laptop and notebook layout

How to Read Stock Charts as a New Trader

Learning how to read stock charts can feel similar to learning how to drive a car. It can be baffling at first, but once you learn the basics, including types of stock market charts, and the patterns they’re forecasting, you’ll hopefully get the hang of it.

With that in mind, learning how to read stock charts is a bit of a heavy lift, and can be difficult or intimidating for newer investors. Keep that in mind: It’ll take some time and practice before you feel comfortable! But the sooner you learn to decipher stock charts, the more useful that knowledge will be in your investment strategy.

The Art of Reading Stock Charts

Learning how to read stock charts can feel like you’re training in some sort of higher art. But again, with some practice, many investors can learn to do it and implement it into their investment strategy.

Understanding Chart Types

There are a handful of basic stock chart types, including line charts, bar charts, and candlestick charts. Thankfully, these charts are more or less exactly what they sound like.

For instance, line charts simply graph a financial security’s historical performance with a line, allowing investors to see the ups and downs over time. A candlestick chart, on the other hand, shows a stock’s high, low, opening, and closing prices for a specific time period. Bar charts also show a security’s price change over time, but there are some slight differences between bar charts and candlestick charts – often, bar charts aren’t color-coded, for example.

Decoding Stock Chart Data

Stock charts are relaying a lot of information about a stock’s performance over certain time periods. Taking that all into account can be difficult, but the main data points investors will want to try and utilize to guide their investment decisions involve prices, dates, and trading volume.

Before you proceed any further, though, you’ll want to make sure you know what stock symbols are.

Stock symbols, or tickers, are the series of letters, and sometimes numbers, by which a particular stock is uniquely identified. For example, the stock symbol for Apple is AAPL, and the stock symbol for Amazon is AMZN. Stock symbols are defined by the exchanges on which those stocks are traded — for instance, the New York Stock Exchange (NYSE) or the Nasdaq. These are the markets on which stocks and other assets are bought and sold. Stocks traded on the NYSE and Nasdaq can have tickers up to 5-letters long, but most are only 2-4.

With that in mind, using graphs and charts to figure out what’s happening in the stock market is the next step.
The first thing you’ll notice when looking at the chart itself is that it’s pretty much a line graph. Remember middle school math? You’re dealing with a basic X and Y axis—and the X axis refers to time.

On a stock line chart, the trend line is measuring the asset’s performance over that period of time. Investors might want to view the stock’s performance over a single day, week, or month, or see its long-run trend line over the past year or longer. It all depends on your personal trading goals.

Some stock charts may spell out the stock’s opening price, low price, high price, and closing price during a given time period, usually marked simply O, L, H, and C. Here’s what those figures each refer to:

•   The opening price is the first price at which the stock traded during the given time period.

•   The low price is the lowest price at which the stock sold during the given time period.

•   The high price is the highest price at which that stock sold during the given time period.

•   Finally, the closing price is the last price at which the stock sold before the exchange closed.

If the exchange is still open and the stock is being actively traded, the stock chart will likely display the last price, which is just what it sounds like: the last price at which the stock was successfully sold.

You might also see the change in that price from the one immediately before it, or last change, usually displayed as both a dollar value and a percentage.

For example, if you were looking at a chart for Company X (using a fictitious stock ticker, CMPNYX) stock, it might display the following string of letters and numbers:

CMPNYX 197.16 +0.05 (+0.04%)

In this example, CMPNYX is the ticker symbol, and $197.16 is the last recorded price of a single share sold on the exchange. That price was five cents higher than the trade immediately before it, meaning the value of the stock rose, in that time, by 0.04%.

By looking at how the trend line moves over the chart period, you can get a sense of the stock’s price and performance over time as well as its most recent statistics.

Volume corresponds to how many shares are bought and sold within a specific time period. In other words, it’s a measure of supply and demand. Volume is often represented as a series of bars running along the bottom axis of the chart. The bars’ size aligns with the number of trades made during that time period, and can be useful for guesstimating upcoming sales trends for that asset.

It’s not a perfect science, of course, but if a stock is trading at low volume — i.e., few shares are being bought and sold each day — it may indicate that the current price trend is about to change. Perhaps the stock is in poor demand because it’s valued too highly for the market. It could also just mean the investment is out of favor with investors.

On the other hand, a high trade volume might indicate that you’ll have an easier time selling the stock quickly if you’re considering short-term trading.

The Role of Technical Indicators

Investors and traders can use a variety of technical indicators to try and make sense of the market, too. That can include things like the 200-day moving average, which attempts to focus on overall pricing trends for a specific stock, or a variety of other trend and momentum indicators.

There are many technical indicators that investors can use to their advantage. It may be worth taking the time to learn more about each, and decide whether to fold them into your strategy.


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the 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.

Technical vs. Fundamental Analysis

We’ve discussed technical analysis, but fundamental analysis is another important element to introduce into the mix. Chart-reading, though, does rely heavily on technical analysis. For that reason, it may be worth revisiting some of the core reasons that investors will want to bone up on the subject.

The Case for Technical Analysis

Fundamental analysis focuses on a company’s underlying performance, whereas technical analysis is more focused on a stock’s performance. While there may be drawbacks to technical analysis, technical indicators are the type that will reveal patterns in stock charts that can be used to make investment decisions. While the buy or sell signals those patterns relay may or may not be faulty, those indicators are what investors are going to want to use when reading stock charts.

When Fundamentals Intersect with Charts

As mentioned, fundamental analysis concerns a company’s financial and operational health, more so than deciphering lines on a chart. Fundamental analysis involves looking at indicators such as earnings per share, price-to-earnings ratios, and return on equity, which can have an effect on how investors decide to buy, sell, or hold a stock. That, naturally, can dictate what a stock’s performance looks like on a chart – which is where it intersects with technical indicators, in many respects.

Essential Stock Chart Knowledge

When it comes down to it, investors may be best served by garnering essential stock chart knowledge involving the various styles of stock charts, their uses, and the language, or key terms, used to describe what those charts are displaying.

Stock Chart Styles and Their Uses

As mentioned, there are a few main types of stock charts: line charts, bar charts, and candlestick charts (there may be others, but we’ll stick with a few basic ones). Each shows the performance of a specific stock, albeit in different ways. Learning what those charts show, how they show it, and how to translate that information into action is ultimately what investors should aim to do when learning how to read stock charts.

Key Terms Every Trader Should Know

There are also a number of key terms that traders should know. The list can be lengthy, but should probably include words and phrases such as market capitalization (as discussed), price-to-earnings ratios, dividend yields, options, assets, and many more. You should become more familiar with them as you move through your investing journey – you’ll likely start using many of them yourself as your trading activity and strategies become more sophisticated, too.

Applying Your Stock Chart Skills

At the end of the day, learning how to read stock charts, for most investors, is all about one thing: applying that knowledge and making better-informed investing decisions.

How to Use Charts for Smarter Investing

There’s really no limit to the way that investors or traders can use charts to make smarter decisions. The more time you spend studying charts and learning what they show or say, the more information you’ll end up having at your disposal with which to make a decision. The issue, of course, is that all of that information still can’t tell you in all certainty what a stock’s value is going to do next.

That’s perhaps the most important thing to remember about stock charts: they are not a crystal ball, and there’s no guarantee that investors will achieve the outcomes they were hoping or planning for.

Can Charts Enhance Your Investment Strategy?

Stock charts can enhance your investment strategy by adding a whole new dimension – and pile of data and information about specific stocks – to your tool kit. But again, you can spend hours looking at charts, and that still doesn’t mean that a position or investment won’t blow up in your face. You may think of it this way – all investing involves a level of risk, but learning to use stock charts as a part of your strategy may help you gauge how big those risks are, and in some cases, avoid particularly risky investments.

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), 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.


SoFi Invest®
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing 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, including state licensure of SoFi Digital Assets, LLC, 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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN1023140

Read more
A Guide to Financial Securities Licenses

A Guide to Financial Securities Licenses

Before someone can sell securities or offer financial advice they must first obtain the appropriate securities license. The Financial Industry Regulatory Authority (FINRA) is the organization that sets the requirements, oversees the process for earning an investments license, and administers most of the tests.

If you’re considering a career in the financial services industry it’s important to understand how securities licensing and registration works. Investors may also benefit from understanding what the various FINRA licenses signify when selecting an advisor.

Key Points

•   Securities licenses are required for individuals to sell securities and offer financial advice.

•   The Financial Industry Regulatory Authority (FINRA) sets the requirements and administers most of the tests for earning securities licenses.

•   Different licenses allow financial professionals to offer a range of financial products and services to clients.

•   The North American Securities Administrators Association (NASAA) is responsible for licensing investment advisor firms and enforcing state securities law.

•   Some common FINRA licenses include Series 6, Series 7, Series 3, Series 63, Series 65, and Series 66, each with its own specific focus and requirements.

What Is a Securities License and Who Needs Them?

A securities license is a license that allows financial professionals to sell securities and/or offer financial advice. The type of license someone holds can determine the range of financial products and services they have authorization to offer to clients. Someone who holds one or more securities or investments licenses is a registered financial professional.

FINRA is the non-governmental agency responsible for overseeing the activities of registered financial professionals. That includes individuals who hold FINRA licenses to sell securities or offer advisory services. Individual investors do not need a license to buy and sell stocks.

Recommended: How to Start Investing in Stocks: A Beginner’s Guide

Under FINRA rules, anyone who’s associated with a brokerage firm and engages in that firm’s securities business must have a license.

Some specific examples of individuals who might need to have a license from FINRA include:

•   Registered Investment Advisors (RIAs)

•   Financial advisors who want to sell mutual funds, annuities, and other investment packages on a commission-basis

•   Investment bankers

•   Fee-only financial advisors who only charge for the services they provide

•   Stockbrokers and commodities or futures traders

•   Advisors who oversee separately managed accounts

•   Individuals who want to play an advisory or consulting role in mergers and acquisitions

•   IPO underwriters

The North American Securities Administrators Association (NASAA) represents state securities regulators in the United States, Canada, and Mexico. This organization is responsible for licensing investment advisor firms and securities firms at the state level, registering certain securities offered to investors, and enforcing state securities law.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Types of FINRA Licenses

FINRA offers a number of different securities licenses. If you’re considering a career in securities trading, it’s important to understand which one or ones you might need. The appropriate license will depend on the type of securities that you want to sell, how you’ll get paid, and what (if any) other services you’ll provide to your clients.

Here’s a rundown of some of the most common FINRA licenses, what they’re used for and how to obtain one:

Series 6

FINRA offers the Series 6 Investment Company and Variable Contracts Products Representative Exam for individuals who work for investment companies and sell variable contracts products. The types of products you can sell while holding this securities license include:

•   Mutual funds (closed-end funds on the initial offering only)

•   Variable annuities

•   Variable life insurance

•   Unit investment trusts (UITs)

•   Municipal fund securities, including 529 plans

Obtaining this FINRA license requires you to also pass the introductory Securities Industry Essentials (SIE) exam. This 75-question exam tests your basic knowledge of the securities industry. FINRA offers a practice test online to help you study for the SIE. You can also watch a tutorial to learn how the 50-question Series 6 exam works.

Beyond those options you may consider investing in a paid Series 6 study prep course. Series 6 courses can help you familiarize yourself with the various variable products you can sell with this license and industry best practices. You’ll need to obtain a score of at least 70 to pass both the SIE and the Series 6 exam.

Series 7

People who see stocks and other securities must take the Series 7 General Securities Representative Exam. A Series 7 investments license is typically needed to sell:

•   Public offerings and/or private placements of corporate securities (i.e. stocks and bonds)

•   Rights

•   Stock warrants

•   Mutual funds

•   Money market funds

•   Unit investment trusts

•   Exchange-traded funds (ETFs)

•   Real estate investment trusts (REITs)

•   Options on mortgage-backed securities

•   Government securities

•   Repos and certificates of accrual on government securities

•   Direct participation programs

•   Venture capital

•   Municipal securities

•   Hedge funds

This securities license offers the widest range, in terms of what you can sell.

You’ll need to take and pass the SIE to obtain a Series 7 exam. The Series 7 exam has 125 questions in a multiple choice format and 72% is a passing score. FINRA offers a content outline you can review to get a feel for what’s included on the exam. You may also benefit from taking a study course that covers the various securities you’re authorized to sell with the Series 7 license as well as the ethical and legal responsibilities the license conveys.

Series 3

Investment professionals can earn the Series 3 license by completing the Series 3 National Commodities Futures Exam. This test focuses on the knowledge necessary to sell commodities futures. This is a National Futures Association (NFA) exam administered by FINRA. It has 120 multiple choice questions, with 70% considered a passing score.

You have to pass the Series 3 license exam to join the National Futures Association. In terms of what’s included in the exam and how to study for it, the test is divided into these subjects:

•   Futures trading theory and basic functions terminology

•   Futures margins, options premiums, price limits, futures settlements, delivery, exercise and assignment

•   Types of orders

•   Hedging strategies

•   Spread trading strategies

•   Option hedging

•   Regulatory requirements

Neither FINRA nor the NFA offer detailed study guides or practice tests for the Series 3 securities license. But you can purchase study prep materials online.

💡 Quick Tip: How to manage potential risk factors in a self directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Series 63

The Series 63 Uniform Securities Agent State Law Exam is an NASAA exam administered by FINRA. The test has 60 questions, of which you’ll need to get at least 43 correct in order to pass with a score of 72%.

You’ll need this license if you also hold a Series 6 or Series 7 license and you want to sell securities in any state. The NASAA offers a downloadable study guide that offers an overview of what’s included on the Series 63 securities license exam. Topics include:

•   Regulation of investment advisors

•   Regulation of broker-dealers

•   Regulation of securities and issuers

•   Communication with customers and prospects

•   Ethical practices

Beyond that, the NASAA offers a list of suggested vendors for purchasing Series 63 exam study materials. But it doesn’t specifically endorse any of these vendors or their products for individuals who plan to obtain a Series 63 license.

Series 65

The Series 65 Uniform Investment Adviser Law Exam is another NASAA test that’s administered by FINRA. Holding this license allows you to offer services as a financial planner or a financial advisor on a fee-only basis. The exam has 130 multiple choice questions and you’ll need to get at least 92 questions correct to pass.

As with the Series 63 exam, the NASAA offers a study guide for the Series 65 exam that outlines key topics. Some of the things you’ll need to be knowledgeable about include:

•   Basic economic concepts and terminology

•   Characteristics of various investment vehicles, such as government securities and asset-backed securities

•   Client investment recommendations and strategies

•   Regulatory and ethical guidelines

You can review a list of approved vendors for Series 65 study materials on the NASAA website.

Series 66

The Series 66 Uniform Combined State Law Exam is the third NASAA exam administered by FINRA. Financial professionals who want to qualify as both securities agents and investment adviser representatives take this test.

This multiple choice exam has 100 questions and you’ll need a score of 73 correct or higher to pass. If you already hold a Series 7 license, which is a co-requisite, you could choose to take the Series 66 exam in place of the Series 63 and Series 65 exams.

The study guide and the scope of what the Series 66 exam covers is similar to the Series 65 exam. So if you hold a Series 65 license already, you may have little difficulty in studying and preparing for the Series 66 exam.

The Takeaway

Earning a securities license could help to further your career if you’re interested in the financial services industry. Knowing which license you need and how to qualify for it is an important first step.

Fortunately, you don’t need to hold a FINRA license to invest for yourself. For instance, you could do some research and work at building a diversified portfolio.

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), 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.


Photo credit: iStock/jacoblund

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

SoFi Invest®
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing 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, including state licensure of SoFi Digital Assets, LLC, 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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

SOIN0723060

Read more
Class A vs Class B vs Class C Shares, Explained

Class A vs Class B vs Class C Shares, Explained

Broadly speaking, Class A, Class B, and Class C shares are different categories of company that have different voting rights and different levels of access to distributions and dividends. Companies may use these tiers so that certain key shareholders, such as founders or executives, have more voting power than ordinary shareholders. These shareholders also may have priority on the company’s profits and assets, and may have different access to dividends.

Not all companies have alternate stock classes. And what can make share categories even more complicated is that while the classifications are common, each company can define their stock classes, meaning that they can vary from company to company. That makes it even more important for investors to know exactly what they’re getting when they purchase a certain type of stock. Understanding how different share classes typically differ can help when making investment decisions or analyzing business news.

Key Points

•   Class A, Class B, and Class C shares are different categories of company stock with varying voting rights and access to dividends.

•   Companies may use different share classes to give certain shareholders more voting power and priority on profits.

•   Share classes can vary from company to company, making it important for investors to understand the specific terms and differences.

•   Class A shares generally have more voting power and higher priority for dividends, while Class B shares are common shares with no preferential treatment.

•   Class C shares can refer to shares given to employees or alternate share classes available to public investors, with varying restrictions and voting rights.

Why Companies Have Different Types of Stock Shares

When a company goes public, they are selling portions of their company, known as stocks, to shareholders.

Shareholders own a portion of the company’s assets and profits and have a say in how the company is governed. To mitigate risk and retain majority control of the company, a company can restrict the amount of stock they sell and retain majority ownership in the company. Or they can create different shareholder classes with different rights.

By creating multiple shareholder classes when they go public, a company can ensure that executives maintain control of the company and have more influence over business decisions. For example, while ordinary shareholders, or Class B shareholders, may have one vote per share owned, individuals with executive shares, or Class A shares, may have 100 votes per share owned. Executives also may get first priority of profits, which can be important in the case of an acquisition or closure, where there is only a finite amount of profit.

Different stock classes can also reward early investors. For example, some companies may designate Class A investors as those who invested with the company prior to a certain time period, such as a merger. These investors may have more votes per share and rights to dividends than Class B investors. A company’s charter, perspective, and bylaws should outline the differences between the classes.

Class differentiation has become more critical in creating a portfolio in recent years because investors have access to different classes in a way they may not have had access in the past. For example, mutual funds frequently divide their shares into A, B, and C class shares based on the type of investor they want to attract.


💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

The Different Types of Shares

Just like there are different types of stock, there are different types of shareholders. Because different stock classes have such different terms, depending on the company, investors may use additional terminology to describe the stock they hold. This can include:

Preferred shares

Investors who buy preferred shares may not have voting rights, but may have access to a regular dividend that may not be available to shareholders of common stock.

Common shares

Sometimes called “ordinary shares,” common shares are stocks bought and measured on the market. Owners have voting rights. They may have dividends and access to profits, though they may come after other investors, such as executive shareholders and preferred shareholders have been paid.

Nonvoting shares

These are typically offered by private companies or as part of a compensation package to employees. Companies may use non voting shares so employees and former employees don’t have an outsize influence in company decision-making, or so that power remains consolidated with the executive board and outside shareholders. Some companies create a separate class of stock, Class C stock, that comes without voting rights and that may be less expensive than other classes.

Executive shares

Typically, these shares are held by founders or company executives. Their stock may have outsize voting rights and may also have restrictions on the ability to sell the shares. Executive shares usually do not trade on the public markets.

Advisory shares

Often offered to advisors or large investors of a company, these shares may have preferred rights and do not trade on public markets.
Recommended: Shares vs. Stocks: Differences to Know

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 $10 within 30 days of opening the account.
Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

What Are Class A Shares?

While the specific attributes of Class A shares depend on the company, they generally come with more voting power and a higher priority for dividends and profit in the event of liquidation. Class A shares may be more expensive than Class B shares, or may not be available to the general public.

Many companies can have different stock tiers that trade at different prices. For instance, Company X may have Class A stock that regularly trades at hundreds of thousands of dollars while its Class B stock may trade for hundreds of dollars per share. Class B stockholders may also only have a small percentage of the vote that a Class A stockholder has. And while Class A stockholders might be able to convert their shares into Class B shares, a Class B shareholder may not be able to convert their shares into Class A shares.

Many of the tech companies that have gone public in recent years have also used a dual-share class system.

In some cases, shareholders are not allowed to trade their Class A shares, so they have a conversion that allows the owner to convert them into Class B, which they can sell or trade. Executives may also be able to sell their shares in a secondary offering, following the IPO.


💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

What Are Class B Shares?

Often companies refer to their Class B shares as “common shares” or “ordinary shares,” (But occasionally, companies flip the definition and have Class A shares designated as common shares and Class B shares as founder and executive shares). Investors can buy and sell common shares on a public stock exchange, where, typically, one share equals one vote. Class B shares carry no preferential treatment when it comes to dividing profits or dividends.

What Are Class C Shares?

Some companies also offer Class C shares, which they may give to employees as part of their compensation package. These shares may have specific restrictions, such as an inability to trade the shares.

Class C shares also may also refer to alternate share classes available to public investors. Often priced lower than Class A shares and with restrictions on voting rights, these shares may be more accessible to larger groups of investors. But this is not always the case. For example, Alphabet has Class A and Class C shares. Both tend to trade at similar prices.

The difference between Class C and common stock shares can be subtle. It’s important to note that these stock classes vary depending on the company. So doing research and understanding exactly which type of shares you’re buying is key before you commit to purchasing a certain class of stock.

Recommended: Investing for Beginners: Basic Strategies to Know

Class A vs Class B vs Class C Shares

What Are Dual Class Shares?

Companies that offer more than one class of shares have “dual class shares.” This is a fairly common practice, and some companies offer dual class shares that automatically convert to a common share with voting privilege at a set period of time.

These may be startups who go public through IPO and do not want public investors to have a say in the company’s decision-making. There has been controversy about companies offering two share classes of stock to the public, with detractors concerned that multiple share classes may lead to governance issues, such as reduced accountability. But others argue that multiple share classes can be an asset for a public company, leading to improved performance.

The Takeaway

Class A, Class B, and Class C shares have different voting rights and different levels of access to distributions and dividends. It can be difficult to determine which investment class is the best option for you if you’re deciding to invest in a public company that offers multiple share classes. Beyond market price, understanding how the stock will function in your overall portfolio as well as your personal investing philosophy can help guide you choose the best share class for you.

For example, investors who may be looking for shorter-term investments may choose a stock class without voting privileges. Other investors who want to be active in corporate governance may prefer share classes that come with voting rights. And some investors may be looking for stocks that provide guaranteed dividends, which may guide their decision toward one class of shares.

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), 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/g-stockstudio


SoFi Invest®
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing 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, including state licensure of SoFi Digital Assets, LLC, 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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0523121

Read more
Strike Price, Explained: Definition and Examples

Strike Price: What It Means for Options Trading

In options trading, a strike price represents the price at which an investor can buy or sell a derivative contract. An option strike price can also be referred to as an exercise price or a grant price, as it comes into play when an investor is exercising the option contract they’ve purchased.

Strike price can determine the value of an option, and how much or how little an investor stands to gain by exercising option contracts. Trading options can potentially generate higher rewards for investors, though it can entail taking more risk than individual stocks. Understanding strike price and how they’re set is key to developing a successful options trading strategy.

Key Points

•   Strike price is the price at which an investor can buy or sell a derivative contract.

•   The strike price determines the value of an option and the potential gain for the investor.

•   Strike prices are set when options contracts are written and can vary for different contracts.

•   There are different types of options, including calls and puts, which have different strike prices.

•   Understanding strike price is crucial for developing a successful options trading strategy.

What Is a Strike Price?

An option is a contract that gives the owner or buyer of the option the right to buy or sell a particular security on or before a specific date, at a predetermined price. In options trading terminology, this price is called the strike price or the exercise price.

Strike prices are commonly used in derivatives trading, a derivative draws its value from an underlying investment. In the case of options contracts, this can be a stock, bond, commodity or other type of security or index.

Further, Options contracts can trade European-style or American-style. With European-style options, investors can only exercise them on their expiration date. American-style options can be exercised any time up until the expiration date. This in itself doesn’t affect strike price for options contracts.

There are two basic types of options: calls and puts. With either type of option, the strike price is set at the time the options contract is written. This strike price then determines the value of the option to the investor should they choose to move ahead with exercising the option and buying or selling the underlying asset.


💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Calls

A call option conveys the right to a purchaser to buy shares of an underlying stock or other security at a set strike price.

Puts

A put option conveys the right to to a purchaser to sell shares of an underlying stock or other security at a set strike price. This is one way that investors can short a stock.

Examples of Strike Price in Options Trading

Having an example to follow can make it easier to understand the concept of strike prices and how it affects the value of a security when trading option contracts. When trading options, traders must select the strike price and length of time they’ll have before exercising an option.

The following examples illustrate how strike price works when buying or selling call and put options, respectively.

Buying a Call

Call options give a purchaser the right, but not the obligation, to purchase a security at a specific price. At the same time, the seller of the call option must sell shares to the investor exercising the option at the strike price.

Let’s say you hold a call option to purchase 100 shares of XYZ stock at $50 per share. You believe the stock’s price will increase over time. This belief eventually pans out as the stock rises to $70 per share thanks to a promising quarterly earnings call. At this point, you could exercise your option to buy shares of the stock at the $50 strike price. The call option seller would have to sell those shares to you at that price.

The upside here is that you’re purchasing the stock at a discount, relative to its actual market price. You could then turn around and sell the shares you purchased for $50 each at the new higher price point of $70 each. This allows you to collect a $20 per share profit, less any trading fees owed to your brokerage and the premium you paid to purchase the call contract.

Buying a Put

Put options give purchasers the right, but not the obligation, to sell a security at a specific strike price. The seller of a put option has an obligation to buy shares from an investor who exercises the option.

So, assume that you hold a put option to sell 100 shares of XYZ stock at $50 per share. Your gut feeling is that the stock’s price is going to decline in the next few months. The stock’s price drops to $40 per share so you decide to exercise the option. This allows you to make a profit of $10 per share, since you’re selling the shares for more than their current market price.

Writing a Covered Call

A covered call is an options trading strategy that can be useful in bull and bear market environments. This strategy involves doing two things:

•   Writing a call option for a security

•   Owning an equivalent number of shares of that same security

Writing covered calls is a way to hedge your bets when trading options. You can possibly generate income by writing a call option from the premiums investors pay to purchase it. Premiums paid by a call option buyer are nonrefundable, so you get to keep these payments even if the investor decides not to exercise the option later. Covered calls can offer some downside protection if you’re waiting for the market price of the underlying asset to rise.

So, say own 100 shares of XYZ stock, currently trading at $25 per share. You write a call option for 100 shares of that same stock with a strike price of $30. You then collect the premium from the investor who buys the option.

One of two things can happen at this point: If the stock’s price remains below the $30 stock price then the option will expire worthless. You still keep the premium for writing it and you still own your shares of stock. On the other hand, if the stock’s price shoots up to $35. The investor exercises the option, meaning you have to sell them those 100 shares. You still collect the premium but you might have been better off holding onto the stock, then selling it as the price climbed.

Moneyness

Moneyness describes an option’s strike price relative to its market price. There are three ways to measure the moneyness of an option:

In the Money

Options are in the money when they have intrinsic value. A call option is in the money when the market price of the underlying security is above the strike price. A put option is in the money when the market price of the underlying security is below the strike price.

At the Money

An option is at the money when its market price and strike price are the same.

Out of the Money

An out-of-the-money option has no intrinsic value. A call option is out of the money if the market price of the underlying security is below the strike price. A put option is out of the money when the market price of the underlying security is above the strike price.

Understanding moneyness is important for deciding when to exercise options and when they may be at risk of expiring worthless.

How Is Strike Price Calculated?

The strike price of an option contract is set when the contract is written. Strike prices may be determined by the exchange they’re traded on (like the Chicago Board Options Exchange). Options contract writers may use the security’s closing price from the previous day as a baseline for determining the strike price while taking into account volatility and trading volume.

A writer can issue multiple option contracts for the same security with varying strike prices. For example, you might see five option contracts for the same stock with strike prices of $90, $92.50, $95, $97.50 and $100. This allows investors an opportunity to select varying strike prices when purchasing calls or put options for the same stock.

Note, however, that writing options in this fashion will likely result in those calls being uncovered, unless the writer owns enough shares to cover all of the options issued — that can mean incurring significant risk.

How Do You Choose a Strike Price?

When deciding which options contracts to buy, strike price is an important consideration. Stock volatility and the passage of time can affect an option’s moneyness and your potential profits or less from exercising the option.

As you compare strike prices for call or put options, consider:

•   Your personal risk tolerance

•   Where the underlying security is trading, relative to the option’s strike price

•   How long you have to exercise the option

You can also consider using various options trading strategies to manage risk. That includes covered calls as well as long calls, long puts, short puts and married puts. Learning more about how to trade options can help you apply these strategies to maximize returns while curbing the potential for losses.

What Happens When an Option Hits the Strike Price?

When an option hits the strike price it’s at the money. This means it has no intrinsic value as the strike price and market price are the same. There’s no incentive for an investor to exercise an option that’s at the money as there’s nothing to be gained from either a call or put option. In this scenario, the option will expire worthless.

If you’re the purchaser of an option that expires worthless, you would lose the money you paid for the premium to buy the contract. If you’re the writer of the option you would profit from the premium charged to the contract buyer.


💡 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.

The Takeaway

Strike price is a critical concept for investors to know, especially if they’re trading or otherwise dealing with options as a part of their investing strategy. The strike price simply refers to the price that a purchaser can buy or sell an underlying security. Again, options can be fairly high-level, and may not be appropriate for all investors.

If you’re interested in options trading, getting started isn’t complicated. You simply need to choose an online brokerage that offers options trading. When comparing brokerages be sure to check the fees you’ll pay to trade options.

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), 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/Paul Bradbury

SoFi Invest®
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing 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, including state licensure of SoFi Digital Assets, LLC, 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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

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 $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0723063

Read more
woman on laptop with notebook

What Is Dividend Yield?

What Is Dividend Yield?

A stock’s dividend yield is how much the company annually pays out in dividends to shareholders, relative to its stock price. The dividend yield is a ratio (dividend/price) expressed as a percentage, and is distinct from the dividend itself.

Dividend payments are expressed as a dollar amount, and supplement the return a stock produces over the course of a year. For an investor interested in total return, learning how to calculate dividend yield for different companies can help to decide which company may be a better investment.

But bear in mind that a stock’s dividend yield will tend to fluctuate because it’s based on the stock’s price, which rises and falls. That’s why a higher dividend yield may not be a sign of better value.

Keep reading to understand how to calculate dividend yield, and how to use it as a metric in your investment choices.

Key Points

•   Dividend yield is the ratio of a stock’s annual dividend payments to its current stock price, expressed as a percentage.

•   Dividend yield can help investors compare companies and determine which ones may be better investments for generating income.

•   Dividend yield fluctuates based on changes in stock price, so a higher yield doesn’t always indicate better value.

•   Calculating dividend yield involves dividing the annual dividend per share by the stock’s current price.

•   Other factors to consider when evaluating dividend stocks include dividend growth history, dividend payout ratio, company debt, and overall financial health.

How Does Dividend Yield Differ From Dividends?

•   Dividends are a portion of a company’s earnings paid to investors and expressed as a dollar amount. Dividends are typically paid out each quarter (although semi-annual and monthly payouts are common). Not all companies pay dividends.

•   Dividend yield refers to a stock’s annual dividend payments divided by the stock’s current price, and expressed as a percentage. Dividend yield is one way of assessing a company’s earning potential.

How to Calculate Dividend Yield

Calculating the dividend yield of an investment is useful for investors who want to compare companies and the dividends they pay. For investors looking for investments to help supplement their cash flow, or even to possibly live off dividend income, a higher dividend yield on a stock would be more attractive than a lower one.

What Is the Dividend Yield Formula?

The dividend yield formula is more of a basic calculation than a formula: Dividend yield is calculated by taking the annual dividend paid per share, and dividing it by the stock’s current price:

Annual dividend / stock price = Dividend yield (%)

Dividend Yield Formula

How to Calculate Annual Dividends

Investors can calculate the annual dividend of a given company by looking at its annual report, or its quarterly report, finding the dividend payout per quarter, and multiplying that number by four. For a stock with fluctuating dividend payments, it may make sense to take the four most recent quarterly dividends to arrive at the trailing annual dividend.

It’s important to consider how often dividends are paid out. If dividends are paid monthly vs. quarterly, you want to add up the last 12 months of dividends.

This is especially important because some companies pay uneven dividends, with the higher payouts toward the end of the year, for example. So you wouldn’t want to simply add up the last few dividend payments without checking to make sure the total represents an accurate annual dividend amount.

Example of Dividend Yield

If Company A’s stock trades at $70 today, and the company’s annual dividend is $2 per share, the dividend yield is 2.85% ($2 / $70 = 0.0285).

Compare that to Company B, which is trading at $40, also with an annual dividend of $2 per share. The dividend yield of Company B would be 5% ($2 / $40 = 0.05).

In theory, the higher yield of Company B may look more appealing. But investors can’t determine a stock’s worth by yield alone.

Dividend Yield: Pros and Cons

Pros

Cons

Can help with company valuation. Dividend yield can indicate a more established, but slower-growing company.
May indicate how much income investors can expect. Higher yield may mask deeper problems.
Yield doesn’t tell investors the type of dividend (ordinary vs. qualified), which can impact taxes.

For investors, there are some advantages and disadvantages to using dividend yield as a metric that helps inform investment choices.

Pros

•   From a valuation perspective, dividend yield can be a useful point of comparison. If a company’s dividend yield is substantially different from its industry peers, or from the company’s own typical levels, that can be an indicator of whether the company is trading at the right valuation.

•   For many investors, the primary reason to invest in dividend stocks is for income. In that respect, dividend yield can be an important metric. But dividend yield can change as the underlying stock price changes. So when using dividend yield as a way to evaluate income, it’s important to be aware of company fundamentals that provide assurance as to company stability and consistency of the dividend payout.

Cons

•   Sometimes a higher dividend yield can indicate slower growth. Companies with higher dividends are often larger, more established businesses. But that could also mean that dividend-generous companies are not growing very quickly because they’re not reinvesting their earnings.

   Smaller companies with aggressive growth targets are less likely to offer dividends, but rather spend their excess capital on expansion. Thus, investors focused solely on dividend income could miss out on some faster-growing opportunities.

•   A high dividend yield could indicate a troubled company. Because of how dividend yield is calculated, the yield is higher as the stock price falls, so it’s important to evaluate whether there has been a downward price trend. Often, when a company is in trouble, one of the first things it is likely to reduce or eliminate is that dividend.

•   Investors need to look beyond yield to the type of dividend they might get. And investor might be getting high dividend payouts, but if they’re ordinary dividends vs. qualified dividends they’ll be taxed at a higher rate. Ordinary dividends are taxed as income; qualified dividends are taxed at the lower capital gains rate, which typically ranges from 0% to 20%. If you have tax questions about your investments, be sure to consult with a tax professional.

The Difference Between Dividend Yield and Dividend Rate

As noted earlier, a dividend is a way for a company to distribute some of its earnings among shareholders. Dividends can be paid monthly, quarterly, semi-annually, or even annually (although quarterly payouts tend to be common in the U.S.). Dividends are expressed as dollar amounts. The dividend rate is the annual amount of the company’s dividend per share.

A company that pays $1 per share, quarterly, has an annual dividend rate of $4 per share.

The difference between this straight-up dollar amount and a company’s dividend yield is that the latter is a ratio. The dividend yield is the company’s annual dividend divided by the current stock price, and expressed as a percentage.

What Is a Good Dividend Yield?

Two companies with the same high yields are not created equally. While dividend yield is an important number for investors to know when determining the annual cash flow they can expect from their investments, there are deeper indicators that investors may want to investigate to see if a dividend-paying stock will continue to pay in the future.

A History of Dividend Growth

When researching dividend stocks, one place to start is by asking if the stock has a history of dividend growth. A regularly increasing dividend is an indication of earnings growth and typically a good indicator of a company’s overall financial health.

The Dividend Aristocracy

There is a group of S&P 500 stocks called Dividend Aristocrats, which have increased the dividends they pay for at least 25 consecutive years. Every year the list changes, as companies raise and lower their dividends.

Currently, there are 65 companies that meet the basic criteria of increasing their dividend for a quarter century straight. They include big names in energy, industrial production, real estate, defense contractors, and more. For investors looking for steady dividends, this list may be a good place to start.

Dividend Payout Ratio (DPR)

Investors can calculate the dividend payout ratio by dividing the total dividends paid in a year by the company’s net income. By looking at this ratio over a period of years, investors can learn to differentiate among the dividend stocks in their portfolios.

A company with a relatively low DPR is paying dividends, while still investing heavily in the growth of its business. If a company’s DPR is rising, that’s a sign the company’s leadership likely sees more value in rewarding shareholders than in expanding. If its DPR is shrinking, it’s a sign that management sees an abundance of new opportunities abounding. In extreme cases, where a company’s DPR is 100% or higher, it’s unlikely that the company will be around for much longer.

Other Indicators of Company Health

Other factors to consider include the company’s debt load, credit rating, and the cash it keeps on hand to manage unexpected shocks. And as with every equity investment, it’s important to look at the company’s competitive position in its sector, the growth prospects of that sector as a whole, and how it fits into an investor’s overall plan. Those factors will ultimately determine the company’s ability to continue paying its dividend.

The Takeaway

Dividend yield is a simple calculation: You divide the annual dividend paid per share by the stock’s current price. Dividend yield is expressed as a percentage, versus the dividend (or dividend rate) which is given as a dollar amount.

A company that pays a $1 per share dividend, has a dividend rate of $4 per year. If the share price is $100/share, the dividend yield is 4% ($4 / $100 = 0.04).

The dividend yield formula can be a valuable tool for investors, and not just ones who are seeking cash flow from their investments. Dividend yield can help assess a company’s valuation relative to its peers, but there are other factors to consider when researching stocks that pay out dividends. A history of dividend growth and a good dividend payout ratio (DPR), as well as the company’s debt load, cash on hand, and credit rating can help form an overall picture of a company’s health and probability of paying out higher dividends in the future.

If you’re ready to invest in dividend-paying stocks, consider opening a brokerage account with SoFi Invest. You can trade stocks, exchange-traded funds (ETFs), and IPO shares, — right from your phone or laptop, using SoFi’s secure online platform. SoFi doesn’t charge management fees, and SoFi members have access to complimentary financial advice from professionals. Get started today!

Find out how SoFi Invest can help further your financial goals.


SoFi Invest®
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing 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, including state licensure of SoFi Digital Assets, LLC, 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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

SOIN0221054

Read more
TLS 1.2 Encrypted
Equal Housing Lender