What is the VIX Volatility Index? How Investors Can Use It

What Is the VIX Volatility Index? How Investors Can Use It

The Cboe Global Markets Volatility Index, known as the VIX for short, is a tool used to measure implied volatility in the market. In simple terms, the VIX index tells investors how professional investors feel about the market at any given time.

This can be helpful for gauging and assessing risk in order to capitalize on anticipated market movements. Depending on which way the VIX is trending, it may throw off buy or sell signals to investors.

The volatility index is sometimes referred to as the “fear index” or “fear gauge” because traders rely on it as an indicator of the fearfulness of sentiment surrounding the market. While not a crystal ball, understanding the VIX and how it works can provide a useful predictor of investor behavior.

What Is the VIX Index?

The VIX Index is a real-time calculation designed to measure expected volatility in the U.S. stock market. One of the most recognized barometers of fluctuations in financial markets, the VIX measures how much volatility investing experts expect to see in the market over the next 30 days. This measurement reflects real-time quotes of S&P 500 Index (SPX) call option and put option prices.

Stock volatility represents the up and down price movements of various financial instruments that occur over a set period of time. The larger and more frequent price swings, the higher the volatility.

Implied volatility reflects market sentiment and which way it expects a security or financial instrument’s price to move.


💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

How Does the VIX Work?

The VIX Index is a forward-looking trend indicator used to quantify expectations for future volatility. Cboe designed the index to estimate expected volatility by aggregating weighted prices of S&P 500 Index puts and calls over a wide range of strike prices.

In options trading, the strike price represents the price at which a trader can exercise an option. Call options give an investor the right to buy shares of an underlying security; put options give them the right to sell shares of an underlying security.

The Cboe Options Exchange (Cboe Options) calculates the VIX Index using standard SPX options and weekly SPX options listed on the exchange. Standard SPX options expire on the third Friday of every month. Weekly SPX options expire on all other Fridays. VIX index calculations include:

•   SPX options with Friday expirations

•   SPX options with more than 23 days and less than 37 days to their Friday expiration

The index weights these options to establish a constant-maturity, 30-day measure of the amount of volatility the S&P 500 Index is likely to produce. The VIX index works differently from the Black Scholes model, which estimates theoretical value for derivatives and other financial instruments based on a number of factors, including volatility, time, and the price of underlying assets.

The VIX is one of seven inputs used by CNN to determine its Fear and Greed Index.

What Does the VIX Tell You?

In securities trading, the VIX index is a measure of market sentiment. The volatility index has a negative correlation with stock market returns. If the VIX moves up that means investor fear is on the rise. The S&P 500 tends to see price drops in that scenario as investors may begin to sell off securities to hedge against expanded volatility that may be on the horizon.

On the other hand, when the VIX declines, that could signal a decline in investor fear as well. In that situation, the S&P may be experiencing lower levels of volatility and higher prices as investors buy and sell with confidence. This doesn’t necessarily mean that prices will remain high, however, as volatility is fluid and can increase or decrease sharply due to changing market conditions.

The volatility index can be read as a chart, with each day’s reading plotted out. Generally, a reading of 0 to 12 represents low volatility in the markets, while a range of 13 to 19 is normal volatility.

Once the VIX reaches 20 or above, that means you can typically expect volatility to be higher over the coming 30 days. For perspective, the VIX notched a 52-week high of 34.88 and a 52-week low of 12.73 as of August 11, 2023.

Example of VIX in Action

The beginning of 2020 saw a gradual rise in the level of concern surrounding the coronavirus and its potential to become a public health crisis. As more cases appeared in the United States, the financial markets began to react. The VIX index, which had hovered around 20 or below since January 2019, began to climb in the third week of February. By March 16, it had reached a peak of 82.69 and the Dow Jones had dropped 12.93%.

After the market crashed, the VIX began to slowly decline. By early November 2021, the volatility index was once again implying volatility on par with pre-pandemic levels, measuring 18.58 as of November 24.


💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

How Investors Can Trade the VIX

Investors interested in trading the VIX index have a few options for doing so. Cboe offers both VIX options and VIX futures as a starting point.

VIX options are not exactly the same as traditional stock options. They trade nearly 24 hours a day, five days a week during extended trading hours. Investors can trade a call option or put option to make speculative investments based on anticipated volatility in the markets.

Cboe introduced VIX futures in 2004 to allow investors to trade a liquid volatility product using the VIX index as a guide. The difference between options and futures lies largely in the execution.

With options trading, the investor has the right but not the obligation to buy or sell a particular investment. A futures contract, on the other hand, requires the buyer to purchase shares and the seller to sell them at an agreed-upon price.

With VIX options or VIX futures, you’re making investments based on what you expect to happen in the markets based on how the volatility index is trending. Options and futures are speculative investments that carry more risk than some other types of investments. If you’re looking for another way to trade the VIX, you might look to VIX exchange-traded funds (ETFs) or volatility ETFs instead.

Volatility ETFs

Exchange-traded funds hold a basket of securities but they trade on an exchange like a stock. VIX ETFs and volatility ETFs often hold futures contracts or track the movements of a volatility index.

Choosing volatility or VIX ETFs in lieu of trading VIX options or VIX futures directly doesn’t eliminate risk. But it can help you to spread the risk out over a diverse group of investments. If you’re already trading stocks and other securities through an online brokerage account, VIX or volatility ETFs may be included as an investment option.

The Takeaway

The volatility index or VIX is a highly useful tool for measuring market sentiment. While it’s impossible to predict exactly which way the market will move, the VIX index can help with interpreting implied volatility when making investment decisions.

That’s information you can use whether you’re trading options or less risky investments such as stocks or ETFs.

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


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


About the author

Rebecca Lake

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.



Photo credit: iStock/dolgachov

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.


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.

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23 Ways To Make Extra Income From Home

23 Ways to Make Extra Income From Home

If you’re interested in how to make extra income from home, today there are more opportunities than ever before. Some ways to earn extra income from home include side hustles, online businesses, and remote jobs. Finding the right money-making project for you just depends on your skills, experience, and interests.

We’re sharing some of the most popular ideas for how to bring in extra income from home in 2024 and beyond.

How to Make Extra Income From Home

There are a variety of ways to make extra income from home, many of which allow you to use the skills you already have. Others may require a little training or research to get started before you can begin earning supplemental income.

When comparing side hustles, business ideas, and work-from-home second jobs for extra income, consider:

•   How much time is required to make money

•   Typical earnings and how much you can expect to make

•   What, if anything, might be required to get started

Timing can also influence the types of ideas you explore for making extra income from home. For example, if you need to make a quick $1,000, then selling things around the house can put cash in your pocket faster than starting an online business. If you need a little help staying on top of your side-hustle earnings, a money tracker app like SoFi’s can help.

And remember, the benefits of a side hustle go beyond making extra income. Side gigs can be a creative outlet, source of fulfillment, or a stepping stone to a new career. With that in mind, here are 23 of the best extra income ideas from home.

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1. Tutor

Tutoring can be a fulfilling way to make extra income from home for stay-at-home parents or students. There are numerous websites that connect tutors with students who need help with their school work. You can also offer tutoring to students locally in your home to make extra income.

2. Online Teacher

Teaching online is another popular work-from-home extra income idea. While tutoring may involve working with a single student one-on-one, you might teach multiple students online at the same time. For example, anyone can sign up to teach K-12 classes live via Zoom on Outschool.com. You don’t need a teaching degree or previous experience, though you will need to be able to pass a background check.

3. Course Creator

Course creation is one of the best passive income ideas for people who like teaching but don’t want to do it all the time. Platforms like Udemy, Skillshare, and Teachable allow you to create and upload virtual courses then sell them to people online. These types of platforms charge fees to host your course, but if you come up with a popular topic or idea, you can earn money from teaching online.

4. Sell Artwork and Designs Online

Selling artwork and designs can be a great way to earn residual income from home. For example, you can create unique designs and license them to a platform like Canva or Creative Fabrica. You earn money as people purchase licensing rights to use your designs.

Recommended: Should I Sell My House Now or Wait?

5. Online Bookkeeper

Bookkeeping is an in-demand skill, and if you’re experienced at tracking accounts and managing financial statements, this can be a reliable way to make extra income from home. It’s possible to find virtual bookkeeping jobs online with companies that are interested in outsourcing their bookkeeping and payroll.

6. Low-Content Book Publishing

Low-content books are books that have little to no content inside. Composition notebooks and blank journals are two prime examples of low-content books. If you have a knack for design, you can create low-content books and upload them to a self-publishing platform like Amazon Kindle Direct Publishing (KDP). Amazon lists your books for sale and handles the printing and shipping for you. Meanwhile, you earn royalties for each unit sold.

7. Affiliate Marketing

Affiliate marketing is another option for earning residual income or passive income from home. Affiliate marketing simply means recommending products or services and linking to a sales portal. If someone purchases the product or service through your link, you earn a commission. You can try affiliate marketing through a blog or social media channels such as Instagram or Twitter. Just keep in mind that the Federal Trade Commission (FTC) has specific disclosure rules influencers are required to follow.

8. Copywrite or Edit

Copywriting is another high-demand skill as companies and businesses are often willing to pay good money for website or marketing copy. Editing is also something you might consider doing to make extra income from home if you’re skilled at writing and have a good eye for detail.

9. Data Entry

Work-from-home extra-income jobs in data entry might appeal to you if you’re good at typing and you know your way around databases or spreadsheets. It’s possible to find remote data entry jobs by searching job boards like Indeed.com or FlexJobs.

10. Start a YouTube Channel

YouTube is one of the most visible social media platforms. You might consider starting your own channel as a way to make extra income without leaving the house. To get started, you’ll need a decent camera and a great idea for content, and you’ll need to meet YouTube’s minimum requirements to monetize your channel with ads. You can also make money with a YouTube channel by selling digital products, creating sponsored content, and affiliate marketing.

11. Freelance Your Skills

Freelancing can span a wide range of work from home jobs for extra income. For example, you might work as a freelance photographer, website developer, or project manager. The great thing about freelancing is that you can apply skills that you already possess to make money while potentially increasing your income even more by learning new skills along the way.

12. Sell Your Photos

If you’re great with a camera, selling your photography is another idea for how to make extra income from home. Sites like Shutterstock, Foap, and SmugMug allow amateur and professional photographers to list photos for sale and earn money by selling licensing rights. You can study a range of websites that sell pictures to get an idea of which subjects are most popular and in-demand.

Recommended: Does Net Worth Include Home Equity?

13. Print on Demand

Print-on-demand is a terrific way to make passive income from home. With print-on-demand, you create unique designs and upload them to a POD shop. When someone buys an item, such as a coffee mug or tote bag, the POD shop prints your design onto it and ships it out to the customer. If you’re looking for a place to get started with print on demand, Redbubble, Society6, and Printify are a few sites you might consider.

14. Online Transcription

Transcriptionists make money by transcribing digital files into written or typed documents. Online transcription jobs can be a good way to put your typing skills to use, and there are even remote work opportunities out there for beginners. You may need to purchase special transcription software to start this work-from-home idea, but with the right gigs, you can easily make a part-time income from home.

15. Get Paid to Proofread

Proofreaders review written documents for spelling errors, grammatical errors, and typos. The work that they do is similar to copyeditors though it’s more focused on finding flaws in the mechanics of a piece of writing, rather than issues with tone or flow. Remote-work job boards can be a good place to begin looking for proofreading jobs for beginners.

16. Virtual Assistant

Virtual assistants help business owners run their companies. You might do a variety of things as a VA, including managing email, setting appointments, keeping track of scheduling changes, posting social media content, or copywriting. This is another low-cost side hustle you can start from home as long as you have an internet connection and a laptop.

17. Start a Blog

Blogging is not necessarily a way to get rich quick, but it can be a way of making extra money from home. There are different ways blogs can earn money, including ads, affiliate marketing, sponsored posts, product sales, and services. If you’re interested in starting a blog, you might want to spend some time on YouTube checking out tutorials to see what you’ll need to get up and running.

18. Get Paid to Chat

Remote chat operator jobs and remote customer support jobs are a fun way to put your people skills to work while earning extra income from home. Plenty of companies hire people to handle customer support via live chat or by phone from the comfort of their own home. This can be a good flexible job option for a stay-at-home parent.

19. Pet Sit

Pet sitting might be a perfect way to earn extra income from home if you love cats or dogs. You can advertise your services locally as a pet-sitter or dog walker, and make money according to a schedule that works for you.

Recommended: What Credit Score is Needed to Buy a Car?

20. Earn Cash Back From Shopping Apps

Cash back apps pay you back a percentage of what you spend, either in cash or points that can be redeemed for cash or gift cards. For example, you might use a cash back app to earn 5% back when shopping for clothes at your favorite online retailer. Cash back apps are an easy way to make extra income from home doing things that you’re already spending time on.

21. Babysit in Your Home

In addition to pet-sitting, you might consider offering child care or senior care services in your home. If you’re planning to keep multiple children in your home, you’ll want to first check your state’s laws. Once you reach a certain number of children, you might be considered a daycare, which means you’ll need to get licensed and be regulated by the state.

22. Grow a Garden

Gardening can be a relaxing hobby, but it also has potential to be an excellent way to make extra income from home. You can sell the fruits and veggies that you grow at your local farmer’s market or to people in your neighborhood. Depending on where you live, you might even be able to branch out and raise chickens so you can sell fresh eggs for supplemental income.

23. Bake or Prep Meals

If you love to bake or are a pro at meal planning, you might be able to monetize those hobbies and skills to earn money at home. For example, you can sell your homemade baked goods at your local farmer’s market or craft fair, or to local restaurants. You can also sell readymade meals to busy parents and seniors who need a little help with cooking. Just be sure to check any regulations regarding home kitchens that might apply where you live.

Reporting Extra Income on Your Taxes

Finding ways to make extra income from home can offer some financial breathing room, but it’s important to consider the tax consequences. IRS rules require you to report side hustle income or money earned in the gig economy on your taxes, even if you make money at home. Generally, there are two rules to know about reporting extra income:

•   Form 1099 must be issued when gig earnings exceed $600.

•   Gig workers may be required to pay estimated quarterly taxes.

Unless you’re specifically hired as an employee of a company that you’re doing work for, then the IRS considers you to be an independent contractor. You’ll need to keep track of all your earnings throughout the year and make sure you’re reporting them accurately on your taxes when you file.

You’ll also want to include receipts for any expenses you might be able to deduct. For example, if you’re making extra income from home as a freelance writer and you need to buy a new laptop, you may be able to write that off as a business expense. Or you may be able to deduct home office expenses.

Downloading a free budget app can make it easier to keep track of your business or side gig expenses. If you’re unsure how to handle a tax return with extra income, you may want to talk to a tax professional.

The Takeaway

Making extra income is one of the main benefits of a side hustle, though you may also want to start a second job as a creative outlet. Today, there are many flexible work-from-home gigs for all sorts of skill sets and backgrounds. Some require training or certification, but many can be started with just a laptop and dream. Ideally, you can leverage a hobby or passion into a side job, such as meal-prep, pet-sitting, childcare, design and photography, and more.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

SoFi helps you stay on top of your finances.

FAQ

How can I make an extra $1,000 a month?

Some of the best ways to make an extra $1,000 a month are freelancing, blogging, monetizing a YouTube channel, and selling digital products. These are all extra income jobs that you can do entirely online. You may also be able to make an extra $1,000 a month by pet-sitting, making homemade baked goods, or selling things around the house you no longer need.

What can I do for an extra income?

There are lots of different ways to make extra income. You could start by increasing your hours at work if you get paid on an hourly basis. Or you might negotiate a pay raise at your current job. You can also get a second job, start a side hustle, get paid to do gig work, or start an online business.

What is a good side hustle?

The best side hustle for you is the one that works for your schedule and allows you to use the skills you have to make a good income. That said, good side hustle options include freelancing, editing and copywriting, blogging, and taking surveys online for cash or gift cards.


About the author

Rebecca Lake

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.



Photo credit: iStock/Alessandro Biascioli

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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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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Wash Trading: What Is It? Is It Legal?

Wash Trading: What Is It and How Does It Work?

Wash trading is a practice which involves entering into securities transactions for the express purpose of giving the appearance that a trade has taken place although their portfolio has not substantially changed. Also referred to as round-trip trading, wash trading is a prohibited activity under the Commodity Exchange Act (CEA) and the Securities Exchange Act of 1934.

In some cases, wash trading is a direct attempt at market manipulation. In others, wash trading may result from a lack of investor knowledge. This may be the case with wash sales, in which an investor sells one financial instrument then replaces it with a similar one right away. It’s important to understand the implications of making a wash trade and what one looks like in action.

Key Points

•   Wash trading involves investors engaging in the simultaneous buying and selling of securities to create the illusion of trading activity.

•   Wash trading involves the simultaneous buying and selling of the same or similar securities.

•   This practice can be a form of market manipulation or result from a lack of investor knowledge.

•   The goal of wash trading is to influence pricing or trading activity, often through collaboration between investors and brokers.

•   Wash trading is illegal and can result in penalties, including the disallowance of tax deductions for losses.

What Is Wash Trading?

Wash trading occurs when an investor buys and sells the same or a similar security investment at the same time. The Internal Revenue Service (IRS) also refers to this as a wash sale, since buying the same security cancels out the sale of that security. It’s also called round-trip trading, since you’re essentially ending where you began — with shares of the same security in your portfolio.

Wash trades can be used as a form of market manipulation. Investors can buy and sell the same securities in an attempt to influence pricing or trading activity. The goal may be to spur buying activity to send prices up or encourage selling to drive prices down.

Investors and brokers might work together to influence trading volume, usually for the financial benefit of both sides. The broker, for example, may benefit from collecting commissions from other investors who want to purchase a stock being targeted for wash trading. The investor, on the other hand, may realize gains from the sale of securities through price manipulation.

Wash trading can be a subset of insider trading, which requires the parties involved to have some special knowledge about a security that the general public doesn’t. If an investor or broker possesses insider knowledge they can use it to complete wash trades.

How Does Wash Trading Work?

On the surface level, a wash trade means an investor is buying and selling shares of the same security at the same time. But the definition of wash trades goes one step further and takes the investor’s intent (and that of the broker they may be working with) into account. There are generally two conditions that must be met for a wash trade to exist:

•   Intent. The intent of the parties involved in a wash trade (i.e. the broker or the investor) must be that at least one individual involved in the transaction must have entered into it specifically for that purpose.

•   Result. The result of the transaction must be a wash trade, meaning the investors bought and sold the same asset was bought and sold at the same time or within a relatively short time span for accounts with the same or common beneficial ownership.

Beneficial ownership means accounts that are owned by the same individual or entity. Trades made between accounts with common beneficial ownership may draw the eye of financial regulators, as they can suggest wash trading activity is at work.

A telling indicator of wash trading activity is the level of risk conveyed to the investor. If a trade doesn’t change their overall market position in the security or expose them to any type of market risk, then it could be considered a wash.

Wash trades don’t necessarily have to involve actual trades, however. They can also happen if investors and traders appear to make a trade on paper without any assets changing hands.

💡 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.

Example of a Wash Trade

Here’s a simple wash trade example:

Say an investor who’s actively involved in day trading owns 100 shares of ABC stock and sells those shares at a $5,000 loss on September 1. On September 5, they purchase 100 shares of the same stock, then resell them for a $10,000 gain. This could be considered a wash trade if the investor engaged in the trading activity with the intent to manipulate the market or to unfairly claim a tax deduction for the loss.

Is Wash Trading Illegal?

Yes. The Commodity Exchange Act prohibits wash trading. Prior to the passage of the Act, traders commonly used wash trading to manipulate markets and stock prices. The Commodity Futures Trade Commission (CFTC) also enforces regulations regarding wash trading, including guidelines that bar brokers from profiting from wash trade activity.

The IRS has rules of its own regarding wash trades. The rules disallow investors from deducting capital losses on their taxes from sales or trades of stocks or other securities that are the result of a wash sale. Under the IRS rules, a wash sale occurs when you sell or trade stocks at a loss and within 30 days before or after the sale you:

•   Purchase substantially identical stock or securities

•   Acquire substantially identical stock or securities in a fully taxable trade

•   Acquire a contract or option to buy substantially identical stock or securities, or

•   Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA

Wash sale rules also apply if you sell stock and your spouse or a corporation you control buys substantially identical stock. When a wash sale occurs, you’re no longer able to claim a tax deduction for those losses.

So, in short, yes, wash trading is illegal.

Difference Between Wash Trading & Market Making

Market making and wash trading are not the same thing. A market maker is a firm or individual that buys or sells securities at publicly quoted prices on-demand, and a market maker provides liquidity and facilitates trades between buyers and sellers. For example, if you’re trading through an online broker you’re using a market maker to complete the sale or purchase of securities.

Recommended: What Is a Brokerage Account?

Market making is not market manipulation. A market maker is, effectively, a middleman between investors and the markets. While they do profit from their role by maintaining spreads on the stocks they cover, this is secondary to fulfilling their purpose of keeping shares and capital moving. Without market makers, trades would take longer to execute and the markets could become sluggish.

How to Detect & Avoid Wash Trading

The simplest way to avoid wash trading as an investor is to be aware of what constitutes a wash trade or sale. Again, this can mean the intent to manipulate the markets by placing similar trades within a short time frame, or it can mean inadvertently executing a wash sale because you’re not familiar with the rules.

In the latter case, you can avoid wash trading or wash sales by being mindful of the securities you’re buying and selling and the time frame in which those transactions are completed. So selling XYZ stock at a loss, then buying it again 10 days later to sell it for a profit would likely constitute a wash sale, if you executed the trade in an attempt to be able to deduct the initial loss.

It’s also important to understand how the 30 days period works for timing wash sales. The 30 day rule extends to the 30 days prior to the sale and 30 days after the sale. So effectively, you could avoid the wash sale rule by waiting 61 days to replace assets that you sold in your portfolio to be on the safe side.

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

Wash Trading in Crypto Trading

Cryptocurrency can be a target for wash-trading activity. In the EOS case, wash trades were suspected of being used as a means of driving up investor interest surrounding the cryptocurrency during its initial offering. High-frequency trading has also been a target of scrutiny, as some believe it enables wash trading in the crypto markets. Whether wash trading rules and regulations specifically apply to crypto, however, is a bit murky.

The Takeaway

Wash trading involves selling certain securities and then replacing them in a portfolio with identical or very similar securities within a certain time period. This is done so as to avoid making substantial changes in your portfolio. Wash trading is illegal in practice but it’s also avoidable if you’re investing consciously and with a strategy in place.

Understanding when wash sale rules apply can help you to stay out of trouble with the IRS. If you’re unclear about it, you can consult with a financial professional for guidance.

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

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

Photo credit: iStock/mapodile


About the author

Rebecca Lake

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.



SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.

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What Are Capital Expenditures?

What Are Capital Expenditures?

Capital expenditures, or CapEx, refers to the money a company spends or invests to promote its future growth. This is different from operating expenditures, which deal with the day-to-day costs of running a business. Both show up on a business accounting statement, and both matter for maintaining a healthy bottom line.

From an investment perspective, understanding capital expenditures and how a company spends its money can be useful for evaluating stocks when deciding where to invest. More specifically, the capital expenditure formula is often part of a fundamental analysis approach to gauge a company’s overall financial health and stability. Understanding how to calculate capital expenditures can be helpful when comparing stocks.

Capital Expenditures: Definition & Overview

Here’s a simple definition of capital expenditure: A capital expenditure is any amount of money that a company spends to further its growth.

Capital expenditures typically include the purchase, improvement, or maintenance of physical assets, though it can also refer to intangible assets, such as patents or trademarks. It includes assets that a company will own over more than one accounting period, many of which can depreciate in value over time.

Types of Capital Expenditures

The type of capital expenditures a company has depends on the industry it belongs to and the nature of its business. So, if you’re sector investing, the analyses may vary. Generally, capital expenditure examples can include:

•  Land

•  Buildings or warehouses

•  Equipment

•  Machinery

•  Business vehicles

•  Computer hardware and/or software

•  Furniture or fixtures

•  Patents

•  Licenses

Capital expenditures are most often long-term investments that have a shared goal: to help promote or further business growth. For example, a manufacturing company may decide to upgrade its equipment to speed up production and increase efficiency. The return on that investment comes later, when the company increases its output and generates bigger profits.

Capital Expenditures vs. Operating Expenditures

In accounting, capital expenditures are separate from a company’s operating expenditures. An operating expenditure is money a company spends to maintain normal business operations.

Examples of operating expenditures include:

•  Rent or lease payments for business property

•  Utilities

•  Insurance

•  Employee payroll

•  Inventory

•  Marketing costs

•  Office supplies

Bottom-up investors use both capital expenditures and operating expenditures to measure how a company spends its money, but it’s important to avoid confusing them. In a nutshell, capital expenditures represent long-term investments in assets that will be used in the future, while the operating expenditures represent short-term outlays.


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How to Calculate Capital Expenditures

Companies calculate capital expenditures and include it on their cash flow statements under the section noted for investing activities. If you have access to a company’s cash flow statement or other key company financial information, you wouldn’t necessarily need to calculate capital expenditures because the relevant numbers would already be included.

But if you don’t have cash flow information available, or you simply want to do the math on your own, there’s a capital expenditures formula you can use. This formula is simple, though it does require that you have certain information about a company’s financial situation, including:

•  Depreciation and amortization for capital expenditure assets

•  Current period PP&E (Property, Plant & Equipment)

•  Prior period PP&E

Property, Plant & Equipment refers to assets listed on a company’s balance sheet. In simpler terms, these are the assets that help generate revenue and profits for the business. So again, this can include things like equipment, machinery, vehicles, office equipment or land. Of those assets, land is the only one that typically doesn’t depreciate in value over time.

If you have these three pieces of information, you can then apply the capital expenditures formula. The formula looks like this:

CapEx = Current period PP&E – Prior period PP&E + Current period depreciation

Here’s how it works using hypothetical numbers. Say you’re evaluating a company that has a current period PP&E of $70,000, a prior period PP&E of $50,000 and $20,000 in current period depreciation. Your capital expenditures formula would look like this:

CapEx = $70,000 – $50,000 + $10,000
CapEx = $30,000

These calculations are relatively easy to do if you have all the relevant details from a company’s balance sheet. Once you can calculate capital expenditures, you can use the formula to evaluate investments.

Capital Expenditures and Fundamental Analysis

Fundamental analysis is one strategy for comparing investments and it’s typically used when investing for the long-term. With this type of analysis, the emphasis is on what makes a company financially healthy. This is something you may be interested in when trying to evaluate a stock appropriately and decide whether to invest in it.

A fundamental analysis approach considers a company’s assets and liabilities. But it also utilizes certain financial ratios that measure how money moves in and out of the company. Some of the most important ratios include:

•  Price to earnings (P/E) ratio

•  Earnings per share (EPS)

•  Current ratio

•  Quick ratio

•  Return on equity (ROE)

•  Book-to-value ratio

•  Projected earnings growth (PEG)

All of these ratios measure a company’s value, which is important if you’re using a value investing approach. The goal there is to identify companies that have been undervalued by the market but have long-term growth potential. By investing in these companies and holding on to them, investors can benefit from price appreciation as they rise in value over time.

So where do capital expenditures fit in?

In terms of gauging a company’s value, capital expenditures offer insight into projected growth over the long-term. When a company regularly invests money in purchasing or upgrading assets, that can be a sign of financial strength and an eventual increase in value. On the other hand, a company pulling back on capital expenditures may hint at cash flow struggles that are impeding future growth.

One thing that’s important to keep in mind is that capital expenditures aren’t a foolproof indicator of a company’s long-term growth potential. It’s possible that a company may spend money with good intentions, only to have them backfire.

In an earlier example, we mentioned a manufacturing company purchasing new equipment to boost production. If that investment doesn’t pan out as expected–if, for example, the equipment requires constant maintenance and repairs that eat into profits or it falls short of expectations for increasing production speed–that could inhibit the company’s growth plans.

Recommended: How to Use Fundamental analysis for Researching Stocks

The Takeaway

Capital expenditures can be particularly helpful to investors if you favor a value investing approach or you lean toward buy-and-hold investing. Understanding how a company is investing in itself for the long-term can help you decide whether it makes sense as part of your portfolio.

Once you’re ready to invest, it’s important to choose the right tools for doing so. There are many out there, with numerous pros and cons. It’s a good idea to do your research when finding the right platform to invest, just like you would when researching specific investments.

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

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

Photo credit: iStock/akinbostanci


About the author

Rebecca Lake

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.



SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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What Are Commodities? How Do They Fit Into the Stock Market?

Commodities are the raw materials that are the building blocks of most types of production, whether for commercial, military, or industrial goods. Different types of grain, livestock, metals, and energy sources (such as crude oil) are some of the most common commodities.

Although commodities may offer some advantages to investors, commodities are considered a high-risk market, as prices can fluctuate based on numerous factors that are hard to anticipate: e.g. weather events; regional political changes; supply chain issues, and more.

Nonetheless, investing in commodities can be useful for diversification because commodities tend to have a low correlation with traditional asset classes like stocks and bonds. Commodities are considered alternative investments, and thus they may be better suited to some investors than others.

Key Points

•   Commodities are raw materials used in production, including grain, livestock, metals, and energy sources like crude oil.

•   Investing in commodities can offer diversification as they have a low correlation with traditional assets.

•   Commodities can be traded on commodities exchanges through futures contracts or through investment vehicles like mutual funds and ETFs.

•   Commodities prices are influenced by factors like supply and demand, weather events, and geopolitical changes.

•   Commodities trading carries risks due to price volatility and external factors, making it important to consider personal risk tolerance.

What Is a Commodity?

A commodity is a raw material that can be bought, sold, or traded according to its value in producing other types of goods. Some commodities, like sugar or beef, may be consumed directly.

Understanding Commodities

Many of the things you use or consume in everyday life start off in commodity form. For example, the gas you put in your car is created by refining crude oil.

The hallmark of a commodity is that a unit of one type of commodity rarely differs substantially from another unit of that commodity. Thus one bushel of corn is equivalent to any other bushel of corn. One bar of gold is interchangeable with any other bar of gold.

This is quite different from traditional investments like stocks and bonds, where the quality of one stock can vary widely from another; or where one bond may get a triple-A rating and another is rated as junk.

Another difference is that the market forces that impact the movement of stocks or bonds often don’t apply to commodities, which are driven by supply and demand. So an inflationary period could hurt the performance of stocks or bonds, but might benefit commodities when the prices of certain goods rise.

This is one reason why commodities are considered alternative investments, which are not correlated with the movements of more traditional assets and thus can offer investors some diversification.

Trading Commodities

While stocks are traded on a stock exchange, such as the New York Stock Exchange (NYSE) or Nasdaq, commodities and commodities futures are traded on a commodities exchange, such as the New York Mercantile Exchange (NYME) or the Chicago Mercantile Exchange (CME).

The Chicago Board of Trade has established standards of measurement and grades of quality for different types of commodities that facilitate commodities trading. For example, there are 5,000 bushels of #2 yellow corn per corn contract, and corn can be traded on the spot or cash market, or the futures market.

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Alternative investments,
now for the rest of us.

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


Commodity Types and Examples

Broadly speaking, commodities can be divided into one of two categories: hard or soft.

•   Hard commodities generally must be mined or otherwise extracted from the earth.

•   Soft commodities are sourced naturally either through agriculture or cultivation.

Hard and soft commodities can serve different purposes in the global economy and supply chain. Within these broader categories, you can further distinguish specific types of commodities from one another.

Types of Commodities Examples

Hard

•   Energy

•   Precious Metals

•   Industrial Metals

•   Aluminum Copper

•   Crude Oil

•   Diesel

•   Gold

•   Lead

•   Natural Gas

•   Nickel

•   Palladium

•   Platinum

•   Silver

•   Tin

•   Zinc

Soft

•   Agricultural Products

•   Livestock

•   Cattle

•   Coffee

•   Corn

•   Cotton

•   Orange juice

•   Palm Oil

•   Pork

•   Soybeans

•   Sugar

•   Tea

•   Wheat

Hard and soft commodities may be traded globally but have a smaller geographic footprint in terms of where they’re sourced from.

For example, nearly 100 countries around the world produce crude oil, but five countries are responsible for 52% of the supply. China, meanwhile, is the world’s largest producer of wheat, generating around 17% of total production.

How Are Commodities Traded on the Stock Market?

Commodities are most often traded on an exchange using futures contracts. A commodity futures contract is an agreement to either buy or sell a specified quantity of a commodity at some future date at a predetermined price. It’s important to note that commodities futures are not regulated by the Securities and Exchange Commission.
Futures are not the only way to trade commodities, however. Investors may also choose to pursue:

•   Direct investment via cash (on the spot market)

•   Mutual funds

•   Exchange-traded funds (ETFs)

•   Exchange-traded notes (ETNs)

•   Commodity-linked stocks and bonds

Of these options, direct investment tends to prove the most difficult for individual investors. Trading commodities through direct investment requires the exchange of physical goods. However, physically holding one ton of wheat or 1,000 head of cattle isn’t a realistic expectation for most commodities traders.

Mutual funds and ETFs can offer an easier access point to the commodities market while allowing investors to diversify. Rather than tying up investment dollars in a single commodity, an investor may diversify across several different types of commodities within a single fund or ETF.

Regardless of how someone invests in commodities, there are real risks to weigh. Commodities can be highly volatile as there are a variety of outside factors that can influence the direction in which prices move.

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What Determines Commodities Prices?

Supply and demand play an integral role in determining how commodities are valued. When supply exceeds demand, e.g. if there were a drop-off in the demand for copper, the price of that commodity would also likely drop. But if a new technology like AI emerges, creating demand for precious metals, that could drive some commodities prices up.

Global events, such as widespread flooding or war can also trigger fluctuations in commodity prices.

Volatility in commodities pricing can have far-reaching effects on the global economy. Research from the International Monetary Fund (IMF) suggests that swings in commodity prices, meaning what a country pays for its imported commodities vs. what it collects for exported ones, have the potential to hinder long-term economic growth, particularly for those countries that are significant exporters.5

The IMF also determined that instability in commodity prices may also increase volatility in domestic inflation. Rising prices for basic domestic goods, such as food or energy, can be especially burdensome in countries that have developing economies.

The Takeaway

What are commodities? Commodities are all around you, from the clothes you wear to the foods you eat, to the technology you use at home and at work.

Within the financial markets, commodities play an important role in price regulation for consumer goods. As an investor, commodities trading can open up new avenues to diversification, though it’s wise to consider how these investments align with your personal risk tolerance.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.


Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

What Is a Commodity vs. a Stock?

A commodity is a raw material that’s used to create something else, such as crude oil that’s refined into gasoline or wheat that’s used to produce bread. Whereas a stock represents an ownership share in a company.

Are commodities riskier than stocks?

Commodities can be riskier than stocks because they’re often speculative in nature and their pricing can be highly volatile. Some types of commodities may prove more stable than others, though it’s important to consider how supply and demand may affect pricing.

What is the safest commodity to invest in?

There are no “safe” investments, and there is always the risk of loss when investing. With commodities, choosing one that is more insulated from fluctuations in pricing can be beneficial, but this can be difficult to predict. Gold and some precious metals may fare well when inflation rises, or there’s increased uncertainty in the markets about interest rates. Again there are no guarantees.


About the author

Rebecca Lake

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.



Photo credit: iStock/deyanarobova

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.


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



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 email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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.

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.

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