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Q: What Is the Difference Between a Trading Halt and a Trading Restriction?

A trading halt is a short-term pause in which the trading of a particular security is temporarily suspended. These are known as regulatory halts. While a trading halt may occur at any point during the trading day, a trading delay is usually imposed at the market’s open.

Jun

2025

What Is the Difference Between Trading Halts and Trading Restrictions?

Trading Halts vs Other Trading Restrictions

By Matthew Warholak | Growing Wealth, invest, Investing | Comments Off

Stock exchanges and financial regulators sometimes impose different types of trading restrictions on individual stocks, including short-term halts or delays, and occasionally longer-term suspensions.

In cases of unusual volatility, financial authorities may halt the trading of all securities, by using a fail-safe measure known as market-wide circuit breaker (MWCB).

Generally speaking, though, more common reasons for trading restrictions include mitigating the impact of company news that could impact a stock’s price, significant economic or global events that impact that security (or the market as a whole), or because there’s a technical problem impacting trades.

The Securities and Exchange Commission (SEC) can restrict the trading of a particular security for up to 10 days, often because the company hasn’t filed the requisite reporting documents.

These trading restrictions can impact listed stocks (those listed on U.S. stock exchanges), as well as over-the-counter (OTC) stocks, which are not traded on public exchanges.

Key Points

• Stock exchanges and regulatory bodies may have reason to impose short- or long-term trading restrictions under various conditions.

• A short-term trading halt usually lasts no more than an hour, and is resolved during the trading day. A delay is usually a brief pause before markets open.

• The SEC can impose a trading suspension for up to 10 days.

• A common reason for a trading suspension is that a company hasn’t maintained its regular reporting to the SEC.

• A trading halt may be applied to a single security or market sector, but a full interruption of trading across markets is also possible.

What Is the Difference Between a Trading Halt and a Trading Restriction?

A trading halt is a short-term pause in which the trading of a particular security is temporarily suspended. These are known as regulatory halts. While a trading halt may occur at any point during the trading day, a trading delay is usually imposed at the market’s open.

A trading suspension is a longer-term restriction on trading a certain security, up to 10 days, enforced by the SEC.

For listed stocks, trading halts and delays are typically put in place by stock exchanges themselves, usually in response to company news that could impact trading outcomes.

OTC stocks, which are not listed on traditional exchanges like the NYSE or Nasdaq, are regulated by FINRA. So FINRA would institute a halt or delay if there were a material reason to pause trading.

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What Is a Trading Halt or Delay?

A trading halt pauses trading for a short period of time, usually less than an hour. Typically the halt occurs in response to company news or announcements affecting a product, company leadership, or other significant news that could change a stock’s price positively or negatively.

A stock exchange can also interrupt trading of a certain security if it deems that the stock does not meet, or no longer meets the criteria for being listed on the exchange.

A trading delay can be imposed by an exchange when a company has revealed significant news after the trading hours of 4 p.m. to 9:30 a.m. Eastern Time — which is often when companies make important announcements.

The idea is to give investors time to absorb the news, and ideally avoid volatile trading.

When an exchange imposes a halt on a certain security, other exchanges that list that stock also respect the halt or delay.

Trading halts are artificial, meaning they are not a natural part of markets — however, they have been in existence for some time. Stock market halts date back to 1987, when the SEC mandated the creation of market-wide circuit-breakers (MWCBs) to prevent a repeat of the Oct. 19, 1987 market crash, also known as “Black Monday,” which was one of the worst days in the history of the stock market.

Reasons for Trading Halts

Trading halts are a means of interrupting market action to prevent volatility from snowballing in response to unexpected stimuli. Halts are implemented for a variety of reasons, including the following.

1. Anticipation of a Major News Announcement

A trading halt might be called during the day to allow a company to make an announcement. As noted, if the announcement is pre-market, it might result in a trading delay rather than a halt, prior to the market’s open. A trading halt or delay allows investors time to absorb the news without reacting.

2. Severe Price Fluctuations

Exchanges may also impose trading halts based on stock volatility, applying to both upside and downside swings in short amounts of time. Whereas news-induced trading delays could be an hour in duration, trading of a certain stock can also be halted when price fluctuations trigger the Limit Up/Limit Down Plan (LULD).

The LULD parameters are designed to halt trading when a stock’s price moves too quickly outside certain price bands. These bands are calculated on a rolling basis, to capture higher- or lower-than-average price movements over five-minute intervals. If a stock enters the so-called limit state (i.e., it hits either the upper or lower end of its range), and doesn’t move within 15 seconds, trading is paused for five minutes.

3. Market-Wide Circuit Breakers

There are also three tiers of market-wide circuit breakers that pause trading across all U.S. markets when the benchmark indices the S&P 500, the Dow Jones 30, and the Nasdaq exceed pre-set percentages in terms of price from the prior day’s closing price:

• Level 1: 15-minute halt when the S&P 500 falls 7% below the previous day’s closing price between 9:30 am ET and 3:24 pm ET.

• Level 2: 15-minute halt when the S&P 500 falls 13% below the previous day’s close between 9:30 am ET to 3:24 pm ET. Level 1 and 2 circuit breakers do not halt trading between 3:25 pm ET and 4:00 pm ET.

• Level 3: Trading is closed for the remainder of the day until 4 pm ET when the S&P 500 falls 20% below the previous day’s close.

4. Correct an Order Imbalance

Non-regulatory halts or delays occur on exchanges such as the NYSE when company news — particularly when released after hours — has a disproportionate impact on the pending buy and sell orders.

When this occurs, trading is halted or delayed, market participants are alerted to the situation, and exchange specialists communicate to investors a reasonable price range where the security may begin trading again on the exchange.

However, a non-regulatory trading halt or delay on exchange does not mean other markets must follow suit with this particular security.

5. Technical Glitch

Trading is halted when it’s determined that unusual market activity such as the misuse or malfunction of an electronic quotation, communication, reporting, or execution system is likely to have a significant impact.

6. Regulatory Concerns

A trading halt may be placed on a security when there is uncertainty over whether the security meets the market’s listing standards. When this halt is placed by a security’s primary markets, other markets that offer trading of that security must also respect this halt. These include:

• SEC Trading Suspension: A five-minute trading halt for a stock priced above $3.00 that moves more than 10% in a five-minute period. These are commonly imposed by the SEC onto penny stocks and other over-the-counter stocks suspected of stock promotion or fraud.

• Additional Information Requested: A trading halt that occurs when a stock has rallied significantly without any clear impetus. This can be common among orchestrated pump-and-dumps or short squeezes. In many cases when the halt is lifted, the stock reverts back down because there are no underlying fundamentals supporting the dramatic rise in price.

💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

How Long Do Trading Halts Last?

Trading halts are typically no longer than an hour, the remainder of the trading day, or on rare occasions up to 10 days. However, if the SEC deems appropriate, the regulatory body may revoke a security’s registration altogether.

Example of Trading Halts

While most trading halts don’t make headlines, there are a few that investors may remember.

Pending News

In February of 2025, medical device company Know Labs, Inc. (KNW) announced that its trading suspension had been lifted by NYSE American. The trading suspension had been imposed on the company’s common stock, owing to the company’s need to meet compliance standards for listing on the NYSE American exchange (in this case the stock price was found to be above the low-selling threshold for listing on the exchange).

Stock Volatility

Amid the well-known Gamestop vs Wall Street meme stock spectacle in 2021, Gamestop’s stock (GME) saw huge capital inflows over the course of a couple of weeks, leading the NYSE in terms of daily volume. The stock’s intraday volume was so high that it triggered the volatility circuit breaker dozens of times over the last week of January and again on February 2, 2021, when it dropped 42%.

Technical Issues

In early June of 2024, the trading of some 40 ticker symbols on the NYSE, including Berkshire Hathaway Class A shares, were temporarily halted owing to pricing data issues that stemmed from a technical glitch attributed to a new software release. Trading resumed after a couple of hours.

Market-wide Circuit Breakers (MWCBs)

MWCBs were triggered four times in March 2020 in response to the global COVID-19 pandemic lockdowns that caused two of the six largest single-day drops in market history. This was the first occurrence of market-wide circuit breakers since 1997.

The Takeaway

Trading halts, delays, and suspensions are similar, but halts and delays are generally shorter — and are the result of intervention by a stock exchange or FINAR. Trading suspensions are generally put in place by the SEC.

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FAQ

Is a trading halt a good thing?

Generally speaking, the intention of a trading halt is to protect investors, as well as companies, from the impact of significant news events on a stock’s price — or if there’s evidence of non-compliance, fraud, or technical issues. In rare cases, an exchange may halt trading when there’s a major event, such as a natural disaster.

What happens when trading is halted?

A typical trading halt occurs during the course of the trading day (usually 9:30 a.m. to 4 p.m. Eastern Time). This is a temporary interruption of the trading of a single security, and usually it lasts no more than an hour. It may follow a company news announcement, or it may occur after news is released.

What’s the difference between a halt and a suspension?

A trading halt is a temporary pause relating to company news (or factors that could lead to market volatility), and it’s imposed by a stock exchange or by FINRA (in the case of over-the-counter stocks). A suspension is longer-term — up to 10 days — where a stock is removed from trading owing to non-compliance with SEC rules or other regulatory issues.

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

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Jun

2025

What Are Hedge Funds and How Do They Work?

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

A hedge fund is a private fund, often not registered with the SEC, which invests in publicly traded securities and other assets with the aim of delivering higher-than-average returns.

Hedge funds are pooled investment funds, similar to mutual funds, but they are typically accessible only to high-net-worth, accredited, or institutional investors. They are not available to retail investors. Hedge funds have high investment minimums, often in the millions, and they rely on high-risk strategies with significant fees.

Unlike registered investment companies and open-end funds, hedge funds don’t have to follow regulations that govern most mutual funds and ETFs, including restrictions on the use of leverage, disclosure requirements around asset value and share pricing, and more.

In short, while hedge fund returns can be high, losses can be just as steep, and investors who qualify to invest in these vehicles need to understand the risks involved.

Key Points

• Hedge funds are similar to mutual funds and ETFs in that they are a type of pooled investment fund, but they are private funds not open to retail investors.

• Unlike most mutual funds and ETFs, hedge funds employ high-risk strategies to achieve higher-than-average returns.

• Owing to their potential to deliver big profits, hedge funds charge significant fees and require high investment minimums.

• While some hedge fund managers must register with the SEC, many hedge funds are unregistered, and are not subject to certain regulations — one of the reasons retail investors typically don’t have access to these funds.

• While hedge fund returns may be high, so is the potential for steep losses.

What Is a Hedge Fund?

Hedge funds are set up by a registered investment advisor or money manager, often as a limited liability company (LLC) or a limited partnership (LP). They differ from mutual funds in that they have more investment freedom — meaning, they’re not subject to standard SEC regulations — so they’re able to make riskier investments.

How Hedge Funds Work

By using aggressive investing tactics, such as short-selling, leverage, and alternative investment strategies, hedge funds can potentially deliver higher-than-market returns. But they also come with higher risks than other types of investments.

In addition to traditional asset classes, hedge funds can include a diverse array of alternative assets, including art, real estate, and currencies.

Hedge funds tend to seek out short-term investments rather than long-term investments. Of course assets that have significant short-term growth potential can also have greater short-term losses.

Historically, hedge funds have not performed as well as somewhat safer investments, such as index funds. However, investors also use hedge funds to provide growth during all phases of market growth and decline, providing diversification to a portfolio that also contains stocks, cash, and other investments.

Generally speaking, only qualified investors and institutional investors are able to invest in hedge funds, due to their risks and the high fees that get paid to fund managers — typically 20% of profits. In addition, the redemption rules around hedge funds — including a typical one-year lock-up period — can be complex as well as costly.

Types of Hedge Funds

Each hedge fund has a different investing philosophy and invests in different types of assets. Some different hedge fund strategies include:

• Real estate investing

• Junk bond investing

• Specialized asset class investing such as art, music, or patents

• Long-only equity investing (no short selling)

• Private equity investing, in which the fund only invests in privately-held businesses. In some cases the hedge fund gets involved in the business operations and helps to take the company public.

What Is a Hedge Fund Manager?

Hedge funds are run by investment managers who manage the fund’s investment strategy. If a hedge fund is profitable, the hedge fund manager can make a significant amount of money, often up to 20% of the profits.

Before selecting and investing in a hedge fund, it’s important to look into the fund manager’s history as well as their investing strategy and fees. This information can be found on the manager’s Form ADV, which you can find on the fund’s website as well as through the Security and Exchange Commission’s (SEC) website.

Who Can Invest in a Hedge Fund?

Hedge funds are not open to retail investors, who can buy stocks online, and there are several requirements to be able to invest in hedge funds.

In order for an individual to invest, they must be an accredited investor. This means that they either:

• Have an individual annual income of $200,000 or more. If married, investors must have a combined income of $300,000 per year or more. They must have had this level of income for at least two consecutive years and expect to continue to earn this level of income.

• Or, the investor must have an individual or combined net worth of $1 million or more, excluding their primary residence.

If the investor is an entity rather than an individual, they must:

• Be a trust with a net worth of at least $5 million. The trust can’t have been formed solely for the purpose of investing, and must be run by a “sophisticated” investor, defined by the SEC as someone with sufficient knowledge and experience with investing and the potential risks involved.

• Or, the entity can be a group of accredited investors.

How to Invest in a Hedge Fund

Investing in hedge funds is risky and involves a deep understanding of financial markets. Before investing, there are several things to consider:

The Fund’s Investing Strategy

Start by researching the hedge fund manager and their history in the industry. Look at the types of assets the fund invests in, read the fund’s prospectus and other materials to understand the opportunity cost and risk. Generally speaking, the higher the risk, the higher potential returns.

In addition, you need to understand how the fund evaluates potential investments. If the fund invests in alternative assets, these may be difficult to value and may also have lower liquidity.

Understand the Minimums

Investment requirements can range between $100,000 to $2 million or more. Hedge funds have less liquidity than stocks or bonds, and it’s also common for there to be lock-up periods for funds — and/or for there to only be certain times of year when funds can be withdrawn.

Confirm You Can Make the Investment

Make sure that the fund you’re interested in is an open fund, meaning that it accepts new investors. Financial professionals can help with this research process. Each hedge fund will evaluate an individual’s accreditation status using their own methods. They may require personal information about income, debt, and assets.

Understand the Fees

Usually hedge funds charge an asset management fee of 1-2% of invested assets, as well as a performance fee of 20% of the hedge fund’s profits.

The Takeaway

Hedge funds offer accredited and institutional investors the chance to invest in funds that are usually high-risk, but offer high potential returns. There are many rules surrounding hedge funds, and many investors may not even consider them as a part of an investing strategy.

For accredited investors, investing in a hedge fund may be one part of a diversified portfolio, although it depends on the investor’s risk tolerance, time horizon, and investing goals. If you’re not an accredited investor, or you’re worried about the risks associated with hedge funds, it may make more sense for you to consider other types of investments or to stick with ETFs, mutual funds, or funds of funds that emulate hedge fund strategies.

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FAQ

What is a hedge fund in simple terms?

A hedge fund is a loosely regulated pooled investment fund that employs high-risk strategies in order to deliver returns.

How do you make money from a hedge fund?

Hedge funds typically invest in high-risk assets in order to deliver better-than-market returns. But there are no guarantees, and the combination of risk and high fees can lead to steeper-than-average losses.

How rich do you have to be to invest in a hedge fund?

Current SEC regulations require that most hedge funds accept only accredited investors, i.e., individuals with a net worth of $1 million or more, excluding their primary residence. In addition, minimum investment levels can start in the millions.

Photo credit: iStock/gece33

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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.

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SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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.

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

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Jun

2025

Preferred Stock vs. Common Stock

By Ashley Kilroy | Growing Wealth, invest, Investing | Comments Off

Before you start trading on the market, read our guide to understand the pros and cons of common vs. preferred stock.

Jun

2025

Guide to Mega Cap Stocks

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Mega cap, or “megacap,” is a term that describes the largest publicly-traded companies, based on their market capitalization, which is typically $200 billion or more. Mega cap stocks typically include industry-leading companies with highly recognizable brands.

Investing in mega cap stocks, along with companies that have a smaller market capitalization, can help build a diversified investment portfolio. Spreading investment dollars across different market caps may allow investors to minimize potential risks. But like any security, mega cap stocks have both pros and cons that investors should consider. Learning more about how they work and what sets them apart from other types of stocks can help you decide whether there’s a place for them in your portfolio.

Key Points

• Mega cap stocks represent the largest public companies by market capitalization.

• These stocks typically have market caps exceeding $200 billion.

• Examples include NVIDIA, Apple, Microsoft, Alphabet, and Amazon.

• Investing in mega cap stocks may offer stability and potential dividends.

• Mega cap stocks offer limited upside and risks related to perception versus reality are potential drawbacks.

Market Capitalization, Explained

Mega cap stocks sit at one end of the market capitalization spectrum, representing the very largest companies in the public markets. Market capitalization is a commonly used method for categorizing publicly-traded companies. In simple terms, market capitalization or market cap measures a company’s value, as determined by multiplying the current market price of a single share by the total number of shares outstanding.

For example, say a company’s stock is priced at $50 per share and it has 10 million shares outstanding. Following the formula of $50 x 10,000,000, the company would have a total market capitalization of $500 million.

Most often, companies are assigned to one of three categories, based on their market capitalization as follows:

• Micro-cap: Market value of less than $250 million

• Small cap: Market value of $250 million to $2 billion

• Mid-cap: Market value of $2 billion to $10 billion

• Large-cap: Market value above $10 billion to $200 billion

• Mega-cap: Market value of $200 billion or more

While most companies fit into one of these three groups, some outliers exist on either end of the spectrum. The smallest of the small cap stocks are microcap stocks, while the largest companies are the mega caps.

Mega Cap Stock Definition

Mega cap stocks have a market capitalization that’s $200 billion or more. There are a handful of companies with market caps of more than $1 trillion (some with more than $3 trillion), and those companies only passed the trillion-dollar mark in recent years. That said, it’s likely more companies will become mega cap stocks in the years ahead.

10 Companies With the Largest Market Cap

As of June 2025, these are the ten companies with the largest market caps. Note, too, that there isn’t always a direct correlation between market cap and stock price!

1. NVIDIA

NVIDIA makes computer chips, and has a market cap of $3.51 trillion, with share prices of around $143. NVIDIA trades under the NVDA ticker.

2. Microsoft

Microsoft trades under the MSFT ticker, and has a market cap of more than $3.48 trillion. Microsoft is a large tech company that creates software and hardware for businesses and consumers. Microsoft shares trade for nearly $470.

3. Apple

Apple, which trades under the market ticker AAPL, has a market cap of $3.05 trillion, and shares trade at more than $204. Apple is a tech company that produces consumer tech goods and software, including the iPhone.

4. Amazon

Amazon is an ecommerce company that sells just about everything under the sun on its digital platform, as well as offering cloud services to businesses. Amazon trades under the AMZN ticker, and has a market cap of $2.25 trillion, and shares trade for more than $210.

5. Alphabet

Yet another large tech company, specializing in software and ad sales, Alphabet (the parent company of Google) has a market cap of more than $2.07 trillion. Alphabet trades under the GOOG ticker (it has numerous share classes), and shares trade for around $170.

6. Meta

Meta is the parent company of Facebook, and trades under the ticker META. Its market cap is $1.4 trillion, and shares trade for more than $690.

7. Broadcom Inc.

Broadcom is an American company that designs, develops, and manufactures software and semiconductors. Its market cap is $1.24 trillion, with share prices of more than $263.

8. Berkshire Hathaway

Berkshire Hathaway is a conglomerate holding company, meaning that it is involved in many industries, including real estate and insurance. It has many stock classes, but trades under the ticker BRK.A, and its market cap is valued at more than $1.06 trillion.

9. Tesla

Tesla is an electric car company, and has a market cap of roughly $1 trillion. It trades under the ticker TSLA, and its stock price is around $310.

10. Taiwan Semiconductor Manufacturing Company

Taiwan Semiconductor Manufacturing Company, or TSMC, is yet another semiconductor manufacturer, located in Taiwan. It trades under the TSMC symbol, and its share price is around $205 with a market cap of around $1 trillion.

3 Pros of Investing in Mega Cap Stocks

There are several good reasons to consider making mega cap stocks part of your asset allocation strategy.

1. Diversification

Investing across different sectors and market capitalizations spreads out risk, since economic ups and downs may affect smaller, mid-sized and larger companies differently.

2. Stability

Established mega cap companies are among the most stable in the economy and may be better able to withstand a market downturn compared to smaller or newer companies without cash reserves or a solid brand reputation.

3. Dividends

Some mega cap stocks pay dividends to investors since they don’t need to reinvest profits into growth. That can provide an additional stream of income or allow for faster portfolio growth if they’re reinvested.

Cons of Investing in Mega Cap Stocks

While there are some things that make mega cap companies attractive to investors, it’s important to consider the potential downsides:

Limited Upside

Since many mega caps have already done most of their growing, there may be limited space for their share prices to increase.

Perception vs Reality

Market capitalization measures the stock market’s perceived value of a stock, not its intrinsic value. So mega cap status alone shouldn’t be considered a reliable indicator of a company’s fundamentals or financial health.

💡 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.

How to Invest in Mega Caps

If you understand the investment risk and potential rewards that come with mega cap stocks and you’re interested in adding them to your portfolio, there are two ways to do it. You can choose to invest in individual mega cap stocks, or you can put money into an investment fund, such as a mutual fund or an exchange-traded fund (ETF) that holds mega caps.

You can also look at investing in a market index that can give your portfolio exposure to mega cap stocks.

Buying individual stocks allows you to pick and choose which mega caps you want to purchase. But this may require more of a hands-on approach as you’ll need to research individual companies. There are similarities and differences, in that regard, between investing in mega cap and investing in small cap stocks.

Investing in a thematic ETF focused on mega cap stocks may be a simpler way to diversify with larger companies. This allows you to have exposure to more mega cap stocks in your portfolio.

ETFs can be traded on an exchange, just like a stock, allowing for greater liquidity and flexibility than traditional mutual funds. Lower turnover ratios can make ETFs more tax-efficient than regular mutual funds. Depending on which mega cap ETF you choose, you may pay a much lower expense ratio than you would with traditional mutual funds.

The Takeaway

Mega cap stocks refers to stocks that have a market capitalization of more than $200 billion, and in some cases, more than $1 trillion. As of June 2025, there are a few dozen mega cap stocks out there, but several companies may become mega cap stocks in the subsequent years.

Mega cap stocks offer stability and the potential for dividend income, though they may have lower upside than smaller stocks that have more room to grow. The right role for mega cap stocks in your portfolio will depend on your investment goals, risk tolerance, and time horizon.

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

FAQ

What are examples of mega caps?

Some examples of mega cap stocks include Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), and Amazon (AMZN), which have market caps of more than $2 trillion.

How many mega cap stocks are there in the U.S.?

Mega cap stocks are stocks with market caps of vastly more than $200 billion, and as such, there are many on the market – dozens, in fact. But there are only a relative handful with market caps of more than $1 trillion.

What is the difference between a large-cap and mega cap?

While mega cap stocks are typically defined as having market caps of more than $10 billion (often more than $200 billion), large-cap stocks have market caps ranging from $2 billion to $10 billion.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

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.

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.

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.

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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.

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.

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

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.

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

SOIN-Q225-118

Jun

2025

ETFs vs Mutual Funds: Learning the Difference

By Samuel Becker | Growing Wealth, invest, Investing | No Comments

Exchange-traded funds (ETFs) and mutual funds are both SEC-registered investment vehicles that offer investors a convenient way to build a diversified portfolio. Both are professionally managed and offer investors slices of the portfolio. Both can hold hundreds or thousands of securities. Both are not FDIC insured, which means an investor can lose their money.

For decades, ETFs and mutual funds have provided retail and institutional investors an efficient way to invest in stocks, bonds and other asset classes. Yet there are key differences.

Key Points

• ETFs trade on exchanges throughout the day, while mutual funds transact once daily at the closing price.

• ETFs disclose holdings daily, whereas mutual funds report total value daily.

• ETFs usually have lower fees compared to mutual funds, which may have higher fees.

• ETFs typically require a lower initial investment, mutual funds often need a higher initial investment.

• ETFs are generally more tax-efficient due to the unique structure of these funds.

Differences Between ETFs and Mutual Funds

While there are plenty of similarities between ETFs and mutual funds, let’s start with some key differences.

How to Buy Mutual Funds and ETFs

The biggest difference between mutual funds and ETFs is how they’re purchased and sold. Mutual funds transact once per day, with all investors selling or buying shares at the same closing price. ETFs trade throughout the day on public exchanges, with many shares exchanging hands at various prices as buyers and sellers react to changes in the market.

Data on Holdings

Mutual funds are required to report the total value of their portfolio once per day after the stock markets close. The fund then figures out how many shares they have and what each share is worth based on the total value. This is what is referred to in the industry as the Net Asset Value, or NAV. When investors buy or sell a share of the mutual fund, they transact at that NAV at the end of the day.

Meanwhile, ETFs have to report their holdings on a daily basis. The price of the ETF fluctuates throughout the day based on market conditions and the value of the ETF’s underlying holdings.

Passive vs Active

ETFs tend to be considered “passive investments.” That’s because investors are not necessarily making active trades but rather tracking an underlying index. However, actively managed ETFs have also cropped up, since the first ETF was launched in 1993.

Meanwhile, with mutual funds, it’s common to find an active fund manager who makes decisions on which holdings to buy and sell.

Fee Differences Between ETFs vs Mutual Funds

Mutual funds tend to charge different types of fees to cover their business costs. ETFs generally charge lower fees. Compared to active investing, passive investing usually incurs lower fees since they track a particular index, like the S&P 500 Index.

Tax Implications of ETFs vs Mutual Funds

You may get better tax efficiency with ETFs, because you are not buying or selling as much with them. There are fewer transactions to tax and ETFs are generally tax efficient given their unique creation and redemption mechanism that they employ.

You’ll have to pay capital gains taxes and dividend income taxes, but ETFs have a lower tax requirement than mutual funds. Due to the unique structure of ETFs, they’re often able to reduce the amount of capital gains they distribute each year relative to a comparable mutual fund.

Lower Initial Investment

As a general rule, mutual funds tend to require a higher initial investment. ETFs, on the other hand, allow investors to invest in as little as a single share. In some cases, brokerage firms allow investors to even buy ETF fractional shares, slices of a whole stock in an ETF.

Alternative investments,
now for the rest of us.

Explore trading funds that include commodities, private credit, real estate, venture capital, and more.

Types of Mutual Funds

The first mutual fund was launched in the 1970s by the late Jack Bogle of Vanguard. Since then the investment type has steadily increased in popularity. They account for tens of trillions of dollars.

Here are some of the different types of mutual funds:

Load Mutual Funds

Load mutual funds charge a sales commission that’s paid to a financial professional or broker who helped the investor decide on which mutual fund to purchase.

There are typically two types of load mutual funds: Front-end load funds, which means the fee is paid when the mutual fund is purchased, and back-end load funds, which means the fee is paid when the mutual fund purchase is redeemed. Generally, back-end load funds charge higher fees.

No-Load Mutual Funds

Investors could look for a “no-load” mutual fund, which means the shares are bought and sold without charging commissions.

This plan may be best for investors who plan to do a lot of trading. If investors have to pay a commission charge every time they buy or sell a security, frequent trading will reduce returns. However, the expense ratios for no-load mutual funds are often higher.

Active vs Passive Mutual Funds

Most mutual funds are actively navigated by experienced money managers who steer the fund and invest in companies they believe will lead to outperformance. However, there are also passive mutual funds that track indices, similar to the way ETFs do.

Open-Ended Funds

Purchases and sales of fund shares typically happen directly between an investor and the fund company. As more investors buy into the fund, more shares are added, which means that the number of eventual fund shares can be nearly unlimited.

However, the fund must undergo a daily valuation by law, which is called marking to market (see a deeper dive on this below). The result of this process is a new per-share price, which has been adjusted to sync with any changes in the value of the fund’s holdings. An investor’s share value is not affected by the quantity of outstanding shares.

Closed-End Funds

Unlike open-ended funds, closed-ended funds (CEFs) are finite and limited. Only a specific number of shares are issued and no further shares are expected to be added.

The prices of close-ended funds are influenced by the NAV of the fund, but are ultimately determined by the demand investors have for the fund. Since the amount of shares is fixed, the shares often trade above or below the NAV. If the fund is trading above the NAV (what it’s really worth), it’s said to be trading at a premium; if trading below the NAV, it’s said to be trading at a discount.

💡 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.

Different Types of ETFs

ETFs are just one class of funds within the broader exchange-traded product (ETP) universe. Here’s a closer look at the different types of ETPs and ETFs.

Exchange-Traded Notes (ETNs)

Exchange-traded notes (ETNs) are usually debt instruments issued by banks that seek to track an index.

Leveraged ETFs

Leveraged ETFs use derivatives to amplify returns from a fund. For instance, if an underlying index moves 1% on a trading day, a regular ETF tracking the index would also move 1%. However, a leveraged ETF could move 2% or 3% depending on whether it’s double levered or triple levered.

Inverse ETFs

Inverse ETFs are similar to shorting a stock. Investors can use inverse ETFs to bet that the price of a market or stock sector will go down. So if the underlying goes down 1% on a given day, the inverse ETF will go up 1%.

Thematic ETFs

Thematic ETFs tend to focus on a slice of the stock market and follow a specific trend. Thematic ETFs that have cropped in recent years include those that cover renewable energy, the gig economy, or even pet care.

The major pros and cons of thematic ETFs include capturing a specific trend that appeals to an investor, as well as being too narrowly focused.

The Takeaway

Both ETFs and mutual funds allow investors to pool funds with other investors’ funds to ultimately buy and sell baskets of securities in the market. The aim is portfolio diversification and reducing risk compared to investing in a single company. If a person were to put all of their money into one company instead, their investment isn’t diversified because their fortunes are tied to that single company.

Investing in both ETFs and mutual funds, or a combination of both (or either) will depend on an individual investor’s preferences. Not all investments are right for each portfolio, and some research is necessary to see what’s right for you.

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

FAQ

How are mutual funds and ETFs bought and sold?

One of the biggest differences between mutual funds and ETFS is how they are traded. Mutual funds transact once per day, with all investors trading at the same closing price, while ETFs trade constantly throughout the day on public exchanges.

What are some common types of mutual funds?

There are numerous types of mutual funds, including (but not limited to) load mutual funds, no-load mutual funds, active or passive funds, open-ended funds, and more.

What are some common types of ETFs?

Some common types of ETFs include thematic ETFs, inverse ETFs, leveraged ETFs, and the similar-but-different exchange-traded notes, or ETNs.

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.

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.

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.

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.

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.
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.

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.

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

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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

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

SOIN-Q225-123

Trading Halts vs Other Trading Restrictions

What Is the Difference Between a Trading Halt and a Trading Restriction?

What Is a Trading Halt or Delay?

Reasons for Trading Halts

1. Anticipation of a Major News Announcement

2. Severe Price Fluctuations

3. Market-Wide Circuit Breakers

4. Correct an Order Imbalance

5. Technical Glitch

6. Regulatory Concerns

How Long Do Trading Halts Last?

Example of Trading Halts

Pending News

Stock Volatility

Technical Issues

Market-wide Circuit Breakers (MWCBs)

The Takeaway

FAQ

Is a trading halt a good thing?

What happens when trading is halted?

What’s the difference between a halt and a suspension?

What Are Hedge Funds and How Do They Work?

What Is a Hedge Fund?

How Hedge Funds Work

Types of Hedge Funds

What Is a Hedge Fund Manager?

Who Can Invest in a Hedge Fund?

How to Invest in a Hedge Fund

The Fund’s Investing Strategy

Understand the Minimums

Confirm You Can Make the Investment

Understand the Fees

The Takeaway

FAQ

What is a hedge fund in simple terms?

How do you make money from a hedge fund?

How rich do you have to be to invest in a hedge fund?

Preferred Stock vs. Common Stock

Guide to Mega Cap Stocks

Market Capitalization, Explained

Mega Cap Stock Definition

10 Companies With the Largest Market Cap

1. NVIDIA

2. Microsoft

3. Apple

4. Amazon

5. Alphabet

6. Meta

7. Broadcom Inc.

8. Berkshire Hathaway

9. Tesla

10. Taiwan Semiconductor Manufacturing Company

3 Pros of Investing in Mega Cap Stocks

1. Diversification

2. Stability

3. Dividends

Cons of Investing in Mega Cap Stocks

Limited Upside

Perception vs Reality

How to Invest in Mega Caps

The Takeaway

FAQ

What are examples of mega caps?

How many mega cap stocks are there in the U.S.?

What is the difference between a large-cap and mega cap?

ETFs vs Mutual Funds: Learning the Difference

Differences Between ETFs and Mutual Funds

How to Buy Mutual Funds and ETFs

Data on Holdings

Passive vs Active

Fee Differences Between ETFs vs Mutual Funds

Tax Implications of ETFs vs Mutual Funds

Lower Initial Investment

Alternative investments, now for the rest of us.

Explore trading funds that include commodities, private credit, real estate, venture capital, and more.

Types of Mutual Funds

Load Mutual Funds

No-Load Mutual Funds

Active vs Passive Mutual Funds

Open-Ended Funds

Alternative investments,
now for the rest of us.

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