MoneyHH Archives

Jul

2025

Understanding the Greeks in Options Trading

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

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

Table of Contents

A Quick Look at Options
What Are Option Greeks?
5 Main Options Greeks: Overview
Other Options Terminology to Know
FAQ

The “Greeks” in options trading — including delta, gamma, theta, vega, and rho — are metrics that help traders gauge the pricing and risk of a given options contract.

Because options are derivatives, the value of each contract — the premium — depends on a complex interaction of different factors, including time to expiration, price volatility, and changes in the value of the underlying security. Each of these factors is represented by a Greek letter.

While there are several Greeks, delta, gamma, theta, vega, and rho are among the main Greeks in options trading.

Options Greeks may sound like a foreign language, but they are often essential tools for assessing whether a certain position may be profitable, since it can be difficult to understand the true value of an option.

Key Points

• Options Greeks are tools that help investors estimate how different market forces may affect the value of an options contract.

• Delta measures how much an option’s price might change in response to a $1 move in the underlying asset.

• Gamma tracks how delta itself may change as the stock price shifts, helping investors understand rate-of-change risk.

• Theta reflects time decay, showing how much value an option could lose each day as it nears expiration.

• Vega and rho measure sensitivity to implied volatility and interest rate changes, respectively, both of which can influence an option’s premium.

A Quick Look at Options

Options contracts are a type of investment that can typically be bought and sold much like stocks and bonds. But options are derivatives — that is, they do not represent ownership of the underlying asset. Instead, their value (or lack thereof) derives from another underlying asset, typically a specific stock.

Traders generally conduct different types of options trading when they anticipate that stock prices may go up (a call) or down (a put). They also use options to hedge or offset potential investment risks on other assets in their portfolio.

In a nutshell, options are typically purchased through an investment broker. Those options give purchasers the right, but not the obligation, to buy or sell a security at a later date and specific price. Investors can buy an option for a price, called a premium, and then they may choose to buy or sell that option.

So, while an option itself is a derivative of another investment, it may gain or lose value, too. For example, if an investor were to buy a call option on Stock A and the stock price increases, the value of that call option may rise as well.

But the opposite would be true if an investor purchased a put option on Stock A, anticipating that Stock A’s price would go down. While not identical to shorting a stock, buying a put may result in a loss if the stock price rises instead of falls.

What Are Option Greeks?

Options traders use these letters to evaluate their option positions and better understand how changes in market conditions may affect those positions.

In short, the Greeks look at different factors that may influence the price of an option. Calculating the Greeks isn’t an exact science. Traders use a variety of formulas, typically based on mathematical pricing models. Because of that, these measurements are theoretical in nature.

Here’s a look at the most common Greeks used by traders to estimate how options might respond to market changes.

Recommended: Options Trading Terms You Need to Know

Delta

Delta measures how much an option’s price may change if the underlying stock’s price changes. It’s usually expressed as a decimal, ranging from 0.00 to 1.00 for calls and 0.00 to -1.00 for puts.

So, if an option has a delta of 0.50, in theory, that means that the option’s price may move approximately $0.50 for every $1 move in the stock’s price. Another way to think of delta is that it gives an investor an idea of the probability that the option may expire in-the-money. If delta is 0.50, for example, that can equate to a 50% chance that an option will expire in the money — meaning the strike price would be favorable relative to the market price at expiration.

Gamma

The second Greek, gamma, tracks the sensitivity of an option’s delta to changes in the underlying asset’s price. If delta measures how an option’s price changes in relation to a stock’s price, then gamma measures how delta itself may change in response to changes in the stock’s price.

Think of an option as a car going down the highway. The car’s speed represents delta, and acceleration reflects gamma, as it measures the change in speed. Gamma is also typically expressed as a decimal. If delta increases from 0.50 to 0.60, then gamma would be 0.10.

Theta

Theta measures an option’s sensitivity to time. It gives investors a sense of how much an option’s price may decline as it approaches expiration.

Similar to the “car on a highway” analogy, it may be useful to think of an option as an ice cube on a countertop. The ice cube melts — representing the diminishing time value — and that melting may accelerate as expiration approaches.

Theta is typically expressed as a negative decimal, representing the estimated daily dollar loss per share and represents how much value an option may lose each day as it approaches expiration.

💡 Quick Tip: The best stock trading platform? That’s a personal preference, of course. Generally speaking, though, an effective platform is one with an intuitive interface and powerful features to help make trades quickly and easily.

Vega

Finally, vega in options is a measure of an option’s sensitivity to implied volatility.

Markets are volatile, and securities (and their derivatives) are subject to that volatility. Vega measures how sensitive an option’s price is to changes in implied volatility.

Volatility refers to the magnitude and frequency of price fluctuations in a security’s value. Because future volatility is unknown, options pricing reflects market expectations — known as implied volatility. Changes in stock volatility can affect an option’s value, particularly when implied volatility deviates from expectations. Vega does not measure volatility itself, but an option’s sensitivity to volatility changes.

Vega is expressed as a number, reflecting the estimated dollar change in an option’s price for each 1% change in implied volatility.

Rho

Rho measures an option’s sensitivity to changes in interest rates. Specifically, it estimates how much an option’s price may move in response to a one percentage-point change in the risk free-interest rate.

The value of rho is typically small and more impactful for longer-dated options. For example, a rho of 0.05 suggests the option’s premium may increase by $0.05 if interest rates rise by 1%.

Although rho is less influential than other Greeks in most short-term trading strategies, it becomes more relevant when interest rates are rising or when a trader holds options with longer expirations.

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OCC Options Disclosure Document.

5 Main Options Greeks: Overview

In summary, here’s how an investor may use this data when analyzing the risk and reward of an options contract.

Name	Symbol	Definition	How investors might think about it
Delta	∆	Measures the sensitivity of an option’s price to a change in the price of the underlying security.	For example, if the delta is 0.50, that suggests the option’s price may move approximately $0.50 for every $1 move in the stock’s price. It can also indicate a 50% chance that an option may be in the money at the moment. This probability may change over time and isn’t a guarantee.
Gamma	γ	Measures the rate of change for delta. It tells you how quickly delta will change as the stock price changes.	Think of an option as a car on the highway: speed reflects delta while acceleration represents gamma, which is typically expressed as a decimal. A stock trading at $10 with a delta of 0.40 and gamma of 0.10 means that a $1.00 increase in the stock’s price may adjust delta by 0.10, increasing it to 0.50. A $1 decrease may lower delta to 0.30, impacting how quickly the option’s value will increase or decrease with further price movements.
Theta	θ	Measures the sensitivity of an option’s price to the passage of time.	An option’s theta is like an ice cube melting on a countertop – its time value diminishes as expiration approaches, and the melting becomes more rapid over time. This is expressed as a negative decimal that reflects dollar loss. For example, a theta of -1 means the option may lose $1 per share, per day, until it reaches the expiration date.
Vega	ν	The change in an option’s value as implied volatility goes up or down by 1 percent.	Vega rises with higher implied volatility, which reflects greater market uncertainty. Lower implied volatility typically corresponds with smaller price movements.
Rho	ρ	Measures the sensitivity of an option’s price to a change in interest rates.	If an option has a rho of 1.0, a 1% increase in interest rates may result in a 1% increase in the option’s value. Options most sensitive to interest rate changes are typically those that are at-the-money or have the longest time to expiration.

Other Options Terminology to Know

The specific option traded (a call versus a put, for example) and the underlying stock’s performance determine whether an investor’s position is profitable. That brings us to a few other key options terms that are important to know:

In the Money

A call option is “in the money” when the strike price is below the market price. A put option is “in the money” when the strike price is above the market price.

Out of the Money

A call option is “out of the money” when the strike price is above the market price. A put option is “out of the money” when the strike price is below the market price.

At the Money

The option’s strike price is the same as the stock’s market price.

The Takeaway

There’s no getting around it: Options and the Greeks can be complex and are generally not appropriate for newer investors. But experienced traders, or those willing to spend time learning how options work, may find them to be a valuable tool when building an investment strategy.

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

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

Explore SoFi’s user-friendly options trading platform.

FAQ

What are the Greeks in options trading?

The Greeks are a set of theoretical risk measures used to estimate how an option’s price may change based on variables like time, volatility, and the underlying asset’s price. The most commonly referenced Greeks are delta, gamma, theta, vega, and rho.

What is the Rule of 16 in options?

The Rule of 16 is shorthand for estimating expected daily price movement. It’s based on the idea that implied volatility reflects annualized moves. By dividing implied volatility by 16, traders can estimate the expected one-day standard deviation for a stock.

How do you use gamma in options trading?

Gamma helps traders get a sense of how stable an option’s delta is. A higher gamma suggests delta could change rapidly, especially near expiration or when an option is at the money. Monitoring gamma can help manage risk when holding positions that are sensitive to price swings.

Which Greek is most important in options trading?

The most closely watched Greek is delta, which estimates how much an option’s price may change when the underlying asset moves by $1. Delta also gives a rough idea of an option’s probability of expiring in the money. That said, the “most important” Greek depends on the strategy: traders focused on time decay may prioritize theta, while volatility traders may focus more on vega.

Photo credit: iStock/photolas

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

SOIN-Q225-068

Jul

2025

woman budgeting looking in wallet mobile

Guide to Tight Budgeting: 11 Strategies

By Kelly Boyer Sagert | Budgeting & Goals, money | Comments Off

Table of Contents

Does Budgeting Help When Money Is Tight?
1. Getting Honest With Your Budget
2. Finding Ways to Save
3. Negotiating With Service Providers
4. Cutting Back on Bigger Expenses
5. Knocking Down Debt
6. Starting an Emergency Fund
7. Spending Only Cash for Everyday Expenses
8. Starting a Side Gig
9. Traveling for Less
10. Saving on Insurance
11. Using a Budgeting App
FAQ

If your budget is tight, you may find yourself juggling bill payments, skimping on savings, and living paycheck to paycheck. But while it may seem as if that’s just the way it has to be, there are likely some ways to budget and save better during these times in your life.

Maybe you are a recent college grad with educational loans to pay back and you’re looking for a job. Or perhaps you are navigating some major medical or dental bills in addition to your usual living expenses. Or you might simply bring in a lower income or live in an area with a sky-high cost of living.

Whether you are dealing with a brief budget crunch or some ongoing financial issues, you can take the reins. With the right intel and tactics, you can make the most of your money and stretch further.

Here’s what you can do when money is tight.

Key Points

• Income and expenses require close monitoring to manage a tight budget effectively.

• Essential spending takes precedence; nonessential expenses may need to be minimized.

• Lowering rates with service providers can save money.

• Reducing significant costs, such as rent or car payments, may also be necessary.

• Building an emergency fund, even with small amounts, helps ensure financial security.

Does Budgeting Help When Money Is Tight?

Yes, budgeting can definitely help when your money is tight. By drilling down and seeing just how much money is coming into your checking account each month, what your basic living expenses are, what your discretionary spending looks like, and how your savings are growing, you are better in touch with your money.

You can then move ahead and finetune things to make your money work harder for you. You might see ways to economize or eliminate some expenses or otherwise improve your cash flow.

What follows are 11 strategies that can help when money is tight.

1. Getting Honest With Your Budget

When most of your income already goes to essentials, you may wonder if there is really enough money left over for a spending plan.

But taking a close look at your monthly spending can be especially key when money is tight because the less money available, the more important it is to keep those dollars under control.

To get a full picture of your spending, you may want to actually track your spending (every cash/debit/credit card transaction and every bill you pay) for a month or so. You can do this by carrying around a notebook or saving all of your receipts or by using a budgeting app on your phone.

Once you have a sense of your average monthly spending, it’s a good idea to compare this to what’s coming in. You can look at your bank statements for the past few months to get an idea of how much after-tax income you are taking in on average per month.

Once you have a sense of average monthly spending, it’s a good idea to compare this to what’s coming in. You can look at your bank statements for the past few months to get an idea of how much after-tax income you are taking in on average per month.

Comparing what is coming in vs. going out will help you know exactly where you stand when money is tight can be a critical first step toward easing the strain.

Recommended: 7 Tips to Managing Your Money Better

2. Finding Ways to Save

Once you have a good sense of your monthly spending, the next step in tight-budgeting is to group expenses into categories, and then list them in order of priority, starting with the essentials and going down to the “nice to haves.”

Once you’ve established which expenses are the most important, you can start looking for places to reduce overspending. Cutbacks may not feel fun, but they can be extremely beneficial when money is tight.

For example, if you are spending a lot on restaurants and take-out, you might consider cooking at home a few more nights a week.

Or, if you tend to be an impulsive buyer of clothing, it might make sense to institute a short-term spending freeze on new clothes or a freeze on spending money at a certain store for a period of time.

If you want to save money on at-home entertainment, you might consider ditching streaming services you rarely watch or rotating your subscriptions. If you love buying the latest best-sellers, it might be a good time to renew your library card and borrow instead.

You may also find you’re paying for memberships and services you no longer need or want. These are line items you may be able to scratch from the expense list completely.

3. Negotiating With Service Providers

It can be hard to save money when your budget is tight, but you might try to see if you can reduce some of your so-called “fixed” monthly expenses. Some of those recurring bills (like cable, internet, cell phone, car) may not actually be set in stone.

Some of those recurring bills (like cable, internet, cell phone, car) may not actually be set in stone.

It can take little research — and nerve — but you may be able to negotiate for a lower rate from many of your providers, especially if you’re dealing with a company that’s in a competitive market.

Before you call or email a business or provider, it can help to know exactly how much you’re paying for a service, what you’re getting for your money, and how much the competition is charging for the same or similar service. It’s also a good idea to make sure you are communicating with someone who actually has the power to lower your rate and, if not, ask to speak with someone who does.

You may also want to let providers know that if they can’t do better, you may decide to switch to another company.

Worth noting: You can also try to negotiate medical bills. You may be able to explain your situation and get a reduction.

4. Cutting Back on Bigger Expenses

If you’re tight on money right now, it can also be a good idea to take a look at the big items in your overall budget.

For example, is your car payment too high? If so, perhaps you could lease a less expensive car, or buy a used vehicle to cut monthly payments.

If rent is eating up too much of your income, you might want to look into finding a cheaper place to live that’s still nice, taking in a roommate, or moving in with friends. You might also consider moving to an area where the cost of living is lower.

These options may seem dramatic, but they can really help you save a sizable amount of money every month. The lower you keep these costs, the easier it will be to live well within a tight budget.

5. Knocking Down Debt

Having too much debt can make for an especially tight budget, and it can also hurt your chances of achieving financial security down the line. That’s because when you’re spending a lot of money on interest each month, it can be harder to pay all of your other expenses on time, not to mention grow your savings.

Reducing debt may seem like a tall mountain to climb when money is tight, but choosing the right debt reduction strategy may be able to help you chip away and slowly improve your financial situation.

• Since credit card debt typically costs the most in interest, you might consider tackling these debts first, and then move on to the debt with the next-highest interest rate, and so on.

• Another approach is to pay the minimum toward all your accounts, and then pay any extra you can afford toward the debt with the smallest balance. When that debt is wiped out, you can move on to the next smallest balance, and so on.

• If you can qualify for a lower interest rate, another option might be to take out a personal loan that consolidates all those high-interest debts into one more manageable payment.

6. Starting an Emergency Fund

While it might sound crazy, if not impossible, to put cash into savings when money is tight, here’s why you may want to make building an emergency fund a priority: If you’re living on a tight budget, just one unexpected expense — like your car breaking down or a visit to an urgent care clinic — could put you over the financial edge.

If you start putting just a small amount aside each month into an emergency fund, it won’t be long before you have a decent financial cushion that could prevent you from having to run up high interest credit debt the next time something unexpected rolls around.

Good places to start — and grow — your emergency fund include: a high-yield savings account or money market account. These options typically offer higher interest than a standard savings account, but keep the money liquid so you can access it if and when you need it.

7. Spending Only Cash for Everyday Expenses

There’s something about plastic that can make it feel like you are not really spending money. While it might not be practical to pay your rent or utility bills in cash, switching to cash (and leaving the credit cards at home) for other expenses can be a great idea when money is tight.

The reason is that paying with cash places a harder limit on your spending and helps you become more aware of your choices. When you can literally see your dollars going somewhere, you may find yourself becoming much more intentional in the way you spend it. This can be a very good thing when money is tight.

Groceries and entertainment can be great categories for going cash-only. Cash can also be a good option for clothing and the (occasional) restaurant meal.

Another benefit of cash is that it’s more difficult to get into debt since you can’t spend cash you don’t have.

Recommended: The Envelope Budgeting Method

8. Starting a Side Gig

Once you’ve made a basic budget, it may be clear that additional income could help ease things while money is tight.

Sometimes all it takes is some extra time and energy to earn some extra cash, whether it’s selling things you no longer want or need (and decluttering at the same time), taking on a low-cost side hustle, or using your talents to pick up some freelance work.

Some ideas for generating extra income include:

• Selling things on eBay, Craigslist, or Facebook Marketplace

• Having a garage sale

• Creating an Etsy store and selling homemade goods

• Driving for a rideshare or food delivery service

• Giving music lessons

• Renting out a room on Airbnb

• Walking dogs

• Cleaning houses

• Babysitting

• Handling social media for small businesses

• Selling writing, photography, or videography services to clients.

9. Traveling for Less

Just because you are on a tight budget, that doesn’t mean you don’t get to travel. But you’ll want to spend some time looking for deals and perhaps using points or miles to whittle the cost down.

Also, consider the kind of trip you take. Sure, it would be nice to work your way across Europe or Asia, but you can have a wonderful and more affordable vacation by sticking closer to home. Camping is almost always a bargain, and exploring a historic town or beach that’s just a few hours’ drive from your home helps you avoid costly airfare.

10. Saving on Insurance

Insurance is important to have, but you can often save via two tactics:

• Conduct an online search to see what rates are available for coverage that matches what you already have.

• Look into bundling your insurance if you don’t already. That typically means getting both your home and auto coverage from one provider for a tidy savings.

• See if you can lower your premium by paying once annually vs. monthly.

11. Using a Budgeting App

“Consider using budgeting apps to help you keep track of your spending and savings,” suggests Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “Your time is likely better spent planning and monitoring your budget than it is manually entering your purchases and transactions.”

There are numerous digital tools available that will automatically track and categorize your spending. Some will even round up purchases to the next whole dollar and put the extra bit of money in savings for you. Your bank may already offer these kinds of tools for free.

The Takeaway

If money is feeling tight right now, you may be able to regain a sense of control by taking a deep breath, sitting down, and digging into how your income, spending, and saving all line up. Then you can take steps to reduce unnecessary spending, negotiate to lower monthly bills, chip away at expensive debt, and even start building a financial cushion.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

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FAQ

What does a tight budget mean?

A tight budget is one without much margin for error; you might also think of it as living paycheck to paycheck. It may be hard to save or to afford discretionary expenses, and an emergency (a major medical bill or the loss of a job) could prove difficult to manage.

How do you run a tight budget?

If you have a tight budget, it’s important to track your income, spending, and saving carefully. Then, you can look for ways to better manage your money, such as cutting spending, negotiating bills, using budgeting apps, and/or starting a side hustle.

How do you fight money anxiety?

There are various ways to lower your money stress, even when you are tight on money. You might start slowly building up your emergency fund so you feel more prepared for uncertain times. It can also be a good idea to look for ways to rein in spending and/or bring in more income so your money isn’t so tight. If you are carrying considerable debt, you might refinance or work with a nonprofit debt counselor for solutions.

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SOBNK-Q325-063

Jul

2025

What Is the Spot Market & How Does It Work?

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

A spot market is a market where buyers meet sellers and make an immediate exchange. In other words, delivery takes place at the same time payment is made. That can include stock exchanges, currency markets, or commodity markets.

But often when discussing spot markets, we’re talking about commodities. Commodity markets are somewhat different from the markets for stocks, bonds, mutual funds, and ETFs, all of which trade exclusively through brokerages. Because they represent a physical good, commodities have an additional market — the spot market. This market represents a place where the actual commodity gets bought and sold right away.

Key Points

Spot markets involve instant trades and immediate delivery.
Spot prices reflect real-time supply and demand.
Spot markets are less susceptible to manipulation.
OTC and centralized exchanges facilitate spot trades.
Futures markets are speculative, while spot markets are organic.

Spot Markets Definition

If you’re trying to define the spot markets, it may be helpful to think of it as a public financial market, and one on which assets or commodities are bought and sold. They’re also bought and sold for immediate, or quick, delivery. That is, the asset being traded changes hands on the spot.

Prices quoted on spot markets are called the spot price, accordingly.

One example of a spot market is a coin shop where an individual investor goes to buy a gold or silver coin. The prices would be determined by supply and demand. The goods would be delivered upon receipt of payment.

Understanding Spot Markets

Spot markets aren’t all that difficult to understand from a theoretical standpoint. There can be a spot market for just about anything, though they’re often discussed in relation to commodities (perhaps coffee, corn, or construction materials), and specific things like precious metals.

But again, an important part of spot market transactions is that trades take place on the spot — immediately.

Which Types of Assets Can Be Found on Spot Markets?

As noted, all sorts of assets can be found on spot markets. That ranges from food items or other consumables, construction materials, precious metals, and more. If you were, for instance, interested in investing in agriculture from the sense you wanted to trade contracts for oranges or bananas, you could likely do so on the spot market.

Some financial instruments may also be traded on spot markets, such as Treasuries or bonds.

How Spot Market Trades Are Made

In a broad sense, spot market trades occur like trades in any other market. Buyers and sellers come together, a price is determined by supply and demand, and trades are executed — usually digitally, like most things these days. In fact, a spot market may and often does operate like the stock market.

As noted, stock markets are also, in fact, spot markets, with financial securities trading hands instantly (in most cases).

What Does the Spot Price Mean?

As mentioned, the spot price simply refers to the price at which a commodity can be bought or sold in real time, or “on the spot.” This is the price an individual investor will pay for something if they want it right now without having to wait until some future date.

Because of this dynamic, spot markets are thought to reflect genuine supply and demand to a high degree.

The interplay of real supply and demand leads to constantly fluctuating spot prices. When supply tightens or demand rises, prices tend to go up, and when supply increases or demand falls, prices tend to go down.

The Significance of a Spot Market

The spot market of any asset holds special significance in terms of price discovery. It’s thought to be a more honest assessment of economic reality.

The reason is that spot markets tend to be more reliant on real buyers and sellers, and therefore should more accurately reflect current supply and demand than futures markets (which are based on speculation and can be manipulated, as recent legal cases have shown. More on this later.)

Types of Spot Markets

There’s only one type of spot market — the type where delivery of an asset takes place right away. There are two ways this can happen, however. The delivery can take place through a centralized exchange, or the trade can happen over the counter.

Over-the-counter

Over-the counter, or OTC trades, are negotiated between two parties, like the example of buying coins at a coin shop.

Market Exchanges

There are different spot markets for different commodities, and some of them work slightly differently than others.

The spot market for oil, for example, also has buyers and sellers, but a barrel of oil can’t be bought at a local shop. The same goes for some industrial metals like steel and aluminum, which are bought and sold in much higher quantities than silver and gold.

Agricultural commodities like soy, wheat, and corn also have spot markets as well as futures markets.

Spot Market vs Futures Market

One instance that makes clear the difference between a spot market and a futures market is the price of precious metals.

Gold, silver, platinum, and palladium all have their own spot markets and futures markets. When investors check the price of gold on a mainstream financial news network, they are likely going to see the COMEX futures price.

COMEX is short for the Commodity Exchange Inc., a division of the New York Mercantile Exchange. As the largest metals futures market in the world, COMEX handles most related futures contracts.

These contracts are speculatory in nature — traders are making bets on what the price of a commodity will be at some point. Contracts can be bought and sold for specific prices on specific dates.

Most of the contracts are never delivered upon, meaning they don’t involve delivery of the actual underlying commodity, such as gold or silver. Instead, what gets exchanged is a contract or agreement allowing for the potential delivery of a certain amount of metal for a certain price on a certain date.

For the most part, futures trading only has two purposes: hedging bets and speculating for profits. Sophisticated traders sometimes use futures to hedge their bets, meaning they purchase futures that will wind up minimizing their losses in another bet if it doesn’t go their way. And investors of all experience levels can use futures to try to profit from future price action of an asset. Predicting the exact price of something in the future can be difficult and carries high risk.

The spot market works in a different manner entirely. There are no contracts to buy or sell and no future prices to consider. The market is simply determined by what one party is willing to purchase something for.

Spot Market vs Futures Market
Spot Market	Futures Market
No contracts to buy or sell	Contracts are bought and sold outlining future prices
Trades occur instantly	Trades may never actually occur at all
Non-speculative	Speculative by nature

Another important concept to understand is contango and backwardation, which are ways to characterize the state of futures markets based on the relationship between spot and future prices. Some background knowledge on those concepts can help guide your investing strategy.

Note, too, that some investors may be confused by the concepts of margin trading and futures contracts. Margin and futures are two different concepts, and don’t necessarily overlap.

💡 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.

Example of a Spot Market

Consider the spot and futures markets for precious metals.

Precious-metal prices that investors see on financial news networks will most often be the current futures price as determined by COMEX. This market price is easy to quote. It’s the sum of all futures trading happening on one central exchange or just a few central exchanges.

The spot market is more difficult to pin down. In this case, the spot market could be generally referred to as the average price that a person would be willing to pay for a single ounce of gold or silver, not including any premiums charged by sellers.

Sometimes there is a difference between prices in the futures market and spot market. The difference is referred to as the “spread.” Under ordinary circumstances, the difference will be modest. During times of uncertainty, though, the spread can become extreme.

Futures Market Manipulation

As for trying to define what spot price means, it’s important to include one final note on futures markets. This will illustrate a key difference between the two markets.

Recent high-profile cases brought by government enforcement agencies like the Securities and Exchange Commission and Commodities and Futures Trading Commission highlight the susceptibility of futures markets to manipulation.

Some large financial institutions have been convicted of engaging in practices that artificially influence the price of futures contracts. Again, we can turn to the precious-metals markets for an example.

During the third quarter of 2020, JP Morgan was fined $920 million for “spoofing” trades and market manipulation in the precious metals and U.S. Treasury futures markets. Spoofing involves creating large numbers of buy or sell orders with no intention of fulfilling the orders.^[1]

Because order book information is publicly available, traders can see these orders, and may act on the perception that big buying or selling pressure is coming down the pike. If many sell orders are on the books, traders may sell, hoping to get ahead of the trade before prices fall. If many buy orders are on the books, traders may buy, thinking the price is going to rise soon.

Cases like this show that futures markets can be heavily influenced by market participants with the means to do so.

Spot markets, on the other hand, are much more organic and more difficult to manipulate.

3 Tips for Spot Market Investing

For those interested in trying their hand in the spot market, here are a few things to keep in mind.

1. Know What’s Going On

Often, prices in the spot market can change or be volatile in relation to the news or other current events. For that reason, it’s important that investors know what’s happening in the world, and use that to assess what’s happening with prices for a given asset or commodity.

2. Keep Your Emotions in Check

Emotional investing or trading is a good way to get yourself into financial trouble, be it in the spot market, or any other type of trading or investing. You’d likely do well to keep your emotions in check when trading or investing on the spot market, as a result.

3. Understand the Market

It’s also a good idea to do some homework and make a solid attempt at trying to understand the market you’re trading in. There may be jargon to learn, terms to understand, price discovery mechanisms that could otherwise be foreign to even a seasoned investor — do your best to do your due diligence.

The Takeaway

Spot markets are where commodities are traded, instantly. There are numerous types of spot markets, and there are numerous types of commodities that might be traded on them. Investors would be wise to know the basics of how they work, and come armed with a bit of background knowledge about the given commodity they’re trading, in order to reach their goals.

Spot market trading can be a part of an overall trading strategy, but again, investors should know the ropes a bit before getting in over their heads. It may be a good idea to speak with a financial professional before investing.

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

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What is spot market vs a futures market?

Trades on a spot market occur instantly, on the spot. Trades in the futures market involve contracts for commodities with prices outlined for some time in the future — if they occur at all.

What does spot market mean?

The term spot market refers to a financial market where assets or commodities are bought and sold by traders. The trades occur on the spot, or instantly, for immediate delivery.

What is the difference between spot market and forward market?

Forward markets involve trading of futures contracts, or transactions that take place at some point in the future, whereas spot market trades occur instantly, often for cash.

Article Sources

Commodity Trading Futures Commission. CFTC Orders JPMorgan to Pay Record $920 Million for Spoofing and Manipulation.

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SOIN-Q225-116

Jul

2025

What Is Payment for Order Flow?

By Inyoung Hwang | invest, Investing | Comments Off

When an investor places an order with their brokerage to buy or sell an asset, there’s a certain set of steps that take place behind the scenes to fulfill it. That’s referred to as an order flow, and that involves some payments between market makers and brokerages in order to keep orders moving through the pipeline. With that in mind, payment for order flow (PFOF) involves market makers paying brokers for their clients’ order flow.

It can be beneficial for investors to know about the order flow process and payments involved, as it is a variable in how much they ultimately end up paying for trading, if anything. And it’s also been a somewhat controversial practice, despite the fact that it’s become commonplace in today’s market.^[1]

Key Points

Payment for order flow (PFOF) involves brokerages routing customer orders to market makers for a fee, enabling commission-free trading.
PFOF allows brokerages to offer commission-free trading, enhanced liquidity, and potential price improvements to retail investors.
Market makers provide liquidity in the options market, executing trades and offering price improvements to retail investors, and PFOF involves brokers routing their trades to specific market makers.
PFOF has faced controversy, with critics citing a conflict of interest for brokerages, which may prioritize revenue over the best prices for customers.
Regulatory scrutiny has been applied to PFOF, with the DOJ investigating potential market maker profiteering at the expense of retail investors; brokers today must adhere to specific regulatory requirements.^[2]

What Is Payment for Order Flow (PFOF)?

Payment for order flow (PFOF) refers to the practice of retail brokerages routing customer orders to market makers, usually for a small fee that’s less than a penny. Market makers, who are required to deliver the “best execution,” carry out the retail orders, profiting off small differences between what shares were bought and sold for. Retail brokerages, in turn, use the rebates they collect to offer customers lower trading fees.

What Are Market Makers?

Market makers — also known as electronic trading firms — are regulated firms that buy and sell shares all day, collecting profits from bid-ask spreads. The market maker can execute trades from their own inventory or in the market. Offering quotes and bidding on both sides of the market helps keep it liquid.

Market makers that execute retail orders are also called wholesalers. The money that market makers collect from PFOF is usually fractions of a cent on each share, but these are reliable profits that can turn into hundreds of millions in revenue a year. In recent years, a number of firms have exited or sold their wholesaling businesses, leaving just a handful of electronic trading firms that handle PFOF.

In addition to profits from stock spreads, the orders from brokerage firms give market makers valuable market data on retail trading flows. When it comes to using institutional or retail investors, market makers also prefer trading with the latter because larger market players like hedge funds can trade many shares at once. This can cause big shifts in prices, hitting market makers with losses.

How Does Payment for Order Flow Work?

Here’s a step-by-step guide to how payment for order flow generally works:

A retail investor puts in a buy or sell order through their brokerage account.
The brokerage firm routes the order to a market maker.
The broker collects a small fee or rebate – the “payment” for sending the “order flow” or PFOF.
The market maker is required to find the “best execution,” which could mean the best price, swiftest trade, or the trade most likely to get the order done.

The rebates allow companies offering brokerage accounts to subsidize low-cost or zero-commission trading for customers. It also frees them to outsource the task of executing millions of customer orders.

Usually the amount in rebates a brokerage receives is tied to the size of the trades. Smaller orders are less likely to have an impact on market prices, motivating market makers to pay more for them. The type of stocks traded can also affect how much they get paid for in rebates, since volatile stocks have wider spreads and market makers profit more from them.

Why Is PFOF Controversial?

While widespread and legal, payment for order flow is controversial. Critics argue it poses a conflict of interest by incentivizing brokerages to boost their revenue rather than ensure good prices for customers. The requirement of best execution by the Securities and Exchange Commission (SEC) doesn’t necessarily mean “best price” since price, speed, and liquidity are among several factors considered when it comes to execution quality.^[3]

Defenders of PFOF say that retail investors benefit from the practice through enhanced liquidity, the ability to get trades done. They also point to data that shows customers enjoy better prices than they would have on public stock exchanges. But perhaps the biggest gain for retail investors is the commission-free trading that is now a mainstay in today’s equity markets.

PFOF in the Options Market

Payment for order flow is more prevalent in options trading because of the many different types of contracts. Options give purchasers the right, but not the obligation, to buy or sell an underlying asset. Every stock option has a strike price, the price at which the investor can exercise the contract, and an expiration date, which is the day on which the contract expires.

Market makers play a key role in providing liquidity for the thousands of contracts with varying strike prices and expiration dates.

The options market also tends to be more lucrative for the brokerage firm and market maker. That’s because options contracts trading is more illiquid, potentially resulting in larger spreads for the market maker.

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.

Criticism of Payment for Order Flow

Payment for order flow was pioneered in the 1980s by Bernie Madoff, who later pleaded guilty to running one of the largest Ponzi schemes in U.S. history.

Critics argue retail investors can get a poor deal from PFOF. Since market makers and brokerages are only required to provide “best execution” and not necessarily the “best possible price,” firms can make trades that are profitable for themselves but not necessarily in the best interest of individual investors.

As such, regulators have proposed reforms to PFOF, and in 2024, the SEC did adopt some amendments that updated required disclosures.^[4]

Defenders of Payment For Order Flow

Proponents of payment for order flow argue that both sides — the retail investors and the market makers — win from the arrangement. Here are the ways retail customers can benefit from PFOF, according to its defenders:

No Commissions: In recent years, the price of trading has collapsed and is now zero at some of the biggest online brokerage firms. While competition has been a big part of that shift, PFOF has helped bring about low trading transactions for mom-and-pop investors. For context, online trading commissions were $40 or so per trade in the 1990s.
Liquidity: Particularly in the options market, where there can be thousands of contracts with different strike prices and expiration dates, market makers help provide trading liquidity, ensuring that retail customer orders get executed in a timely manner.
Price Improvement: Brokerages can provide “price improvement,” when customers get a better price than they would on a public stock exchange.
Transparency: SEC Rules 605^[5] and 606^[6] require brokers to disclose statistics on execution quality for customer orders and general overview of routing practices. Customers are also allowed to request information on which venues their orders were sent to. Starting in 2020, brokers also had to give figures on net payments received each month from market makers.

The Takeaway

Payment for order flow (PFOF) refers to the practice of retail brokerages routing customer orders to market makers, usually for a small fee. Payment for order flow has been controversial, but it’s become a key part of financial markets when it comes to stock and options trading today.

Industry observers have said that for retail investors weighing the trade-off between low trading costs versus good prices, it may come down to the size of their trades. For smaller trades, the benefits of saving money on commissions may surpass any gains from price improvement. For investors trading hundreds or thousands of shares at a time, getting better prices may be a bigger priority.

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What is payment for order flow (PFOF)?

Payment for order flow, or PFOF, refers to the practice of retail brokers routing their customers’ orders to specific market makers in exchange for a fee.

Why is PFOF controversial?

The crux of the criticism surrounding PFOF involves brokers putting their own financial interests ahead of their clients. Specifically, brokers may be more concerned with generating PFOF-related fees than ensuring their clients receive the best order flow treatment possible.

What are common defenses of PFOF?

Defenders of PFOF say that retail investors benefit from the practice through enhanced liquidity, the ability to get trades done, and low-cost or commission-free trading.

Article Sources

Congress.gov. Payment for Order Flow: The SEC Proposes Reforms.
Congress.gov. Payment for Order Flow (PFOF) and Broker-Dealer Regulation.
FINRA. 5310. Best Execution and Interpositioning.
SEC. SEC Adopts Amendments to Enhance Disclosure of Order Execution Information.
SEC. Disclosure of Order Execution Information.
SEC. 17 CFR Parts 240 and 242.

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

SOIN-Q225-035

Jul

2025

Guide to Market-on-Open Orders

By Samuel Becker | Growing Wealth, invest, Investing, Terminology | Comments Off

Table of Contents

What Is a Market-on-Open (MOO) Order?
How Market-on-Open Orders Work
Different Order Types
3 Reasons to Use a Market-On-Open Orders
Examples of MOO Trade
Risks of Market-on-Open Orders
Creating a Market-on-Open Order
FAQ

A market-on-open order (MOO) is an order to be executed at the day’s opening price. Investors typically have until two minutes before the stock market opens at 9:30am ET to submit a market-on-open order. MOO orders are used in the opening auction of a stock exchange.

While investors who subscribe to a more passive type of investing strategy may not incorporate MOO orders into their daily lives, they can be important to know about. You never know, after all, when you may want to place an order before trading commences.

Key Points

• Market-on-open orders execute at market opening, without price guarantees.

• MOOs have a higher likelihood of execution compared to limit orders.

• MOOs are useful for capturing immediate price movements.

• Risks involve volatility and potential liquidity issues.

• Limit-on-open orders may provide price protection.

What Is a Market-on-Open (MOO) Order?

Again, market-on-open orders are trades that are executed as soon as the stock market begins trading for the day. They may hit the order book before then, but do not actually go through the trading process until the market is opened. Note, too, that MOO orders are only to be executed when the market opens — they are the opposite of market-on-close, or MOC orders.

These orders are executed at the opening price during the trading day, or immediately (or soon after) the bell rings opening the market on a given day.

How Market-on-Open Orders Work

There may be different rules for different stock exchanges, but generally, the stock market operates between 9:30am ET and 4pm ET, Monday through Friday. Trades placed outside of the hours are often called after-hours trades, and those trades may be placed as market-on-open orders, which means they will execute as soon as the market opens for the next trading day.

An investor might place a market-on-open order if they anticipate big price changes occurring during the next trading day, among other reasons.

Different Order Types

To fully understand how an MOO order works, it may help to first understand both stock exchanges and the different ways that trades can be executed. The latter is generally referred to as an “order type.”

Stock exchanges are marketplaces where securities such as stocks and ETFs are bought and sold. In the U.S., there are more than a dozen stock exchanges registered with the Securities and Exchange Commission (SEC), including the New York Stock Exchange and Nasdaq Stock Exchange.

Next, market order types. Order types can be put into one of two broad categories: market orders and limit orders.

Market Order

A market order is an order to buy or sell at the best available price at the time. Generally, a market order focuses on speed and will be executed as close to immediately as possible.

But securities that trade on an exchange experience market fluctuations throughout the day, so the investor may end up with a price that is higher or lower than the last-quoted price. Therefore, a market-on-open order is a specific version of a market order.

Because it is a market order, it will happen as close to immediately as possible and at the open of the market. The order will be filled no matter the opening price of investment. There is no guarantee on the price level.

With each order type, the investor is providing specific information on how, and under what circumstances, they would like the order filled. In the world of order types, these are semi-customizable orders with modifications.

Limit Order

A limit order is an order to buy or sell a stock at a specific price. A limit order is triggered at the limit price or within $0.25 of it. At the next price, the buy or sell will be executed.

Therefore, limit orders can be made at a designated price, or very close to it. While limit orders do not guarantee execution, they may help ensure that an investor does not pay more than they can (or want to) afford for a particular security.

For example, an investor can indicate that they only want to buy a stock if it hits or drops below $50. If the stock’s price doesn’t reach $50, the order is not filled.

After-Hours Trading

An MOO order is not to be confused with after-hours trading and early-hours trading. Some brokerage firms are able to execute trades for investors during the hours immediately following the market closing or prior to the market’s open.

3 Reasons to Use a Market-On-Open Orders

There are several reasons to use a market-on-open order, including the following.

Trading Outside of Operating Hours

Stock exchanges aren’t always open. The New York Stock Exchange (NYSE) and the Nasdaq Stock Exchange are both open between 9:30 am and 4:00 pm EST.

Anticipating Changes in Value

Traders and investors may use a market-on-open order when they foresee a good buying or selling opportunity at the open of the market. For example, traders may expect price movement in a stock if significant news is released about a company after the market closes. They may want to cash out stocks, and do so using a market-on-open order.

The News Cycle

Good news, such as a company exceeding their earnings expectations, may lead to an increase in the price of that stock. Bad news, such as missing earnings estimates, may lead to a decline in the stock price. Some traders and investors may also watch the after-hours market and decide to place an MOO order in response to what they see.

It’s also important to know that stock exchanges tend to experience the most volume or trades at the open and right before the close. Even though the stock market is open from 9:30am to 4:00pm, many investors concentrate their trading at the beginning and near the end of the trading day in order to take advantage of all the liquidity, or ease of trading.

Examples of MOO Trade

Let’s look at some hypothetical examples of why an MOO order might be useful:

Example 1

Say that news breaks late in the evening regarding a large scandal within a company. The company’s stock has been trading lower in the after-hours market. An investor could look at this scenario and believe that the stock is going to continue to fall throughout the next trading day and into the foreseeable future. They enter an MOO order to sell their holding as soon as the market is open for trading.

Example 2

Or maybe a company quarterly earnings at 7am on a trading day. The report is positive and the investor believes the stock will rise rapidly once the market opens. With an MOO order, the investor can buy shares at whatever the price may be at the open.

Example 3

Though this won’t apply to the average individual investor, MOO orders may also be used by the brokerage firms to fix errors from the previous trading day. A MOO order may be used to rectify the error as early as possible on the following day.

Risks of Market-on-Open Orders

It is important to understand that if a MOO order is entered, the investor receives the opening price of the stock, which may be different from the price at the previous close.

Volatility at the Open

Considering the unpredictable and inherent volatility of the stock market, the price could be a little bit different — or it could be very different. Investors that use MOO orders to try and time the market may be sorely disappointed in their own ability to do so, but only because timing the market is exceedingly difficult.

Most investors will likely want to avoid trying to weave in and out of the market in the short-term and stick with a long-term plan. Some investors may use MOO orders with the intention of taking advantage of price swings, but the variability of the market could trip up a new investor.

Because the order could be filled at a price that is significantly different than anticipated, this may create the problem of not having enough cash available to cover a trade.

Using Limit-on-Open Orders

An alternative option is to use a limit-on-open order, which is like an MOO order, but it will only be filled at a predetermined price. Limit-on-market orders ensure that a transaction only goes through at a certain price point or “better.” As discussed, there are other types of limit orders out there, too, for given situations. For instance, there may be a context in which it’s best to use a stop loss order, rather than a limit-on-open or similar type of order.

The downside of doing a limit-on-market order is that there is a chance that the order doesn’t get filled.

Liquidity Issues

With an MOO order, there could also be a problem of limited liquidity. Liquidity describes the degree to which a security, like a stock or an ETF, can be quickly bought or sold.

As mentioned, there tends to be greater liquidity at the beginning of the day and at the end, and investors will generally not have a problem trading the stocks of large companies, because they have many active investors and are very liquid.

But smaller companies can be less liquid assets, making them slightly trickier to trade. In the event that there is not enough liquidity for a trade, the order may not be filled, or may be filled at a price that is very different than anticipated.

💡 Quick Tip: Newbie investors may be tempted to buy into the market based on recent news headlines or other types of hype. That’s rarely a good idea. Making good choices shouldn’t stem from strong emotions, but a solid investment strategy.

Creating a Market-on-Open Order

Creating a market-on-open order is fairly simple, but may vary from trading platform to trading platform. Generally speaking, though, a trader or investor would select an option to execute a MOO when filling out the details of a trade they wish to make.

For instance, if you wanted to sell 5 shares of Company A, you’d dictate the quantity of stock you’re trying to sell, and then choose an order type — at this point, you’d select a market-on-open order from what is likely a list of choices. Again, the specifics will depend on the individual platform you’re using, but this is generally how a MOO is created.

The Takeaway

Market-on-open orders are submitted by investors when they want their order executed at the opening price and be part of the morning auction. An investor may use this order if they want to capture a stock’s price move up or down as soon as the trading day starts.

However, MOO orders don’t guarantee any price levels, so it may be risky for an investor if shares don’t move in the direction they were expecting. Unlike limit orders though, they are more likely to get executed.

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What is a market-on-open order?

Market-on-open (MOO) orders are stock trading orders made outside of normal market hours and fulfilled when the markets open. Trades execute as soon as the market opens.

What is a market-on-open limit on open?

A limit-on-open order, or LOO, is a specific form of limit order that executes a trade to either buy or sell securities when the market opens, given certain conditions are met. Usually, those conditions concern a security’s value.

What is the difference between market-on-close and market-on-open?

As the name implies, market-on-close orders are executed when the market closes at 4 pm ET, Monday through Friday (excluding holidays). Conversely, market-on-open orders are executed when the market opens at 9:30am ET, Monday through Friday.

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SOIN-Q225-150

Understanding the Greeks in Options Trading

A Quick Look at Options

What Are Option Greeks?

Delta

Gamma

Theta

Vega

Rho

Finally, user-friendly options trading is here.*

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

5 Main Options Greeks: Overview

Other Options Terminology to Know

In the Money

Out of the Money

At the Money

The Takeaway

FAQ

What are the Greeks in options trading?

What is the Rule of 16 in options?

How do you use gamma in options trading?

Which Greek is most important in options trading?

Guide to Tight Budgeting: 11 Strategies

Does Budgeting Help When Money Is Tight?

1. Getting Honest With Your Budget

2. Finding Ways to Save

3. Negotiating With Service Providers

Increase your savings with a limited-time APY boost.*

4. Cutting Back on Bigger Expenses

5. Knocking Down Debt

6. Starting an Emergency Fund

7. Spending Only Cash for Everyday Expenses

8. Starting a Side Gig

9. Traveling for Less

10. Saving on Insurance

11. Using a Budgeting App

The Takeaway

FAQ

What does a tight budget mean?

How do you run a tight budget?

How do you fight money anxiety?

What Is the Spot Market & How Does It Work?

Spot Markets Definition

Understanding Spot Markets

Which Types of Assets Can Be Found on Spot Markets?

How Spot Market Trades Are Made

What Does the Spot Price Mean?

The Significance of a Spot Market

Types of Spot Markets

Over-the-counter

Market Exchanges

Spot Market vs Futures Market

Example of a Spot Market

Futures Market Manipulation

3 Tips for Spot Market Investing

1. Know What’s Going On

2. Keep Your Emotions in Check

3. Understand the Market

The Takeaway

FAQ

What is spot market vs a futures market?

What does spot market mean?

What is the difference between spot market and forward market?

What Is Payment for Order Flow?

What Is Payment for Order Flow (PFOF)?

What Are Market Makers?

How Does Payment for Order Flow Work?

Why Is PFOF Controversial?

PFOF in the Options Market

Criticism of Payment for Order Flow

Defenders of Payment For Order Flow

The Takeaway

FAQ

What is payment for order flow (PFOF)?

Why is PFOF controversial?

What are common defenses of PFOF?

Guide to Market-on-Open Orders

What Is a Market-on-Open (MOO) Order?

How Market-on-Open Orders Work

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