record high (for the time) of more than $1,000 in November 2013. In April of that year, before the halving, Bitcoin was trading at less than $50.

The second halving occurred in 2016. In December 2017, Bitcoin prices hit a record high of nearly $20,000, up from less than $1,000 in January of that year. And since the halving in 2020, Bitcoin prices increased to more than $60,000 — though they have fallen significantly since then.

After the price increase there is often a retreat, sometimes resulting in drawdowns as large as 90%. The price then begins appreciating slowly leading up to the next halving, and the cycle tends to repeat. This is an oversimplified version of events but it offers a general sense of how halving Bitcoin has impacted prices historically.

That said, past performance does not always indicate future results. Plus, markets move for a variety of reasons, from geopolitical issues and macroeconomic events. Cryptocurrencies can, at times, be correlated with broader financial markets, so it’s hard to pinpoint whether halving was the exact cause of any price increase.

Recommended: Next Bitcoin Bull Run

The Takeaway

Bitcoin halving refers to an event when the amount of Bitcoins miners receive in exchange for processing transactions is cut in half, occurring once every four years. The most recent halving was in 2020, and the next one will happen in 2024.

Halving is a fundamental part of Bitcoin’s network, and as a feature of that network, is what makes some people believe that Bitcoin is unique as a store of value. But the halving can and does have an effect on its price, too, which is something investors should keep in mind.

FAQ

Does Bitcoin halving increase the price?

Historically, Bitcoin prices have risen after a halving event. But there are numerous other factors that affect Bitcoin’s price, and it’s difficult to say that the halving itself has caused values to increase.

How often is Bitcoin halved?

Bitcoin halving occurs roughly once every four years. The most recent halving event was in 2020, and the next one will be in 2024. They will continue to happen on that schedule until the supply of Bitcoin is exhausted.

Is Bitcoin halved?

Yes, Bitcoin is halved, at a schedule of roughly once every four years. The halving process is built into the Bitcoin network’s protocol, as designed by its creator(s).

Photo credit: iStock/happyphoton

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

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

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

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

SOIN1222006

Read more
Jan
07
2023
Does Cryptocurrency Have Trading Hours?

Does Cryptocurrency Have Trading Hours?

By | Growing Wealth, invest, Investing | Comments Off on Does Cryptocurrency Have Trading Hours?

Crypto trading hours are 24/7, 365 days per year — the market never closes. That’s good news for those who simply can’t peel themselves away from studying cryptocurrency charts or watching the crypto markets.

Though cryptocurrency trading hours are much more expansive than those of the traditional stock market, there are some caveats depending on your individual cryptocurrency exchange of choice. Read on to learn more about crypto trading, when it happens, and how to get in on it.

How Crypto Trading Works

If you’ve had any experience with other market types, or even the stock exchange, you likely already have a good grasp of how crypto trading works. Most people access the market through a crypto exchange, where buyers and sellers transact assets.

For those buyers and sellers, the exchanges simplify the trading process by showing real-time values for various cryptocurrencies (the actual cryptos on a given exchange will vary), and pairing traders and investors so that they can buy, sell, and trade. Of course, investors can still spend hours reading crypto charts, but an exchange streamlines the trading process. As such, for most end users, it’s pretty much the same process as buying or selling stocks.

What Time Will Crypto Coin Start Trading?

Since the crypto markets are always open, so to speak, crypto trading never starts or stops. Investors and traders can use an exchange or brokerage to trade crypto any time they’d like.

That’s not to say that all markets will have lots of liquidity or trading partners at any given time, but it’s a 24-hour market nonetheless.

Are There Time Limitations on Crypto Trading Networks?

Though crypto exchanges are similar to services that allow users to actively invest in stocks and other assets, there are some differences. One of the most important differences is time limitations — or, the hours of the day during which transactions are executed.

If you’re trading assets like stocks, bonds, and ETFs, transactions are executed during the market’s open hours, and to a lesser extent, the after-hours market. That’s generally 9:30 am ET to 4 pm ET, Monday through Friday, and 4 pm ET to 8 pm ET for after-hours trading.

But some assets can be traded 24 hours per day. The foreign exchange (forex) market is an example — traders can swap currencies all day between Monday and Friday. The crypto markets are likewise much looser with trading hours, in that the crypto markets never actually close.

Does The Time You Trade Affect Your Crypto Fees?

Though the crypto markets never close, when you choose to trade can have an impact on applicable trading fees. That’s because the markets can get busy, and it requires network resources to facilitate trades — network participants need to validate trades on blockchain networks, for instance, and if many traders are trying to execute transactions at once, it can create a logjam.

For that reason, you may end up paying higher or lower transaction fees (commonly called “Ethereum gas fees”) if you try to trade during busy hours. Conversely, the fees may be lower during slower times of the day, like the middle of the night.

Note, too, that there are ways to minimize crypto trading fees.

On the other hand, there is more liquidity in the market during stretches of higher trading volume. That means there are more participants, and generally speaking, more “action” in the market. That can likewise be a good or bad thing, but something crypto investors should know before they decide on a time of the day to trade.

Cryptocurrency Trading Hours vs Stock Market Trading Hours

The stock market has set operating hours: 9:30 am ET until 4 pm ET, Monday through Friday. The stock markets are closed during weekends and holidays.

Conversely, the crypto markets operate non-stop. That doesn’t necessarily mean that there aren’t certain days or times that are better to trade, as mentioned, since the numbers of traders and overall level of liquidity in the markets can vary. But access to the crypto markets is always open.

So, you can get real-time updates on crypto prices, add some coins to your portfolio, or fine-tune your crypto day-trading strategies at odd hours, on weekends, and even on holidays.

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

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

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

Does The Global Market Affect Crypto Trading?

The global market does have an effect on crypto trading, but we’re still learning the degree to which that relationship exists. While crypto is, in some ways, siloed off from other trading markets, the two can and do affect one another, as you may have noticed by the fluctuating values in your investment portfolio.

During 2022, we saw this first-hand, as an overall market downturn likewise spilled over into the crypto markets — hence, 2022’s “crypto winter.” Similarly, the collapse of large crypto companies like FTX in late 2022 had an effect on global markets as well, causing some investors to lose money, likely altering their other investment decisions and creating a ripple effect in the markets.

Pros and Cons of Crypto Always Being Tradeable

There are some pros and cons given that the crypto markets have no set hours.

For instance, during times when fewer traders are on the market, it can affect crypto exchange liquidity — or more specifically, Bitcoin liquidity — and make values more volatile. Conversely, the open-ended hours of the market can make it easier to research and execute trades at your convenience.

Pros of 24-7 Crypto Trading

There are some advantages to the crypto markets always being open. These are the top benefits:

•   Convenience for traders

•   Higher potential returns due to bigger market and liquidity

•   Access to markets anytime, anywhere

Cons of 24-7 Crypto Trading

Of course, there are also potential downsides to crypto’s non-stop market:

•   Some exchanges and platforms may limit market access to certain times

•   Higher risks and higher Bitcoin volatility (or other crypto volatility) on certain days and times

•   Lack of regulated market hours means traders could miss big market movements

How Non-Stop Crypto Trading Hours Impact Institutions

There are some ways in which the non-stop crypto market affects institutions — banks and exchanges, in particular.

The stock market takes a break every day, and every weekend. That gives all the players in the market — individual investors and institutions — a chance to assess and reposition their assets for their next moves. But since crypto trades all the time, there are stretches during the 24-hour day when banks and exchanges are effectively closed, and money isn’t being moved around as quickly or efficiently as it would during business hours.

This can cause lags — if a crypto trader is trying to deposit money into their crypto exchange account to execute a trade at, say, 2 am ET on a Sunday night, that money won’t actually move until the next day. That has the potential to cause some friction in the markets.

In short, there’s a mismatch between the standard business hours of many institutions and the 24-hour nature of the crypto markets, which may have an effect on the markets.

How Does Crypto Trade on Weekends?

Crypto trades the same on weekends as it does during weekdays. Remember: The market never closes! But there is one thing to keep in mind: The crypto markets are volatile, and even more so on the weekends. In fact, crypto values often crash during the weekends for a few key reasons:

•   Less trading volume: Many people take the weekends off, and that includes crypto traders. As such, the volume of trades takes a dip. With lower volume, the trades that are executed (especially big ones) can have an outsized effect on the markets — more so than during times with higher trading volume.

•   Margin trading: Many traders trade crypto “on margin,” meaning that they borrow money to execute trades. And when prices drop, it may trigger a “margin call,” which means those margin traders must repay their loans. That forces traders to try and move some money around, but with banks closed on the weekends, it can make things more difficult, and in effect, potentially cause crypto values to fall further.

•   Hourly mismatches and liquidity: With banks closed on weekends but the crypto markets firing away at all hours, traders may have trouble getting more money into their crypto exchange accounts. This can limit market liquidity, potentially adding yet another systemic and chaotic element to weekend crypto trading.

When Are the Best Times to Buy and Trade Crypto?

As discussed, there are times and days that are generally more favorable to crypto traders to execute trades. The best times and days to trade crypto is generally “whenever it works for you,” but research shows that professional traders tend to be more active during weekdays.

Monday tends to be the day when traders historically see the biggest returns when trading, followed by Friday and Saturday. And as for which hours of the day are the most fruitful? Data shows that the markets are busiest around 12 pm ET.

But as with any investing, past performance and trends are no guarantee of future outcomes. There’s no promise that trading during these days or times will translate to bigger returns (or any returns) for an individual trader or investor. It’s also worth keeping in mind that these trends are likely to change with time.

The Takeaway

The crypto markets are a wild, non-stop ride, and they operate 24 hours per day, 365 days per year. The markets never close, which means you can buy, sell, or trade crypto any time you want — that’s not to say that there aren’t times that may be more advantageous, however.

FAQ

What hours does cryptocurrency trade?

Cryptocurrency trades non-stop, 24 hours per day, 365 days per year. The crypto markets never close, which means traders and investors can always execute crypto transactions.

When are the best times to buy crypto?

The best times to buy crypto depend on an individual investor’s preferences, but the markets are generally more liquid during business hours on weekdays. Transaction fees, however, may be higher during those times, too.

Can I trade crypto on weekends?

Yes, you can trade crypto on weekends. The markets never close, so you can trade crypto on weekends, holidays, or any other day, too.

Photo credit: iStock/Stefan Tomic

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

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

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

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

SOIN1222007

Read more

CATEGORIES

  • All
  • No categories
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

©2024 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender