InvestGen Archives

Nov

2025

Guide to Glide Paths for 401(k)

By Paulina Likos | invest, Investing, Preparing for Retirement | Comments Off

Table of Contents

What Is a Glide Path?
Understanding Glide Path
Types of Glide Paths for Retirement Investing
Choosing the Right Glide Path
FAQ

Asset managers use a “glide path” to determine how the asset allocation of a target-date retirement fund will change based on the number of years until the fund’s target date. Each target-date fund has its own glide path, though they typically begin with a more aggressive allocation that gets more conservative over time.

The idea behind most target date fund glide paths is that investors with a longer-term time horizon have a higher percentage of their portfolio in riskier assets, like stocks, since they have time to recover from short-term volatility. As their retirement date approaches (or once they’ve started retirement), investors likely will benefit from a more conservative portfolio that protects the assets they’ve already accumulated.

Key Points

• A glide path adjusts asset allocation of a target-date retirement fund, reducing risk as retirement approaches.

• Target-date funds with glide paths are common investment choices in 401(k) plans and IRAs.

• Glide paths can be declining, static, or rising, each with distinct risk and return profiles.

• Selecting the right glide path depends on personal risk tolerance and retirement goals.

• “To” glide paths become conservative at retirement, while “Through” glide paths keep some risk for potential growth at retirement and beyond.

What Is a Glide Path?

The glide path is the formula that asset managers choose when they put together a target-date mutual fund that determines how and when that portfolio will adjust its asset allocation over time.

Target-date funds (and their glide paths) are common investment choices in 401(k) accounts, as well as in other types or retirement accounts, such as a Roth or traditional IRA set up through a brokerage account.

A key component to saving for retirement is having a suitable mix of investments. Early on, most glide paths focus on stocks that typically offer the greatest potential to grow in value over time and then shift to bonds and other fixed-income investments according to the investor’s risk tolerance to manage volatile price swings as they get closer to retirement.

¹Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Understanding Glide Path

The glide paths within target-date funds aim to create a set-it-and-forget-it investing option for retirement savers, who may get a mix of assets based on their time horizon within a single fund. Investors who are younger and have 20 to 30 years until retirement may have a higher allocation toward riskier assets like stocks.

By comparison, someone who is nearing retirement or has already retired, may need to consider scaling back on their portfolio risk. Glide path investing automatically reallocates the latter investor’s portfolio toward bonds which are typically lower risk investments with lower returns compared to stocks, but are more likely to provide increased portfolio stability. That also generally means that younger investors in a target-date fund will typically have higher 401(k) returns than older investors.

Types of Glide Paths for Retirement Investing

There are different glide path strategies depending on an investor’s risk tolerance and when they plan to retire. Typically, target-date funds have a declining glide path, although the rate at which it declines (and the investments within its allocation) vary depending on the fund.

Declining Glide Path

A declining glide path reduces the amount of risk that a target-date fund takes over time. In general, it makes sense for retirees or those approaching retirement to reduce their investment risk with a more conservative portfolio as they age. A decreasing glide path is the more common approach used. It involves a higher equity risk allocation that steadily declines as retirement approaches.

Static Glide Path

Some target-date funds may have a static glide path during some years. During this time, the investment mix would remain at a set allocation, such as 60% stocks and 40% bonds. Managers maintaining portfolios that have a static glide path rebalance them regularly to maintain this allocation.

Rising Glide Path

In this approach — which goes against most financial professionals’ recommendations — a portfolio initially has a greater allocation of bonds compared to stocks, and then gradually increases its shares of equities. For example a portfolio might start out with 70% bonds and 30% stocks, and reverse those holdings over a decade to 70% equities and 30% bonds. The rising glide path approach generally takes the position that increasing risk in a retiree’s portfolio could reduce volatility in the early stages of retirement when the portfolio is at risk of losing the most wealth in the event of a stock market decline.

While an increasing glide path may be an option to consider for some retirees with pension benefits or those who are working in retirement — that is, as long as they understand the risk involved and feel comfortable taking it on — generally speaking, the rising glide path is the least utilized method for retirement planning, and it is not commonly recommended by financial advisors.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

Choosing the Right Glide Path

If you’re saving for retirement in a 401(k), there may only be one target-date option available to you based on your target-retirement age. However, if you have choices within your 401(k) or you’re choosing a target-date fund within an individual retirement account or another investment vehicle, you can look for a target-date fund with a strategy that aligns with your investment view.

One rule of thumb uses the “rule of 100,” which subtracts the investor’s age from 100 to determine the percentage of your portfolio that should be in stocks. However, some managers use glide paths that decline more or less quickly than that.

Some target-date funds also incorporate alternative assets, such as private equity or real estate, in addition to traditional stocks and bonds.

“To” or “Through” Retirement

When glide paths reach retirement date, they can take one of two approaches, either a “To” or “Through” approach. A “To” retirement glide path is a target-date fund strategy that reaches its most conservative asset allocation when retirement starts. This strategy generally holds lower exposure to risk assets during the working phase and at the target retirement date. This means, at retirement, it reduces exposure to riskier assets, like equities, and moves into more conservative assets, like bonds.

“Through” glide paths tend to maintain a somewhat higher allocation toward riskier assets at their target retirement date, which continues to decrease in the earlier retirement years. This means exposure to equities in retirement tends to be higher, at least in the first few years of retirement.

In choosing which path is best suited to you, you must determine your risk tolerance and how aggressive or conservative you are able to be. This includes deciding how much exposure to equities you can afford to have. Decreasing exposure to stocks means investors may not have to worry as much about a portfolio that fluctuates in value, whereas an increased exposure to equities may mean a portfolio with more volatility that could have potential for greater gains, and potentially higher losses, over time.

The Takeaway

Glide paths are formulas that investment managers create to determine the level of risk in a target-date fund. The idea behind a glide path is that a portfolio automatically adjusts itself based on risk tolerance that changes as the investor ages, allowing for a more hands-off approach.

Glide paths are common investment choices in retirement accounts such as 401(k)s and IRAs. As you’re determining your retirement savings strategy, carefully consider whether they may make sense for you.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.

FAQ

What does glide path approach mean?

A glide path refers to a formula that asset managers use to determine the allocation mix of assets in a target-date retirement portfolio and how it changes over time. A target-date retirement portfolio tends to become more conservative as the investor ages, but there are multiple glide paths to take into account a retiree’s risk tolerance.

What is a retirement glide path?

A retirement glide path is the approach within a target-date fund that includes a mix of stocks and bonds. Retirement glide paths typically start out with a more aggressive mix of investments and get more conservative over time.

Which type of mutual fund follows a glide path?

Target-date retirement funds are the most common type of mutual fund that follows a glide path. However managers may also use glide paths for other time-focused, long-term investments.

What is an example of a glide path?

Here is one example of a glide path: Say an investor plans to retire in 2050 and buys a target-date 2050 fund. If the investor is using a declining glide path strategy, it will automatically reduce the amount of risk that the target-date fund takes over time. So, for instance, the target-date fund might have 70% stocks and 30% bonds at the beginning, but over time, the amount allocated to stocks will steadily decline, and the amount allocated to bonds will steadily increase — making the portfolio more conservative as the investor approaches retirement.

What are the benefits of a glide path?

Potential benefits of a glide path may include making investing easier because the process of changing asset allocation is automatic, and allowing for an essentially hands-off approach since glide paths are professionally managed. However, there are drawbacks to consider, as well, including possibly higher management fees for some target-date funds.

Photo credit: iStock/akinbostanci

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.

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.

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.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

SOIN-Q425-027

Nov

2025

Buy to Open vs Buy to Close

By Mike Zaccardi, CMT, CFA | 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

What Is Buy to Open?
What Does Buy to Close Mean?
Differences Between Buy to Open vs Buy to Close
Understanding Buy to Open and Buy to Close
Using Buy to Open or Buy to Close
FAQ

Buy to open and buy to close are options orders used by traders in order, as the names suggest, to open new options positions or to close existing ones.

Investors use a “buy to open” order to initiate a long call or put option, anticipating that the option price may move in their favor. On the other hand, traders who want to exit an existing short options contract may use a “buy to close” order.

Key Points

• Buy to open establishes a long position and may increase open interest depending on the counterparty.

• High reward potential may accompany a buy to open, especially for calls, but the risk of expiration at zero value is significant.

• Buy to close is the closing transaction for short option positions, which may benefit from time decay, yet carry the risk of loss if prices move adversely.

• An example buy-to-open strategy involves buying a put to open, anticipating a stock decline, and later selling to close the put for more than the premium originally paid.

• Understanding buy to open and buy to close is essential for managing risk and leveraging market movements effectively.

What Is Buy to Open?

“Buy to open” is an order type used in options trading, similar to going long on a stock. In options trading, you can buy to open a call if you expect the price to rise, which is a bullish position, or you may buy to open a put, which is taking a bearish position. Either way, to buy to open is to enter a new options position.

Buying to open is one way to open an options position. (The other is selling to open.) When buying to open, the trader uses either calls or puts and speculates that the option itself will increase in value — that could be a bullish or bearish outlook depending on the option type used. Buying to open sometimes creates a new option contract in the market, so it may increase open interest if the trade is matched with a seller opening a new position.

A trader pays a premium when buying to open. The premium paid, also called a debit, is withdrawn from the trader’s account in a manner that’s similar to buying shares.

Example of Buy to Open

If a trader has a bullish outlook on XYZ stock, they might use a buy to open options strategy. To do that, they’d buy call options. The trader must log in to their brokerage account, and then go to the order screen. When trading options, the trader has the choice of buying to open or selling to open.

Buying to open can use either calls or puts, and it may create a new options contract in the market. As noted earlier, buying to open calls is a bullish position, while buying to open puts is a bearish position.

Let’s assume the trader is bullish and buys 10 call contracts on XYZ stock with an expiration date of January 2025 at a $100 strike price. The order type is “buy to open” and the trader also enters the option’s symbol along with the number of contracts to purchase. Here is what it might look like:

• Underlying stock: XYZ

• Action: Buy to Open

• Contract quantity: 10

• Expiration date: January 2025

• Strike: $100

• Call/Put: Call

• Order type: Market

A trader may use a buy to open options contract as a stand-alone trade or to hedge existing stock or options positions.

Profits can potentially be substantial with buying to open. Going long calls features unlimited upside potential while buying to open puts has a maximum profit when the underlying stock goes all the way to zero. Buying to open options carries the risk that the options will expire worthless, however.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

What Does Buy to Close Mean?

Buying to close options are used to exit an existing short options position and may reduce the number of contracts in the market. Buying to close is an offsetting trade that covers a short options position. A buy to close order occurs after a trader writes an option.

Writing options involves collecting the option premium — otherwise known as the net credit — while a buy to close order debits an account. The trader is attempting to profit by keeping as much premium as possible between writing the option and buying to close. The process is similar to shorting a stock and then covering.

Example of Buy to Close

Suppose a trader opened a position by writing puts on XYZ stock with a current share price of $100. The trader expected the underlying stock price would remain flat or rise, so they entered a neutral to bullish strategy by selling one options contract. A trader might also sell options when they expect implied volatility will drop.

The puts, with a strike of $100, expiring in one month, brought in a credit of $5 per share (an options contract typically covers 100 shares).

The day before expiration, XYZ stock trades relatively close to the unchanged mark relative to where it was a month ago; shares are $101. The put contract’s value has dropped sharply since the strike price is below the stock price and because there is so little time left until the expiration date. The trader may realize a profit by buying to close at $1 the day before expiration.

The trader sold to open at $5, then bought to close at $1, resulting in a $4 profit per contract ($400 at 100 shares per contract).

Differences Between Buy to Open vs Buy to Close

There are important differences between a buy to open vs. buy to close order. Having a firm grasp of the concepts and order type characteristics is important before you consider trading.

Buy to Open	Buy to Close
Creates a new options position	Closes an existing options contract
Establishes a long options position	Covers an existing short options position
May offer reward potential	Is typically used after selling an option to close a short position that may have benefitted from time decay
Can be used with calls or puts	Can be used with calls or puts

Understanding Buy to Open and Buy to Close

Let’s dive deeper into the techniques and trading strategies for options when executing buy to open vs. buy to close orders.

Buy to Open Call

Either calls or puts may be used when constructing a buy to open order. With calls, a trader usually has a bullish outlook on the direction of the underlying stock. Sometimes, however, the trader might speculate based on movements in other variables, such as volatility or time decay.

Buying to open later-dated calls while selling to open near-term calls, also known as a calendar spread, is a strategy that may be used to attempt to benefit from time decay and higher implied volatility. Buying to open can be a stand-alone trade or part of a bigger, more complex strategy.

Buy to Open Put

Buying to open a put options contract is a bearish strategy when done in isolation, since profit potential comes from a decline in the underlying stock’s price. A trader commonly uses a protective put strategy when they are long the underlying stock. In that case, buying to open a put is simply designed to protect gains or limit further losses in the underlying stock. This is also known as a hedge.

A speculative trade using puts is when a trader buys to open puts with no other existing position. The trader executes this trade when they anticipate that the stock price will decline. Increases in implied volatility may also benefit the holder of puts after a buy to open order is executed.

Buy to Close

A buy to close order completes a short options trade. It can reduce open interest in the options market whereas buying to open can increase open interest. The trader may profit when buying back the option at less than the price they sold it for.

Buying to close occurs after writing an option. When writing (or selling) an option, the trader seeks to take advantage of time decay. That can be a high-risk strategy when done in isolation — without some other hedging position, there could be major losses. Writing calls has unlimited risk since the stock could theoretically continue to rise, while writing puts has substantial risk as the underlying stock can fall all the way to zero. So, a writer may use a buy-to-close order to close a position and limit losses when the price of stock is moving against them.

Shorting Against the Box

Shorting against the box is a strategy in which a trader has both a long and a short position on the same asset. This strategy may allow a trader to maintain a position, such as being long a stock.

Tax reasons often drive the desire to layer on a bearish options position with an existing bullish equity position. Selling highly appreciated shares can trigger a large tax bill, so a tax-motivated approach does not involve shorting against the box; that strategy is no longer permitted for tax deferral under the Taxpayer Relief Act of 1997, which classifies such offsets as constructive sales. A more common modern alternative is using buy-to-open puts for downside protection. Not all brokerage firms allow this type of transaction. Also, when done incorrectly or if tax rules change, the IRS could determine that the strategy is effectively a sale of the stock that may require capital gains payments and, under current U.S. tax law, entering an offsetting short position is treated as an immediate constructive.

Using Buy to Open or Buy to Close

A trader must decide if they want to go long or short options using puts or calls. Buying to open may generally be used to seek profits from large changes in the underlying stock while selling to open often involves attempting to take advantage of time decay. Traders often place a buy to close order after a sell to open order executes, but they might also wait with the goal of the options potentially expiring worthless.

Another consideration is the risk of a margin call. After writing options contracts, it’s possible that the trader might have to buy to close at a steep loss or be required to liquidate positions by the broker. The broker could also demand more cash or other assets be deposited to satisfy a margin call.

Test your understanding of what you just read.

The Takeaway

Buy to open is a term that describes when an options trader establishes a long position. Buy to close is when a short options position is closed. Understanding the difference between buy to open vs. buy to close is crucial to options trading. These option orders allow traders to put on positions to fit a number of bullish or bearish viewpoints on a security.

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.

FAQ

What is the difference between buy to open and buy to close options?

Buy to open means a trader enters a new long options position by purchasing a call or put contract. Buy to close means exiting an existing short options position by purchasing it back.

What is the most successful option strategy?

There is no single “most successful” strategy. An options approach’s effectiveness may depend on the market environment, the trader’s outlook, and risk management practices.

Is it better to buy at open or close?

There is no universal rule on whether it’s better to buy options at the market’s open or close. Traders often consider liquidity, volatility, and bid–ask spreads.

Is it better to buy options that are ITM or OTM?

In-the-money (ITM) and out-of-the-money (OTM) options each have trade-offs. ITM contracts cost more but have intrinsic value, while OTM options are cheaper but riskier because they require larger price moves to be profitable.

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

SOIN-Q325-020

Nov

2025

A Beginner’s Guide to Options Trading

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is Options Trading?
What Are Puts and Calls?
Options Trading Terminology
“The Greeks” in Options Trading
How to Trade Options
Basic Options Trading Strategies
Pros & Cons of Options Trading
FAQs

An option is a financial instrument whose value is tied to an underlying asset; this is known as a derivative. Instead of buying an asset, such as company stock, outright, an options contract allows the investor to try to benefit from price changes in the underlying asset without actually owning it.

Because options contracts typically cost much less than the option’s underlying asset, trading options can offer investors leverage that may result in potential gains or losses depending on how the market moves. But options are very risky, and also can result in steep losses. That’s why investors must meet certain criteria with their brokerage firm before being able to trade options.

Key Points

• Options trading involves buying or selling options contracts for the right — and for sellers the obligation — to trade assets at a fixed price by a set date.

• Options are derivatives, deriving value from underlying assets, allowing trades based on anticipated price movements.

• Call options offer buyers the right to buy underlying assets at a set price, while put options offer buyers the right to sell assets at a set price.

• Key terms like the put-call ratio and the Greeks are essential for evaluating market sentiment and options behavior.

• Options trading may offer high returns and additional income but also carry significant risks, including the possibility of experiencing rapid losses.

What Is Options Trading?

Knowing how options trading works requires understanding what an option is, as well as its potential advantages, disadvantages, and risks.

What Are Options?

Buying an option is simply purchasing a contract that represents the right, but not the obligation, to buy or sell a security at a fixed price by a specified date.

• The options buyer (or holder) has the right, though not the obligation, to buy or sell a certain asset, like shares of stock, at a certain price by a specific date (the expiration date of the contract). Buyers pay a premium for each options contract; this represents the market price of the option contract at the time of purchase.

• The options seller (or writer), who is on the opposite side of the trade, has the obligation to buy or sell the underlying asset at the agreed-upon price, aka the strike price, if the options holder chooses to exercise their contract.

Options buyers and sellers may use options to attempt to profit if they think an asset’s price will go up (or down), to offset risk elsewhere in their portfolio, or to potentially enhance returns on existing positions. There are many different options trading strategies.

Why Are Options Called Derivatives?

An option is considered a derivative instrument because it is based on the value of the underlying asset: an options holder doesn’t purchase the asset, just the options contract. That way, they can make trades based on anticipated price movements of the underlying asset, without directly owning the asset itself.

In stock options, one options contract typically represents 100 shares.

Other types of derivatives include futures, swaps, and forwards. Options on futures contracts, such as the S&P 500 index or oil futures, are also popular derivatives.

It’s also important to know the difference between trading using margin vs. options? Having a margin account does offer investors leverage for other trades (e.g., trading stocks). But while a brokerage may require you to have a margin account in order to trade options, you can’t purchase options contracts using margin. That said, an options seller (writer) might be able to use margin to sell options contracts.

Recommended: What Are Derivatives?

What Are Puts and Calls?

There are two main types of options: calls vs. puts.

Call Options 101

When purchased, call options give the options holder the right (though not, again, the obligation) to buy an asset at a certain price in the future, typically in anticipation of the asset’s price rising

Here’s how a call option might work. The options buyer purchases a call option tied to Stock A with a strike price of $40 and an expiration three months from now. Stock A is currently trading at $35 per share.

If Stock A appreciates to a value higher than $40 per share, the option holder may choose to exercise the contract to realize a profit, or sell their option for a premium that’s higher than what they initially paid. If the value of Stock A goes up, the value of the call option may, all else being equal, also go up.

The opposite may also occur. If shares of Stock A go down, the value of the call option may go down, and expire worthless.

Assuming the price goes up and the options holder wants to exercise their call option, they would, with an American-style option, have until the expiration date to do so. With European-style options, the option can only be exercised on the expiration date). When they exercise, they would typically buy 100 shares at the strike price.

Put Options 101

Meanwhile, put options give holders the right to sell an asset at a specified price by a certain date, typically with the anticipation that the asset price will fall.

Here’s how a put trade might work. A trader buys a put option tied to Stock B with a strike price of $45 and an expiration three months from now. Stock B is currently trading at $50 per share.

If the price of Stock B falls to $44, below the strike price, the options holder can exercise the put to profit from the price difference. Alternatively, the value of the option may also rise in this scenario, giving the option holder the choice of selling the option itself for a potential gain.

Should the price of the underlying asset rise instead of fall, however, the option may expire worthless.

What Is the Put-Call Ratio?

A stock’s put-call ratio is the number of put options traded in the market relative to calls. It is one measure that investors look at to help gauge sentiment toward the shares. A high put-call ratio may indicate bearish market sentiment, whereas a low one may reflect more bullish views.

Quick Tip: How do you decide if a certain online trading platform or app is right for you? Ideally, the online investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Options Trading Terminology

• The strike price is the price at which the option holder can exercise the contract. If the holder decides to exercise the option, the seller is obligated to fulfill the contract.

• With American-style options the expiration is the date by which the contract needs to be exercised (meaning it can be exercised up to and on the expiration date). The closer an option is to its expiration, the lower the time value.

• Premiums reflect the value of an option; it’s the current market price for that option contract.

• Call options are considered in the money when the shares of the underlying stock trade above the strike price. Put options are in the money when the underlying shares are trading below the strike price.

• Options are at the money when the strike price is equal to the price of the asset in the market. Contracts that are at the money tend to see more volume or trading activity, as holders may choose to trade or exercise the options.

• Options are out of the money when the underlying security’s price is below the strike price of a call option, or above the strike price of a put option. For example, if shares of Stock C are trading at $50 each and the call option’s strike price is $60, the contracts are out of the money. For an out-of-the-money put option, the shares of Stock C may be trading at $60, while the put’s strike price is $50, so it is not currently exercisable.

“The Greeks” in Options Trading

Traders use a range of Greek letters to gauge the value of options. Here are some of the Greeks to know:

• Delta measures how much the option’s value is expected to change when the underlying asset’s price changes by $1.

• Gamma measures how much Delta is expected to change when the underlying asset’s price changes by $1.

• Theta is the sensitivity of the option to time.

• Vega is the sensitivity of the option to implied volatility.

• Rho is the sensitivity of the option to interest rates.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

How to Trade Options

The market for stock options is typically open from 9:30am to 4pm ET, Monday through Friday, while futures options can usually be traded almost 24 hours.

This is how you may get started trading options:

1. Pick a Platform

Log into your investment account with your chosen brokerage.

2. Get Approved

Your brokerage may base your approval on your trading experience. Trading options is riskier than trading stocks because some strategies can expose traders to losses that exceed their initial investment (or result in rapid capital loss). Options trading is for experienced investors who have a higher tolerance for risk.

3. Place Your Trade

Decide on an underlying asset and options strategy, being sure you have a risk management plan and exit strategy in place, should the price of the underlying asset move adversely. Then place your trade.

4. Manage Your Position

Monitor your position to know whether your options are in, at, or out of the money.

Basic Options Trading Strategies

Options offer a way for holders to express their views on the direction or volatility of an asset’s price through a trade. But traders may also use options to hedge or offset risk from other assets that they own. Here are some important options trading strategies to know:

Long Put, Long Call

In simple terms, if the buyer purchases an option — be it a put or a call — they are ‘long’. A long put or long call position means the holder owns a put or call option.

• A holder with a long call strategy may be able to purchase the asset at a lower price than market value if the asset rises above the strike price before expiration.

• A holder with a long put strategy may be able to sell the asset at a higher price than market value if the market price drops below the strike price before expiration.

Covered and Uncovered Calls

If an options writer sells call options on a stock or other underlying security they also own outright, the options are referred to as covered calls. The selling of options may allow the writer to generate an additional stream of income while committing to sell the shares they own for the predetermined price if the option is exercised.

Uncovered calls, or naked calls, also exist, when options writers sell call options without owning the underlying asset. However, this is a much riskier trade since the exercising of the option would oblige the options seller to buy the underlying asset in the open market, in order to sell the stock to the option buyer.

Note that the seller wants the option to stay out of the money so that they can keep the premium (which is how the seller may generate income).

Spreads

Option spread trades involve buying and selling a defined number of options for the same underlying asset but at different strikes or expirations.

A bull spread is a strategy in which a trader anticipates a potential increase in the price of an underlying asset..

A bearish spread is a strategy in which a trader anticipates a potential decline in the price of the underlying asset.

Horizontal spreads involve buying and selling options with the same strike prices but different expiration dates.

Vertical spreads are created through the simultaneous buying and selling of options with the same expiration dates but different strike prices.

Straddles and Strangles

Strangles and straddles in options trading allow traders to potentially benefit from a move in the price of the underlying asset, rather than the direction of the move.

In a straddle, a trader buys both calls and puts with the same strike prices and expiration dates to benefit from volatility rather than direction. The options buyer may see a gain if the asset price posts a big move, regardless of whether it rises or falls.

In a strangle, the holder also buys both calls and puts but with different strike prices.

Pros & Cons of Options Trading

Like any other type of investment, or investment strategy, trading options comes with certain advantages and disadvantages that investors should consider before going down this road.

Pros of Options Trading

• Options trading is complex and involves risks, but for experienced investors who understand the fundamentals of the contracts and how to trade them, options can be a useful tool to gain exposure to asset price movements while putting up a smaller amount of money upfront.

• The practice of selling options can also be a way for writers to attempt to earn income by collecting premiums. This was a popular strategy particularly in the years leading up to 2020 as the stock market tended to be quiet and interest rates were low.

• Options can also be a useful way to protect a portfolio. Some investors offset risk with options. For instance, buying a put option while also owning the underlying stock allows the options holder to offset their losses if the security declines in value before that option expires.

Cons of Options Trading

• A key risk in trading options is that losses can be outsized relative to the cost of the contract in some cases — especially for sellers, who may face losses that exceed the initial premium received if the market moves sharply against them. When an option is exercised, the seller of the option is obligated to buy or sell the underlying asset, even if the market is moving against them.

• While premium costs are generally low, they can still add up. The cost of options premiums can eat away at an investor’s profits. For instance, while an investor may net a profit from a stock holding, if they used options to purchase the shares, they’d have to subtract the cost of the premiums when calculating the stock profit.

• Because options expire within a specific time window, there is only a short period of time for an investor’s thesis to play out. Securities like stocks don’t have expiration dates.

Advantages and Disadvantages of Options Trading
Pros	Cons
Additional income	Potential outsized losses
Hedging portfolio risk	Premiums can add up
Less money upfront than owning an asset outright	Limited time for trades to play out

Test your understanding of what you just read.

The Takeaway

Options are derivative contracts on an underlying asset (an options contract for a certain stock is typically worth 100 shares). Options are complex, high-risk instruments, and investors need to understand how they work in order to reduce the risk of seeing steep losses.

When an investor buys a call option, it gives them the right but not the obligation to buy the underlying asset by or on the expiration date. When an investor buys a put option, it gives them the right but not the obligation to sell the underlying asset by or on the expiration date.

The contracts work differently for options sellers/writers.

The seller or writer of a call option has the obligation to sell the underlying asset at the agreed strike price to the options holder, if the holder chooses to exercise the option on or before its expiration. The seller of a put option has the obligation to buy the shares of the underlying asset from the put option holder at the agreed strike price.

Explore SoFi’s user-friendly options trading platform

While investors are not able to sell options on SoFi’s options trading platform at this time, they can buy call and put options to try to benefit from stock movements or manage risk.

FAQs

What is options trading and how does it work?

Options trading involves buying and selling contracts that give the holder the right — but not the obligation — to buy or sell assets at a set price by a certain date. These contracts derive their value from the underlying asset, and are often used for speculation or risk management.

Can you make $1,000 a day trading options?

It may be possible to make $1,000 in a day by trading options, but this depends on market conditions, strategy, capital, and risk tolerance. Most traders do not see consistent high-dollar returns, and losses can exceed the initial investment, meaning this form of trading may require a high risk tolerance.

Can I trade options with $100?

Some brokerages may allow you to start trading options with $100, particularly if you’re buying low-cost contracts. Account approval and margin requirements may vary, however. Options trading also carries high risk, even with a small investment.

Is options trading better than stocks?

Options trading is not inherently better or worse than trading stocks. It offers different risk-reward dynamics and may suit experienced traders seeking leverage or hedging strategies. However, options are more complex and can lead to greater losses than stocks

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

SOIN-Q325-014

Nov

2025

A man sitting on his couch and working on his computer, tracking the funds in his online investment account.

Target Funds vs Index Funds: Key Differences

By Austin Kilham | Growing Wealth, invest, Investing | Comments Off

Table of Contents

Target-Date Funds vs Index Funds: A Comparison
Target-Date Funds
Index Funds
Index Funds for Retirement
FAQ

Target-date funds and index funds are two common investment vehicles for individuals investing for retirement. Investors may see one or both of these types of investments as options in their 401(k) or other workplace retirement fund. Target-date funds offer a sort of set-it-and-forget-it approach to investing typically tied to an investor’s timeline, while index funds include a basket of investments corresponding to an underlying market index.

Understanding the key differences between target date funds and index funds can help investors understand which option may be a fit for their portfolio.

Key Points

• Target-date funds provide a set-it-and-forget-it investment strategy, ideal for investors looking for a more hands-off approach.

• These funds automatically reallocate assets to become more conservative as the investor’s retirement date nears.

• Index funds offer broad market exposure and are generally passively managed, resulting in lower fees.

• Investors in index funds may benefit from simplicity and cost-effectiveness, which may make them suitable for beginners.

• Key considerations when choosing between a target-date fund and an index fund include personal financial goals, risk tolerance, and the trade-off between control and convenience.

Target-Date Funds vs Index Funds: A Comparison

Target-date funds and index funds are both common ways for investors to save for future goals, especially retirement. Target-date funds offer what can feel like a hands-off approach to saving for retirement. Investors choose a target fund with a date that’s closest to the year they plan to retire.

Over time, these funds automatically adjust their asset allocation, typically becoming more conservative as the investor gets closer to retirement. Investors do not have to choose the assets held by target date funds or reallocate the fund as it nears its target date.

Target-date funds may include index funds. Index funds track specific market indices and typically perform in line with the broader market.

Here’s a quick look at the main differences between these two types of funds.

Target Date Funds	Index Funds
• A fund that provides investors with a set-it-and-forget-it option to retirement savings. • Reallocates automatically. Portfolios typically become more conservative as a target date approaches. • May have higher fees if they are actively managed.	• Designed to track an index, such as the S&P 500, and seek to achieve returns similar to the movements of the index. • Allows investors more flexibility in choosing the funds in their portfolios. • Passive management typically translates into lower fees.

Target Date Funds

Index Funds

• A fund that provides investors with a set-it-and-forget-it option to retirement savings.

• Reallocates automatically. Portfolios typically become more conservative as a target date approaches.

• May have higher fees if they are actively managed.

• Designed to track an index, such as the S&P 500, and seek to achieve returns similar to the movements of the index.

• Allows investors more flexibility in choosing the funds in their portfolios.

• Passive management typically translates into lower fees.

Target-Date Funds

A target date fund is a type of investment that holds a mix of different funds, which may include mutual funds, such as stock and bond funds. When choosing a target date fund, investors must decide on a target date, often offered in five-year intervals and included in the name of the fund and corresponding with the year in which they want to retire. For example, someone in their early 30s might choose a target date of 2055 with a goal of retiring around age 65.

You could, in theory, use target date funds to save for any point in the future. However, they’re a popular type of vehicle for saving for retirement and often appear on the menu of investments available to employees through their 401(k)s.

As an individual nears their target date, the fund automatically rebalances from higher-risk, higher-reward investments into lower-risk, lower-reward investments. For example, the rebalancing might include shifting a greater proportion of its holdings into bonds to help preserve accrued increases in a portfolio’s value.

Pros of Target-Date Funds

There are several reasons investors might choose a target date fund.

First, they essentially provide a ready-made portfolio of diversified stock and bond funds, making it easy to save for retirement. This may appeal to beginner investors, those who don’t want to design their own portfolios, or those who find a hands-on approach to researching and choosing investments difficult.

Additionally, target-date funds provide automatic rebalancing. As the market shifts up and down, different investments may move off track from their initial allocations. When that happens, the fund will rebalance itself so that the allocation remains in line with its original allocation plan. The target date fund also automatically shifts its allocation to more conservative investments as the target date approaches.

Recommended: When Can I Retire?

Cons of Target-Date Funds

Investors who want more control over their portfolios may not like target-date funds, which don’t allow investors any control over their mix of investments or when and how rebalancing takes place.

Target-date funds build portfolios using a variety of investments. Some may use index mutual funds that come with relatively low fees. Others might use managed mutual funds, which may come with higher fees. It’s important to look closely at target-date fund holdings to understand what types of fees they might charge.

Here are the pros and cons of target date funds at a glance.

Pros	Cons
• Ready-made portfolio. • A basket of mutual funds may help provide some diversification. • Automatic rebalancing, including a shift to more conservative assets over time.	• Lack of control over investments and when portfolio is rebalanced. • Potentially higher fees for funds that hold managed mutual funds.

Pros

Cons

• Ready-made portfolio.

• A basket of mutual funds may help provide some diversification.

• Automatic rebalancing, including a shift to more conservative assets over time.

• Lack of control over investments and when portfolio is rebalanced.

• Potentially higher fees for funds that hold managed mutual funds.

💡 Quick Tip: How do you decide if a certain online trading platform or app is right for you? Ideally, the online investment platform you choose offers the features that can support your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Index Funds

An index fund is a type of mutual fund or exchange-traded fund (ETF). It’s built to follow the returns of a market index, of which there are many.

These indexes track a basket of securities meant to represent the market as a whole or certain sectors. For example, the S&P 500 is a market capitalization weighted index that tracks the top 500 U.S. stocks.

An index fund may follow a market index using several strategies. Some index funds may hold all of the securities included in the index. Others may include only a portion of the securities held by an index, and they may have the leeway to include some investments not tracked by the index.

Because index funds are attempting to follow an index rather than beat it, they don’t require as much active management as fully managed funds. As a result, they may charge lower fees, making them a low-cost option for investors.

Index funds are popular choices for retirement savings accounts. They are designed to offer diversification through exposure to a wide range of securities, they’re easy to manage, and they offer the potential for steady long-term growth.

Pros of Index Funds

Low fees and full transparency are among the benefits of holding index funds. Investors can review all of the securities held by the fund, which can help them identify and weigh risk.

Historically, index funds have also potentially offered better returns over the long term than their actively managed counterparts, especially after factoring in fees.

Cons of Index Funds

Some of the drawbacks to index funds include the fact that they are often fairly inflexible. If they follow an index that requires them to hold a certain mix of stocks, they decline in value when the market does.

In addition, because many index funds use market capitalization weighting, the funds can be concentrated in a few large companies with a higher market capitalization. If those few companies don’t perform well, it can affect the entire fund’s performance.

Here’s a look at the pros and cons of index funds at a glance.

Pros	Cons
• Designed to offer broad exposure through a basket of securities that tracks an index. • Transparency. Investors can review the holdings in the fund. • Lower fees. Passive management typically makes it cheaper to operate funds, which results in lower management fees passed on to investors. • Potentially better returns than actively managed funds.	• Lack of flexibility. There may be strict mandates about what can and can’t be included in the fund. • A few companies with a higher market capitalization may have a significant impact on a fund’s performance.

Pros

Cons

• Designed to offer broad exposure through a basket of securities that tracks an index.

• Transparency. Investors can review the holdings in the fund.

• Lower fees. Passive management typically makes it cheaper to operate funds, which results in lower management fees passed on to investors.

• Potentially better returns than actively managed funds.

• Lack of flexibility. There may be strict mandates about what can and can’t be included in the fund.

• A few companies with a higher market capitalization may have a significant impact on a fund’s performance.

Index Funds for Retirement

You can use index funds to build a retirement portfolio as well as to save for other goals. If you’re using them for retirement, you may want to consider a mix of index funds covering a range of asset classes that can provide some diversity within your overall portfolio. Unlike a target-date fund, if that allocation strays from your goals, you’ll need to handle the rebalancing on your own.

The Takeaway

Index funds and target-date funds are funds used by retail investors for different purposes. Investors choosing between the two will need to consider their personal financial circumstances and needs. Index funds may be an option for investors looking for passive, long-term investments that they can choose based on their own goals, risk tolerance, and time horizon. They may also be a choice for beginners who are looking for simple, low-cost investment options.

Target date funds, on the other hand, may be another option for long-term investors who do not want to have to rethink their portfolio allocations on a regular basis.

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).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

Are target-date funds or index funds better?

Whether index funds or target-date funds are better depends on an investor’s circumstances and goals. Index funds track a market index, offer broad market exposure, and are generally simple, low-cost investments. Target-date funds, frequently used for retirement savings, offer a hands-off investment approach tied to an investor’s timeline, automatically adjusting the asset allocation. An investor can weigh the pros and cons of both options to determine which is right for them.

What is the downside to target-date funds?

A downside to target-date funds is that investors don’t have control over the mix of investments in the funds or when rebalancing takes place. These funds may also come with higher fees.

Are index funds good for beginners?

Index funds can be a good option for beginners because they are a simple, low-cost way to hold a mix of securities that track a particular market index, such as the S&P 500.

Photo credit: iStock/Ridofranz

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.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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.

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.

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.
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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOIN-Q425-004

Nov

2025

A smiling man with glasses and a beard works on a laptop in an office.

What Is Margin Debt?

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

Table of Contents

Margin Debt Definition
How Margin Debt Works
Advantages and Disadvantages of Margin Debt
Is High Margin Debt a Market Indicator?
FAQ

Margin debt refers to the loan that qualified investors can borrow from their broker to place bigger trades, using a margin account. The money investors borrow from their brokerage is known as margin debt and is a type of leverage. As of October 2025, the amount of margin debt held by investors is at an all-time high of $1.13 trillion, according to FINRA.

Like other types of loans, margin debt comes with specific rules, governed by the Financial Industry Regulatory Authority (FINRA). A margin loan must be backed with collateral (cash and other securities), a minimum amount of cash must be maintained in the account, and the margin debt must be paid back with interest.

Margin is not available with a cash-only brokerage account, where a trader buys the securities they want using the cash in their account. Owing to the high risk of margin trading, margin accounts are available only to investors who qualify, owing to the high-risk nature of margin trading.

Key Points

• Margin debt allows qualified investors to borrow money from a broker to purchase securities, acting as a form of leverage.

• Margin accounts require collateral, a minimum cash balance, and repayment with interest.

• Federal regulations (Regulation T) and brokerage rules limit the amount that can be borrowed for margin trades, typically to 50% of the initial investment.

• Investors must maintain a certain equity level (maintenance margin) in their account; if it falls below this, a margin call may occur, requiring additional funds or asset sales.

• While margin debt can amplify gains and offer flexibility, it also significantly amplifies losses, making the use of margin a high-risk strategy.

Margin Debt Definition

In order to understand what margin debt is and how it works when investing online or through a traditional brokerage, it helps to review the basics of margin accounts.

What Is a Margin Account?

With a cash brokerage account, an investor can only buy as many investments as they can cover with cash. If an investor has $10,000 in their account, they can buy $10,000 of stock, for example.

A margin account, however, allows qualified investors to borrow funds from the brokerage to purchase securities that are worth more than the cash they have on hand.

In this case, the cash or securities already in the investor’s account act as collateral, which is why the investor can generally borrow no more than the amount they have in cash. If they have $10,000 worth of cash and securities in their account, they can borrow up to another $10,000 (depending on brokerage rules and restrictions), and place a $20,000 trade.

Recommended: What Is Margin Trading?

Margin Debt, Explained

In other words, when engaging in margin trading to buy stocks or other securities an investor generally can only borrow up to 50% of the value of the trade they want to place, though an individual brokerage firm has license to impose stricter limits. Although the cash and securities in the account act as collateral for the loan, the broker also charges interest on the loan, which adds to the cost — and to the risk of loss.

Margin debt is high-risk debt. If an investor borrows funds to buy securities, that additional leverage enables them to place much bigger bets in the hope of seeing a profit. The risk is that if the trade moves against them they could lose all the money they borrowed, plus the cash collateral, and they would have to repay the loan to their broker with interest — on top of any brokerage fees and investment costs.

For this reason, among others, margin accounts are considered to be more appropriate for experienced investors, since trading on margin means taking on additional costs and risks. It’s also why only certain investors can open margin accounts. In addition, investors must bear in mind that some securities cannot be purchased using margin funds.

Recommended: Stock Trading Basics

How Margin Debt Works

Traders can use margin debt for both long positions and short selling stocks. The Federal Reserve Board’s Regulation T (Reg T) places limitations on the amount that a trader can borrow for margin trades. Currently the limit is 50% of the initial investment the trader makes. This is known as the initial margin.

In addition to federal regulations, brokerages also have their own rules and limitations on margin trades, which tend to be stricter than federal regulations. Brokers and governments place restrictions on margin trades to protect investors and financial institutions from steep losses.

Example of Margin Debt

An investor wants to purchase 2,000 shares of Company ABC for $100 per share. They only want to put down a portion of the $200,000 that this trade would cost. Due to federal regulations, the trader would only be allowed to borrow up to 50% of the initial investment, so $100,000.

In addition to this regulation, the broker might have additional rules. So the trader would need to deposit at least $100,000 into their account in order to enter the trade, and they would be taking on $100,000 in debt. The $100,000 in their account would act as collateral for the loan.

What Is Maintenance Margin?

The broker will also require that the investor keep a certain amount of cash in their account at all times for the duration of the trade: this is known as maintenance margin. Under FINRA rules, the equity in the account must not fall below 25% of the market value of the securities in the account.

If the equity drops below this level, say because the investments have fallen in value, the investor will likely get a margin call from their broker. A margin call is when an investor is required to add cash or forced to sell investments to maintain a certain level of equity in a margin account.

If the investor fails to honor the margin call, meaning they do not add cash or equity into their account, the brokerage can sell the investor’s assets without notice to cover the shortfall.

Managing Interest Payments on Margin Debt

There’s generally no time limit on a margin loan. An investor can keep margin debt and just pay off the margin interest until the stock in which they invested increases to be able to pay off the debt amount.

The brokerage typically takes the interest out of the trader’s account automatically. In order for the investor to earn a profit or break even, the interest rate has to be less than the growth rate of the stock.

Increase your buying power with a margin loan from SoFi.

Borrow against your current investments at just 10.50%* and start margin trading.

*For full margin details, see terms.

Advantages and Disadvantages of Margin Debt

There are several benefits and drawbacks of using margin debt to purchase securities such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs).

Advantages

• Margin trading allows a trader to purchase more securities than they have the cash for, which can lead to bigger gains.

• Traders can also use margin debt to short sell a stock. They can borrow the stock and sell it, and then buy it back later at a lower price.

• Traders using margin can more easily spread out their available cash into multiple investments.

• Rather than selling stocks, which can trigger taxable events or impact their investing strategy, traders can remain invested and borrow funds for other investments.

Disadvantages

• Margin trading is risky and can lead to significant losses, making it less suitable for beginner investors.

• The investor has to pay interest on the loan, in addition to any other trading fees, commissions, or other investment costs associated with the trade.

• If a trader’s account falls below the required maintenance margin, let’s say if a stock is very volatile, that will trigger a margin call. In this case the trader will have to deposit more money into their account or sell off some of their holdings.

• Brokers have a right to sell off a trader’s holdings without notifying the trader in order to maintain a certain balance in the trader’s account.

Is High Margin Debt a Market Indicator?

What is the impact of high margin debt on the stock market, historically? It’s unclear whether higher rates of margin use, as in the last quarter of 2025 where margin debt increased 34.4% year over year, might signal a market decline.

Looking back on market booms and busts since 1999, it does seem that margin debt tends to accompany the markets’ peaks and valleys. As such, margin debt may reflect investor confidence.

Different Perspectives on Margin Debt Levels

While some traders view margin debt as one measure of investor confidence, high margin debt can also be a sign that investors are chasing stocks, creating a cycle that can lead to greater volatility. If investors’ margin accounts decline, it can force brokers to liquidate securities in order to keep a minimum balance in these accounts.

It can be helpful for investors to look at whether total margin debt has been increasing year over year, rather than focusing on current margin debt levels. FINRA publishes total margin debt levels each month.

Jumps in margin debt do not always indicate a coming market drop, but they may be an indication to keep an eye out for additional signs of market shifts.

The Takeaway

Margin trading and the use of margin debt — i.e., borrowing funds from a broker to purchase securities — can be a useful tool for some investors, but it isn’t recommended for beginners due to the higher risk of using leverage to place trades. Margin debt does allow investors to place bigger trades than they could with cash on hand, but profits are not guaranteed, and steep losses can follow.

Thus using margin debt may not be the best strategy for investors with a low appetite for risk, who should likely look for safer investment strategies.

If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.

Get one of the most competitive margin loan rates with SoFi, 10.50%*

FAQ

Is margin debt good or bad?

Like any kind of leverage or borrowed capital, the use of margin can be beneficial in some instances, but it comes with an inherent risk. It’s possible to have a good outcome using margin to make trades, but it’s also possible to lose money. Investors have to weigh the pros and cons of leveraged strategies.

How does margin investing work?

If you qualify for a margin account, using a margin loan can enable you to place trades using more money than you could with cash alone. Taking bigger positions can lead to bigger gains, but the risk of loss is also steep if the trade moves against you. In that case, you can lose money on the trade, and you still have to repay the margin debt you owe, plus interest and fees.

Are there different margin rules for different securities?

Yes, trading stocks comes with different margin requirements than, say, trading forex or certain derivatives. It’s important to know the terms of the margin account as well as the securities you intend to trade.

Photo credit: iStock/PeopleImages

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.

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.

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.

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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.

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.

SOIN-Q425-009

Guide to Glide Paths for 401(k)

What Is a Glide Path?

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

Understanding Glide Path

Types of Glide Paths for Retirement Investing

Declining Glide Path

Static Glide Path

Rising Glide Path

Choosing the Right Glide Path

“To” or “Through” Retirement

The Takeaway

FAQ

What does glide path approach mean?

What is a retirement glide path?

Which type of mutual fund follows a glide path?

What is an example of a glide path?

What are the benefits of a glide path?

Buy to Open vs Buy to Close

What Is Buy to Open?

Example of Buy to Open

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

What Does Buy to Close Mean?

Example of Buy to Close

Differences Between Buy to Open vs Buy to Close

Understanding Buy to Open and Buy to Close

Buy to Open Call

Buy to Open Put

Buy to Close

Shorting Against the Box

Using Buy to Open or Buy to Close

The Takeaway

FAQ

What is the difference between buy to open and buy to close options?

What is the most successful option strategy?

Is it better to buy at open or close?

Is it better to buy options that are ITM or OTM?

A Beginner’s Guide to Options Trading

What Is Options Trading?

What Are Options?

Why Are Options Called Derivatives?

What Are Puts and Calls?

Call Options 101

Put Options 101

What Is the Put-Call Ratio?

Options Trading Terminology

“The Greeks” in Options Trading

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

How to Trade Options

1. Pick a Platform

2. Get Approved

3. Place Your Trade

4. Manage Your Position

Basic Options Trading Strategies

Long Put, Long Call

Covered and Uncovered Calls

Spreads

Straddles and Strangles

Pros & Cons of Options Trading

Pros of Options Trading

Cons of Options Trading

The Takeaway

FAQs

What is options trading and how does it work?

Can you make $1,000 a day trading options?

Can I trade options with $100?

Is options trading better than stocks?

Target Funds vs Index Funds: Key Differences

Target-Date Funds vs Index Funds: A Comparison

Target-Date Funds

Pros of Target-Date Funds

Cons of Target-Date Funds

Index Funds

Pros of Index Funds

Cons of Index Funds

Index Funds for Retirement

The Takeaway

FAQ

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.¹

Student Loan
Refinancing

Personal
Loans

Online
Investments