Financial Topics Archives | Page 689 of 808

Mar

2023

Guide to Speculative Investments

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

A speculative investment is when an investor hopes to profit from a rapid change in the value of an asset, often one that’s considered non-productive.

Many speculative investments are short-term, and they can be made in markets such as foreign currencies, collectives, fine art, and margin trading of stocks.

Typically, speculative investments are high-risk positions in assets with frequent price fluctuations, providing both the opportunity to profit and the risk of loss.

What Are Speculative Investments?

In general, if an investor is investing in an asset with the belief that its value will increase within a short amount of time, and they will be able to sell it for more than they bought it for, that is a speculative investment.

The types of investments that fall into the speculative investing category are often referred to as non-productive assets, because they don’t produce any income while they are held by an investor, such as dividends or rental income.

The way investors make money on them is by speculating that someone else will buy the asset for more than they did at some point in the future. There is some underlying agreement in the markets that an asset has value despite its lack of production. For instance, gold and precious metals are considered valuable, and investors buy them predicting that their value will increase.

Conversely, non-speculative investments tend to be part of long-term investment strategies. These are assets that may increase in value over a longer period of time, and may also provide income while the investor owns them.

Examples of non-speculative investments can include real estate and owning part of a business, but even real estate and stock investments can be considered speculative in certain cases.

How Does Speculation Work?

As noted above, speculation is when investors anticipate that their purchase will go up in value and they will be able to sell it for a profit. Investors would be unlikely to take part in speculative investments unless there was a significant chance that they might see a significant gain, despite the risk exposure.

Investors typically consider many factors, such as a news event, election cycle, interest rate changes, or a new regulation. Any of these could spark a price change in a speculative asset.

If an investor has several speculative assets in a portfolio, they might hope that just one or two of them earn a huge profit, making up for any losses in other areas. Speculative investing poses a high risk for novice investors.

Speculation looks different depending on the market. For instance, speculation in the real estate market might look like an investor buying multiple properties with small down payments with a plan to quickly resell them for a profit.

Speculation can also look like betting against the market trend through short selling, a strategy where investors to bet that a particular stock’s future price will be lower than its current price. It’s the opposite of going long a stock, where an investor buys shares with the expectation that the stock price will increase.

4 Examples of Speculative Investments

Below are four examples of common speculative investments.

1. Foreign Currencies

One type of speculative investment is foreign currencies (forex). The forex market is the largest in the world. Around $6.6 trillion is transacted each day in the global foreign currency markets.

Forex trading involves buying and selling currency pairs such as EUR/USD. As the value of one currency goes down, the other goes up. Traders speculate on which way the relationship will go and hope to profit off the change in value.

Forex markets are open 24 hours a day, and investors can execute trades as quickly as seconds or minutes, making it a popular forum for speculation.

2. Precious Metals

Precious metals such as gold, silver, copper, and others are traded as hard commodities (versus soft commodities, like agricultural products). These are speculative investments that fluctuate in price constantly based on a variety of factors, including inflation, supply and demand for products that require these metals, and other trends.

Thus, investing in precious metals can be risky because they’re susceptible to volatility based on factors that can be hard to anticipate. Even a relatively stable commodity such as gold can be affected by rising or falling interest rates, or changes in the value of the U.S. dollar.

In the case of any commodity, it’s important to remember that you’re often dealing with tangible, raw materials that typically don’t behave the way other investments or markets tend to.

3. Cryptocurrencies

Cryptocurrencies are considered speculative since they fluctuate widely in price and come with high risk and potential high returns. Because the crypto markets are barely 14 years old, there isn’t a lot of history to the market to use for predictions, and no way of knowing whether a crypto like Bitcoin (or Ethereum, Litecoin, Dogecoin) will go to $100K or to $1K within the next year.

4. Bond Market

Asset prices in the bond market fluctuate widely depending on interest rate changes and political and economic conditions. The prices in the U.S. Treasuries market are often strongly influenced by speculation.

Bonds are rated by agencies such as Moody’s and Standard and Poor’s. Highly rated bonds are not considered speculative and are referred to as “investment grade,” while lower-rated bonds are considered speculative and referred to as “junk bonds.” Since junk bonds are riskier, they pay out higher interest rates to investors.

Pros and Cons of Speculative Investment

Speculative investments come with both upsides and downsides. The choice of whether to make speculative investments depends on an investor’s risk tolerance, knowledge about markets, and short- and long-term investment goals.

Pros

Some of the pros of speculative investments include:

• Potential for high returns

Cons

Downsides of speculative investments include:

• Don’t provide income while they are held. (With some exceptions, such as cryptocurrencies that earn interest through staking)

• Risk of losing one’s entire investment

• Requires active trading and time commitment

Speculative Investments vs Traditional Investments

Below are some of the key differences between speculative investing and traditional investing:

Speculative Investments	Traditional Investments
Usually short-term	Long-term
High risk and active	Low- to medium-risk and generally more passive
Includes alternative and niche assets such as art, forex, and crypto	Generally includes traditional assets like stocks, bonds, and index funds

Recommended: What Are Alternative Investments?

Speculative Investments vs Gambling

The difference between speculation and gambling is that speculation involves taking a calculated risk on investing in an asset with an uncertain outcome but an expected return from the asset increasing in value. Gambling involves betting money with an uncertain outcome and the hope of winning more money.

Gamblers could be said to possess a more risk neutral outlook, in that they might disregard even high levels of risk for a potential reward. Speculative investors calculate the risk vs. the reward.

Other Risky Investments

In addition to the speculative investments highlighted above, the following are higher-risk types of investments that can be considered speculative.

Margin Trading

Margin trading involves an investor borrowing money from a broker in order to make a trade rather than using a cash account to buy securities. Usually investors can only borrow up to 50% of the purchase amount of securities they want to buy. For example, if an investor with $3,000 in their account, can borrow $3,000, allowing them to purchase $6,000 worth of securities.

Typically, less experienced, risk-averse investors choose cash accounts vs. margin accounts because of the risks involved with leveraged positions. By using margin, the investor can place bigger bets. But if the trade doesn’t go in their favor they could lose both their own capital and the money they borrowed.

Margin accounts also charge interest, so any securities purchased need to increase above the interest amount for the investor to see a profit. Different brokers charge different interest rates, so it’s a good idea for investors to compare before choosing an account.

Options Trading

With options trading, investors purchase an option that gives them the ability to buy a stock in the future at a particular price if they choose to. In other words, options give holders the right, but not the obligation, to buy or sell an asset like shares of a company stock.

Options holders can buy or sell by a certain date at a set price, while sellers have to deliver the underlying asset. Investors can use options if they think an asset’s price will go up or down, or to offset risk elsewhere in their portfolio.

Options are considered financial derivatives because they’re tied to an underlying asset.

Penny Stocks

Penny stocks are high-risk stocks that have a low dollar value. Investors can buy several shares of them since they are so inexpensive, with the hope that they increase a lot in value over a short period of time. An event such as a big news story could trigger a change in stock value and provide the chance for a trader to cash out.

The Takeaway

Speculative investments are risky, but can provide significant returns and can be a good way to diversify one’s portfolio. They are generally best for active traders looking for short-term investment opportunities, who can tolerate higher levels of volatility and risk.

Speculative investments are often considered non-productive assets, such as foreign and cryptocurrencies or commodities like gold or silver. But some stocks and bonds can be speculative too. Speculation is mainly the opportunity to profit from short-term price movements.

If you’re looking to start trading, consider margin investing with SoFi Invest. SoFi’s online investing app is streamlined and secure, so you can research, track, buy and sell on margin right from your phone or laptop. You can borrow money against your current investments to buy stocks and ETFs.

Get one of the most competitive margin loan rates with SoFi, 12%*

FAQ

What are some examples of some speculative investments?

Examples of speculative investments include penny stocks, crypto, precious metals, and forex. Many speculative investments fall into the category of non-productive assets, and they’re usually susceptible to volatility, giving investors the opportunity to profit from short-term price movements.

Is speculative investing the same as gambling?

No, gambling involves betting money with the hope that you will win more money, while speculative investing involves buying an asset with the expectation that you will be able to sell it for a profit.

Is Bitcoin considered a speculative investment?

Bitcoin and cryptocurrencies are considered speculative investments because their prices fluctuate widely and are difficult to predict. They are risky and come with the potential for significant gains or losses.

Photo credit: iStock/Delmaine Donson

*Borrow at 12%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
SoFi Invest®

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

Mar

2023

Guide to Protective Collars in Options Trading

By Mike Zaccardi, CMT, CFA | Growing Wealth, invest, Investing | Comments Off

As an investor in a volatile market, it can be stressful worrying about gains turning into losses from day to day. One strategy to protect your gains is through protective collar options.

Protective collars provide inexpensive near-term downside risk protection on a long stock position, but the strategy also limits your upside.

What Is a Protective Collar?

A protective collar is a three-part strategy:

A long position in a previously purchased underlying asset that has seen a large price increase you wish to protect.
A long put option, also known as a protective put, that provides downside protection to your asset gains.
A call option with the same expiration date as the long put written on the underlying asset, also known as a covered call. Writing this call offsets the cost of purchasing the long put option, but it will also limit the future potential gains on the underlying asset.

As with other options strategies, when you reduce risk, you must give up something in return. In the case of a protective collar option strategy, you limit your upside since you are short calls. Additionally, the sale of calls helps reduce the overall cost of the transaction. It might even be possible to construct a protective collar that generates income when initiated.

Collars in options trading help address price risks. The term “collar” refers to the strike prices of the two options being above and below the price of the underlying asset. The put strike is typically below the current share price while the short call strike is above the price of the underlying asset. Profits are capped at the short call strike price and losses are capped at the long put strike price.

How Do Protective Collars Work?

Protective collars work to hedge against the risk of a near-term drop on your long stock holding without having to sell shares. It’s one of many strategies for options trading to manage risk. If you have a sizable gain on your shares, you might not want to trigger a taxable event by liquidating the position.

Protective collars have many beneficial features:

• Protective collars allow you to initiate the trade cheaply. A protective collar option can be done at a net debit, net credit, or even without cost, known as a “zero-cost collar”.

• Protective collars provide downside risk protection at a level you determine. You will be purchasing a long put. By choosing a put that’s at the money, you will protect the most loss, but at the highest cost.

Conversely by choosing a long put that is out of the money, you pay less up front, but the accepted potential loss will be higher.

• Protective collars allow you to participate in further asset increases, again at a level you determine. By writing a call that’s at the money, you earn the highest premium but limit upside participation and increase the likelihood your shares will be assigned and sold.

• By choosing to write calls that are far out of the money, you will earn lower premiums that can offset the cost of the purchased put option but allow continued participation in any future asset increases. Additionally, the likelihood that the call will be exercised and assigned is lower.

Recommended: Guide to Leverage in Options Trading

Maximum Profit

The maximum profit on a protective collar options position happens at the short call strike. The highest profit is limited to the high strike minus the net debit paid or plus the net credit received when executing the options trade.

Maximum Profit = Short Call Strike Price – Purchase Price of Stock – Net Debit Paid

Maximum Profit = Short Call Strike Price – Purchase Price of Stock + Net Credit Received

Maximum Loss

The maximum loss on protective collar options is limited to the stock price minus the put strike minus the net debit or plus the net credit received.

Maximum Loss = Long Put Strike Price – Purchase Price of Stock – Net Debit Paid

Maximum Loss = Long Put Strike Price – Purchase Price of Stock + Net Credit Received

Break Even

Theoretically, there are a pair of break-even prices depending on how the initial trade was constructed. If it was a net debit protective collar, then the break even is the stock price at trade initiation plus the net debit paid. If the options trade was executed at a net credit, then the break even is the stock price at trade initiation minus the net credit.

Break Even = Stock Price at Trade Initiation + Net Debit Paid

Break Even = Stock Price at Trade Initiation – Net Credit Received

However, for an asset that has seen significant appreciation, the concept of break even is almost irrelevant.

Constructing Protective Collars

Putting on a protective collar strategy might seem daunting, but it is actually quite straightforward. You simply buy a low strike put option and simultaneously sell an upside call option. Of course, you must already own shares of the underlying stock.

The protective put hedges downside risk while the covered call caps gains but helps finance the overall trade. Both options are usually out of the money.

Pros and Cons of Protective Collars

Pros	Cons
Limits losses from a declining stock price while still retaining ownership of the shares	Upside gains are capped at the call strike
There remains some upside exposure	Losses can still be experienced down to the long put strike
Protective collars are cheaper than purchasing puts only	Slightly more complicated than a basic long put trade

When Can It Make Sense to Use Protective Collars?

You might consider implementing a protective collar options position when concerned about near-term or medium-term declines in an equity holding. At the same time, you do not want to sell your shares due to a large taxable gain. For that reason, protective collar options might be more likely to be used in taxable accounts rather than tax-sheltered accounts like an IRA.

With the downside risk hedge also comes the risk that your shares get “called away” if the stock price rises above the short-call strike.

A protective collar can work well during situations in which the market or your individual equity positions lack upside momentum. A sideways to even down market is sometimes the best scenario for protective collar options. During strong bull markets, the play is not ideal since you might see your shares vanish when the underlying stock price gets above the short call strike.

Finally, user-friendly options trading is here.^*

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

*Check out the OCC Options Disclosure Document.

Protective Collar Example

You own 100 shares of XYZ company that you paid $50 for, and the stock is currently trading at $100. You’re concerned there might be a move lower on your equity stake, but you do not want to trigger a taxable event by selling.

A protective put is an ideal way to address the risk and satisfy your objectives. You decide to sell the $110 strike call for $5 and buy a $90 strike put for $6. The total cost or net debit is $1 per share or $100 per option, each option represents 100 shares.

If the price rises above the short call strike price of $110 to $115:

Unrealized Profit on Stock Position = Current Price – Purchase Price

Unrealized Profit on Stock Position = $11,500 – $5,000 = $6,500

Maximum Profit = Short Call Strike Price – Purchase Price – Net Debit Paid

Maximum Profit = $11,000 – $5,000 – $100 = $5,900

You have given up $600 of potential profit to protect your downside risk.

If the stock trades anywhere between $90 and $110, For example $105:

Unrealized Profit on Stock Position = Current Price – Purchase Price

Unrealized Profit on Stock Position = $10,500 – $5,000 = $5,500

Profit = Current Price – Purchase Price – Net Debit Paid

Profit = $10,500 – $5,000 – $100 = $5,400

You have paid $100 to protect your downside risk. It may also have been possible to choose options that would have allowed you to profit on the protective collar.

If the price drops below the long put strike price of $90 to $85:

Unrealized Profit on Stock Position = Current Price – Purchase Price

Unrealized Profit on Stock Position = $8,500 – $5,000 = $3,500

Maximum Loss = Long Put Strike Price – Purchase Price of Stock – Net Debit Paid

Maximum Profit = $9,000 – $5,000 – $100 = $4,000

You have avoided additional losses of $500 by purchasing the protective collar.

Collars and Taxes

Nobody likes paying unnecessary capital gains taxes. Protective collar options can be used to avoid that scenario. The strategy offers downside risk control while allowing you to keep your shares.

You still might be required to sell your stock to the holder of the calls you wrote, though. If you decide to sell your shares to the put owner, that too will trigger a taxable sale. The potential taxes can’t be avoided using this strategy, but they can be deferred, let’s say into next year, and this can be valuable in itself.

The Takeaway

Protective collar options are used to guard against near-term losses on a long stock position. The combination of a protective put with a covered call offers a low-cost way to help control risk. It can also be a tax-savvy move to protect an unrealized gain without triggering a taxable event as you would when selling shares.

If you’re ready to try your hand at options trading, SoFi can help. You can trade options from the SoFi mobile app or through the web platform. And if you have any questions, SoFi offers educational resources about options to learn more.

With SoFi, user-friendly options trading is finally here.

FAQ

Are protective puts worthwhile? When does it make sense to buy protective puts?

Protective puts can make sense if you are concerned about bearish price action on your underlying stock position. They are worthwhile if you have a strategy with respect to timing, direction, and price of the trade.

What does protective, covered, and naked mean in options?

“Protective” in options trading refers to having downside risk protection should a stock position drop in price. A protective put, for example, rises in value when shares fall.

“Covered” in options parlance means that you are writing call options against an asset you currently own.

“Naked” is when you are writing call options that you do not currently own.

What are the benefits of collar trades?

Protective collar options trades are used when you are bullish on a stock but are concerned about near-term downside risk. A major benefit is that the strategy helps to cushion losses if the underlying stock drops. Since the strategy assumes you own shares of the underlying asset, a combination of a protective put and a covered call help to keep costs low on the trade. That is a major benefit to traders looking to protect a long stock position.

Photo credit: iStock/Prostock-Studio

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.

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.
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.

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Mar

2023

How Do Credit Cards Work? Beginner’s Guide

How Does a Credit Card Work: In-Depth Explanation

By Jason Steele | Credit, credit card | Comments Off

There are millions of credit card accounts in the United States alone, and it’s estimated that 84% of adults in the U.S. have at least one credit card. Yet, many people don’t have a firm grasp on the basics of what a credit card is and how credit cards work.

If you have a credit card account, or plan on ever using one, it’s important to understand the fundamentals of credit cards. This ranges from what a credit card is to how credit card interest works to how credit cards relate to credit scores.

What Is a Credit Card?

A credit card is a type of payment card that is used to access a revolving line of credit.

Credit cards differ from other types of loans in that they offer a physical payment card that is used to make purchases. Traditionally, credit cards are made of plastic, but an increasing number of credit card issuers now offer metal cards, usually for their premium accounts that offer travel rewards.

But a credit card account is much more than a plastic or metal payment card. A credit card account is a powerful financial tool that can serve many purposes. For starters, it can be a secure and convenient method of payment anywhere that accepts credit card payments. It also can be used to borrow money in a cash advance or to complete a balance transfer.

Additionally, credit cards can offer valuable rewards, such as cash back and travel rewards like points or miles. Cardholder benefits can also include purchase protection and travel insurance policies.

If used responsibly, a credit card can help you to build your credit score and history, which can open up new borrowing opportunities. Of course, credit cards can also damage your credit when used irresponsibly. If you rack up debt on your credit card, it can be hard to get it paid off and back in the clear (here, for instance, is what happens to credit card debt when you die).

How Do Credit Cards Work?

Credit cards offer a line of credit that you can use for a variety of purposes, including making purchases, completing balance transfers, and taking out cash advances. You can borrow up to your credit limit, and you’ll owe at least the minimum payment each month.

You can apply for a credit card from any one of hundreds of credit card issuers in the U.S. Card issuers include national, regional, and local banks, as well as credit unions of all sizes. Card issuers will approve an application based on the credit history and credit score of the applicant, among other factors.

There are credit cards designed for people with nearly every credit profile, from those who have excellent credit to those with no credit history or serious credit problems. As with any loan, those with the highest credit score will receive the most competitive terms and benefits.

Once approved, you’ll likely receive a credit limit that represents the most you can borrow using the card. Whether your limit is above or below average credit card limit depends on a variety of factors, including your payment history and income.

The credit card is then mailed to the account holder and must be activated before use. You can activate a credit card online or over the phone. So long as your account remains in good standing, it will be valid until the credit card expiration date.

Once activated, the card can be used to make purchases from any one of the millions of merchants that accept credit cards. Each card is part of a payment network, with the most popular payment networks being Visa, Mastercard, American Express, and Discover. When you make a payment, the payment network authenticates the transaction using your card’s account number and other security features, such as the CVV number on a credit card.

Every month, you’ll receive a statement from the card issuer at the end of each billing cycle. The statement will show the charges and credits that have been made to your account, along with any fees and interest changes being assessed.

Your credit card statement will also show your balance, minimum payment due, and payment due date. It’s your choice whether to pay your minimum balance, your entire statement balance, or any amount in between. Keep in mind that you will owe interest on any balance that’s not paid back.

If you don’t make a payment of at least the minimum balance on or before the due date, then you’ll usually incur a late fee. And if you pay more than your balance, you’ll have a negative balance on your credit card.

Credit Card Fees

There are a number of potential fees that credit card holders may run into. For example, some credit cards charge an annual fee, and there are other fees that some card issuers can impose, such as foreign transaction fees, balance transfer fees, and cash advance fees. Cardholders may also incur a late fee if they don’t pay at least the minimum due by their statement due date.

Often, however, you can take steps to curb credit card fees, such as not taking out a cash advance or making your payments on-time. For a charge like an annual fee, cardholders will need to assess whether a card’s benefits outweigh that cost.

3 Common Types of Credit Cards

There are a number of different kinds of credit cards out there to choose from. Here’s a look at some of the more popular types.

Rewards Credit Cards

As the name suggests, rewards credit cards offer rewards for spending in the form of miles, cash back, or points — a rewards guide for credit cards can give you the full rundown of options. Cardholders may earn a flat amount of cash back across all purchases, or they may earn varying amounts in different categories like gas or groceries.

The downside of these perks is that rewards credit cards tend to have higher annual percentage rates (APRs), so you’ll want to make sure to pay off your full balance each month.

Balance Transfer Credit Cards

Balance transfer cards allow you to move over your existing debt to the card. Ideally, this new card will have a lower interest rate, and often they’ll offer a lower promotional rate that can be as low as 0% APR. However, keep in mind that this promo rate only lasts for a certain period of time — after that, the card’s standard APR will kick back in.

Secured Credit Cards

If you’re new to credit or trying to rebuild, a secured credit card can be a good option. Generally, when we talk about credit cards, the default is an unsecured credit card, meaning no collateral is involved. With a secured credit card, you’ll need to make a deposit. This amount will generally serve as the card’s credit limit.

This deposit gives the credit card issuer something to fall back on if the cardholder fails to pay the amount they owe. But if you’re responsible and get upgraded to a secured credit card, or if you simply close your account in good standing, you’ll get the deposit back.

How Does Credit Card Interest Work?

The charges you make to your credit card are a loan, and just like a car loan or a home loan, you can expect to pay interest on your outstanding credit card balance.

That being said, nearly all credit cards offer an interest-free grace period. This is the time between the end of your billing period and the credit card payment due date, typically 21 or 25 days after the statement closing date. If you pay your entire statement balance before the payment due date, then the credit card company or issuer will waive your interest charges for that billing period.

If you choose not to pay your entire statement balance in full, then you’ll be charged interest based on your account’s average daily balance. The amount of interest you’re charged depends on your APR, or annual percentage rate. The card issuer will divide this number by 365 (the number of days in the year) to come to a daily percentage rate that’s then applied to your account each day.

As an example, if you had an APR of 15.99%, your daily interest rate that the card issuer would apply to your account each day would be around 0.04%.

Recommended: Average Credit Card Interest Rates

Credit Cards vs Debit Cards

Although they look almost identical, much differs between debit cards vs. credit cards. Really, the only thing that debit cards and credit cards truly have in common is that they’re both payment cards. They both belong to a payment network, and you can use them to make purchases.

With a debit card, however, you can only spend the funds you’ve already deposited in the checking account associated with the card. Any spending done using your debit card is drawn directly from the linked account. Because debit cards aren’t a loan, your use of a debit card won’t have any effect on your credit, positive or negative.

But since it isn’t a loan, you also won’t be charged interest with a debit card, nor will you need to make a minimum monthly payment. You will, however, need to make sure you have sufficient funds in your linked account before using your debit card.

Another key difference between credit cards vs. debit cards is that credit card users are protected by the Fair Credit Billing Act of 1974. This offers robust protections to prevent cardholders from being held responsible for fraud or billing errors. Debit card transactions are subject to less powerful government protections.

Lastly, debit cards rarely offer rewards for spending. They also don’t usually feature any of the travel insurance or purchase protection policies often found on credit cards. You likely won’t be on the hook for an annual fee with a debit card, which is a fee that some credit card issuers do charge, though you could face overdraft fees if you spend more than what’s in your account.

To recap, here’s an overview of the differences between credit cards and debit cards:

	Credit cards	Debit cards
Can be used to make purchases	Yes	Yes
Can be used to borrow money	Yes	No
Must deposit money before you can make a purchase	No	Yes
Must make a minimum monthly payment	Yes	No
Can provide purchase protection and travel insurance benefits	Often	Rarely
Can offer rewards for purchases	Often	Rarely
Can help or hurt your credit	Yes	No
Can use to withdraw money	Yes, with a cash advance	Yes

Pros and Cons of Using Credit Cards

Beyond knowing what a credit card is, it’s important to familiarize yourself with the pros and cons of credit cards. That way, you can better determine if using one is right for your financial situation.

To start, notable upsides of using credit cards include:

• Easy and convenient to use

• Robust consumer protections

• Possible access to rewards and other benefits

• Ability to avoid interest by paying off monthly balance in full

• Potential to build credit through responsible usage

However, also keep these drawbacks of using credit cards in mind:

• Higher interest rates than other types of debt

• Temptation to overspend

• Easy to rack up debt

• Various fees may apply

• Possible to harm credit through irresponsible usage

How to Compare Credit Cards

Since there are hundreds of credit card issuers, and each issuer can offer numerous individual credit card products, it can be a challenge to compare credit cards and choose the one that’s right for your needs. But just like purchasing a car or a pair of shoes, you can quickly narrow down your choices by excluding the options that you aren’t eligible for or that clearly aren’t right for you.

Start by considering your credit history and score, and focus only on the cards that seem like they align with your credit profile. You can then narrow it down to cards that have the features and benefits you value the most. This can include having a low interest rate, offering rewards, or providing valuable cardholder benefits. You may also value a card that has low fees or that’s offered by a bank or credit union that you already have a relationship with.

Once you’ve narrowed down your options to a few cards, compare their interest rates and fees, as well as their rewards and benefits. You can find credit card reviews online in addition to user feedback that can help you make your final decision.

Important Credit Card Terms

One of the challenges to understanding how credit cards and credit card payments work is understanding all of the jargon. Here’s a small glossary of important credit card terms to help you to get started:

• Annual fee: Some credit cards charge an annual fee that users must pay to have an account. However, there are many credit cards that don’t have an annual fee, though these cards typically offer fewer rewards and benefits than those that do.

• APR: This stands for annual percentage rate. The APR on a credit card measures its interest rate and fees calculated on an annualized basis. A lower rate is better for credit card users than a higher rate.

• Balance transfer: Most credit cards offer the option to transfer a balance from another credit card. The card issuer pays off the existing balance and creates a new balance on your account, nearly always imposing a balance transfer fee.

• Card issuer: This is the bank or credit union that issues the card to the cardholder. The card issuer the company that issues statements and that you make payments to.

• Cash advance: When you use your credit card to receive cash from an ATM, it’s considered a cash advance. Credit card cash advances are usually subject to a much higher interest rate and additional fees.

• Chargeback: When you’ve been billed for goods or services you never received or that weren’t delivered as described, you have the right to dispute a credit card charge, which is called a credit card chargeback. When you do so, you’ll receive a temporary credit that will become permanent if the card issuer decides the dispute in your favor.

• Due date: This is the date you must make at least the credit card minimum payment. By law, the due date must be on the same day of the month, every month. Most credit cards have a due date that’s 21 or 25 days after the statement closing date.

• Payment network: Every credit card participates in a payment network that facilitates each transaction between the merchant and the card issuer. The most common payment networks are Visa, Mastercard, American Express, and Discover. Some store charge cards don’t belong to a payment network, so they can only be used to make purchases from that store.

• Penalty interest rate: This is a separate, higher interest that can apply to a credit card account when the account holder fails to make their minimum payment on time.

• Statement closing date: This is the last day of a credit card account’s monthly billing cycle. At the end of this day, the statement is generated either on paper or electronically, or both. This is the day on which all the purchases, payments, fees, and interest are calculated.

Credit Cards and Credit Scores

There’s a lot of interplay between credit cards and your credit score.

For starters, when you apply for a new credit card, that will affect your score. This is because the application results in a hard inquiry to your credit file. This will temporarily ding your score, and it will remain on your credit report for two years, though the effects on your credit don’t last as long.

Further, how you use your credit card can impact your credit score — either positively or negatively. Having a credit card could increase your credit mix, for instance. Or, closing a longstanding credit card account may shorten the age of your accounts, resulting in a negative impact to your score.

Making timely payments is key to maintaining a healthy credit score, as is keeping a low credit utilization rate (the amount of your overall available credit you’re currently using). If you max out your credit card or miss payments, that won’t bode well for your credit score. Conversely, staying on top of payments can be a great step toward building your credit.

The Takeaway

Credit cards work by giving the account holder access to a line of credit. You can borrow against it up to your credit limit, whether for purchases and cash advances. You’ll then need to pay back the amount you borrowed, plus interest, which is typically considered to be a high rate vs. other forms of credit. For this reason, it’s important to spend responsibly with a credit card.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How does a person shop for a credit card?

To shop for a credit card, start by looking at your credit score to determine what cards you may be able to qualify for. Then, decide what kind of card is best for your needs, such as a card that has a low interest rate, one that will allow you to build credit, or a card that offers rewards. Finally, compare similar products from competing card issuers to assess which is the most competitive offer available to you.

Can I use my credit card abroad?

Yes, most credit card payment networks are available in most countries. As long as you visit a merchant that accepts cards from the same payment network that your card belongs to, then you’ll be able to make a purchase.

How do you use a credit card as a beginner?

If you’re new to credit and working to build your score, you’ll want to make sure you’re as responsible with your card as possible. Pay your bill on time, and aim to pay in full if you can to avoid interest charges. Use very little of your credit limit — ideally no more than 30%. And make sure to regularly review your credit card statements and your credit report. But don’t let any of that scare you away from using your card either — it’s important to regularly use your card for small purchases to get your credit profile built up.

How do credit cards work in simple terms?

Credit cards offer access to a line of credit. You can borrow against that, up to your credit limit, for a variety of purposes, including purchases and cash advances. You’ll then need to pay back the amount you borrowed.

How do payments on a credit card work?

At the end of each billing cycle, you’ll receive a credit card statement letting you know your credit card balance, minimum payment due, and the statement due date. You’ll then need to make at least the minimum payment by the statement due date to avoid late fees and other consequences. If you pay off your full balance, however, you’ll avoid incurring interest charges. Otherwise, interest will start to accrue on the balance you carry over.

Photo credit: iStock/Katya_Havok

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOCC0323006

Mar

2023

Guide to Synthetic Longs

By Mike Zaccardi, CMT, CFA | Growing Wealth, invest, Investing | Comments Off

A synthetic long is an option strategy that replicates going long the underlying asset. The strategy is used by bullish investors who wish to use the leverage of options to establish a position at a lower capital cost.

As with going long in a particular asset, potential profits are unlimited, however, potential losses can be substantial if the underlying asset price goes to zero.

What Is a Synthetic Long?

First, a refresher on the two basic types of options: puts and calls. Options are a type of derivative that may allow investors to gain — not by owning the underlying asset and waiting for it to go up, but by strategically using options contracts to profit from the asset’s price movements.

Establishing a synthetic long requires purchasing at-the-money call options and selling put options at the same strike price and expiration. A synthetic long strategy has a bullish outlook since the maximum profit is unlimited while the downside risk, increases until the asset price goes to zero.

An investor puts on a synthetic long options position when bullish on the underlying asset, but wants a lower cost alternative to owning the asset. You can learn more about how options trading works with SoFi.

A synthetic long options position has the same risk and reward profile as a long equity position. The setup can be beneficial to traders since a lower amount of capital is needed to establish the position. The options exposure offers leverage while owning the asset outright does not.

A key difference between a synthetic long and a long position in the underlying asset is the time limit dictated by the option’s expiration date. The options trader also does not have shareholder voting rights and will not receive dividends.

How Do Synthetic Longs Work?

Synthetic longs work by offering the options trader unlimited upside via the long call position. If a trader was very bullish, they might buy only the long call.

However, the short put helps finance the synthetic long trade by offsetting the expense of buying the long call. In some cases, the trade can even be executed at a debit (profit) depending on the premiums of the two options.

By including the short put, the investor can be exposed to losses, should the asset price drop below the strike price of the short put, but no more than would be expected if the trader went long the underlying asset.

Setup

A synthetic long options play is one of many popular options strategies, and it can be constructed simply: You buy close-to-the money (preferably at-the-money) calls and sell puts at the same strike price and expiration date.

Your expectation is to see the underlying asset price rise just as you would hope if you were long the asset outright. If you’d rather own the asset outright, you can always purchase the stock directly through your brokerage.

Maximum Profit

There is unlimited profit potential with a synthetic long, just as there is with a long position. If the underlying share price rises the value of the call will increase and you can sell the call at a profit while covering (buying back) the short put to close out your trade.

Breakeven Point

A synthetic long’s breakeven point is calculated as the strike price plus the debit (cost) paid or minus the credit (profit) received at the onset of the trade.

Maximum Loss

The maximum loss is limited, but only because an asset’s price can’t drop below zero, but it can be substantial. Losses are seen if the underlying share price drops below the break even point and maximized if the asset price drops to zero.

In the event that the asset price drops below the strike price of the short put, the trader can be assigned shares and would be obligated to buy the asset at the strike price. The risk of assignment increases as the asset price drops and the option nears expiration, but it can happen at any time once the asset trades below the strike price.

The loss would be slightly higher or lower based on the credit or debit of the initial trade.

Exit Strategy

Most traders do not hold a synthetic long through expiry. Rather, they use options to employ leverage with a directional bet on the underlying asset price, then exit the trade before expiration.

To exit the trade, the investor sells the long call and buys back the short put. This tactic avoids buying the underlying asset and the increased capital outlay that would incur.

Synthetic Long Example

Let’s say you are bullish shares of XYZ company currently trading at $100. You want to use leverage via options rather than simply buying the stock.

You construct a synthetic long options trade by purchasing a $100 call option contract expiring in one month for $5 and simultaneously selling a $100 put option contract at the same expiration date for $4. The net debit (premium paid) is $1.

Net debit = Call Option Price – Put Option Price = $5 – $4 = $1 per share

Note: The $1 net debit is per share. Since an option contract is for 100 shares, the debit will be $100 per option contract.

If the asset price falls, you experience losses. If the stock price drops to $90 after one week, the put premium rises to $12 while the call option price falls to $4. Your unrealized loss is $9 (the long call price minus the short put price minus the net debit paid at initiation).

You choose to hold the position with the hope that the stock price climbs back. Because the stock price has dropped below the $100 strike price you are at risk of your short put being exercised and assigned.

Unrealized loss = Long Call Price – Short Put Price – Net Debit at Initiation

Unrealized loss = $4 – $12 – $1 = Loss of $9 per share or $900 per option contract

A week before expiration, the stock price has risen sharply to $110. You manage the trade by selling the calls and covering the short put. At this time, the call is worth $12 while the put is worth $3. The net proceeds from the exit is $9. Your profit is $8 ($9 of premium from the exit minus the $1 net debit).

Profit = Long Call Price – Short Put Price – Net Debit at Initiation

Profit = $12 – $3 – $1 = Profit of $8 per share or $800 per option contract

You could hold the trade through expiration but would then be exposed to having to own the stock.

Finally, user-friendly options trading is here.^*

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

*Check out the OCC Options Disclosure Document.

Calculating Returns

A synthetic long replicates a long position in the underlying asset but at a lower cost.

In the example above, an investor might have purchased 100 shares of XYZ at $100 each for a capital outlay of $10,000. If the shares closed at $110, the long position would be worth $11,000.

$ Gain = Selling Price – Purchase Price

$ Gain = $11,000 – $10,000 = $1,000

% Gain = $ Gain / Purchase Price

% Gain = $1,000 / $10,000 = 10% Gain

The synthetic long in the example above is substantially cheaper at a cost (debit) of $100 for one option representing 100 shares of XYZ. When sold, the options were worth $900.

$ Gain = Selling Price – Purchase Price

$ Gain = $900 – $100 = $800

Note this gain is approximately the same as the gain if the shares were bought.

% Gain = $ Gain / Purchase Price

% Gain = $800 / $100 = 800% Gain!

As you can see, while dollar gains are very similar, the percentage gains are larger due to the power of leverage using options. But leverage works both ways.

If we take a loss on a synthetic long, dollar losses will also be in line with losses on a long position, but percentage losses can be as outsized as the gains.

Pros and Cons of Synthetic Longs

Pros	Cons
Unlimited upside potential	Substantial loss potential if the stock falls to zero
Uses a smaller capital outlay to have long exposure	You do not have voting rights or receive dividends as a shareholder would
You can define your reward and risk objectives	The trade’s timeframe is confined to the options’ expiration date

Alternatives to Synthetic Longs

To have long exposure to a stock you can simply own the stock outright. Stock ownership carries with it the benefits of voting rights and dividends but at a much higher capital outlay.

Another alternative similar to a synthetic long options trade is a risk reversal. A risk reversal options trade is like a synthetic long, but the strike price on the call option is higher than the put strike price. A risk reversal is also known as a collar.

A synthetic long call can also be created with a long stock position and a long put.

A bearish alternative is a synthetic long put strategy. A synthetic long put happens when you combine a short stock position with a long call.

The Takeaway

Options synthetic long strategies combine a short put and a long call at the same strike and expiration date. It replicates the exposure of being long the underlying asset outright — but the investor needs a lower-cost alternative to owning the asset. It’s one of many options strategies that allow traders to help define their risk and reward objectives while employing leverage.

Putting on a synthetic long position means buying at-the-money call options and selling put options at the same strike price and expiration. This strategy has a bullish outlook because the maximum profit is unlimited, while downside risk increases until the asset price goes to zero.

If you’re ready to try your hand at options trading, SoFi can help. You can set up an Active Invest account and trade options onlinefrom the SoFi mobile app or through the web platform. And if you have any questions, SoFi offers educational resources about options to learn more. SoFi doesn’t charge commission, and members have access to complimentary financial advice from a professional.

With SoFi, user-friendly options trading is finally here.

FAQ

What is a long combination in options trading?

A combination is a general options trading term for any trade that uses multiple option types, strikes, or expirations on the same underlying asset. A long combination is when you benefit when the underlying share price rises.

How do you set up a synthetic long?

A synthetic long is established by buying an at the money call and selling a put at the same strike price. The options have the same expiration date. The resulting exposure mimics that of a long stock position.

What is the maximum payoff on a synthetic long put?

The maximum payoff on a synthetic long put happens if the stock price goes to zero. Maximum profit when the underlying stock goes to zero is the strike price of the put minus the premium paid to construct the trade.

Photo credit: iStock/FG Trade

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

Mar

2023

Getting a Mortgage Without a Regular Income

By Kim Franke-Folstad | Home Ownership, mortgage | Comments Off

Qualifying for a home loan can be especially challenging if you don’t have a regular paycheck.

Even if you have a solid credit score, money in the bank, and low or no debt, you can still expect mortgage lenders to check on your income to be sure you can afford your loan payments. And you may face stricter eligibility requirements if you’re a seasonal employee or a freelance or gig worker.

Having an inconsistent income isn’t an insurmountable hurdle — but there are some basic guidelines homebuyers should be aware of as they prepare to apply for a mortgage.

Here, you’ll learn:

• Can you get a mortgage without a job?

• How do you apply for a mortgage if you have seasonal income?

• What sort of income documentation do you need?

• How can you improve your chances of mortgage approval?

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Is Employment Required to Qualify for a Mortgage?

Usually, you are required to show two years’ worth of employment and income on a mortgage application. Lenders use the information on a loan application to evaluate a borrower’s risk based on a number of factors, including their credit history, their assets, how much debt they can comfortably handle, and the amount and reliability of their income.

If you can prove to your lender that you can make your monthly house payment even though you don’t have a traditional employment situation, you still may be able to qualify for a mortgage. In fact, you may be able to get a mortgage without a job at all if you can prove that you have adequate financial resources.

For example, a retired couple may be eligible for a mortgage based on their Social Security and pension payments alone. And if that isn’t enough for a mortgage, income from other sources may push things ahead. For instance, they may be able to qualify if they have a retirement account they can tap, rental property income, or investments that pay dividends or interest. A divorced individual may be able to use alimony or child support payments to qualify for a home loan. And certain types of long-term disability income also may be accepted.

Applying for a Mortgage with Seasonal Income

If you’re earning an income but some or all of your work is seasonal, you should be prepared to provide extra documentation that proves your income is dependable.

For example, seasonal employees who work for the same company (or in the same field) every year should be ready to furnish two years’ worth of W-2 forms, pay stubs, tax returns, bank statements, and other financial backup. Your employer (or employers) also may have to write a letter stating you can expect to work again the next season.

Remember, the lender wants to be as certain as possible that you can manage your home mortgage loan. If you’ve been working at the seasonal job for less than two years (or if you can’t prove the work will continue), you may not be able to get past the underwriting process. In other words, your mortgage loan would not be approved.

In that case, you may have to wait until you’ve put in more time on the seasonal job, or you could consider applying with a co-borrower or cosigner to improve your chances of getting a loan.

Part-Time Income vs Seasonal Income

Some points to note about part-time vs. seasonal income:

• Income documentation requirements are generally less demanding for part-time workers than for seasonal workers.

• Part-time workers still must provide paperwork that supports the income information on their mortgage application. But if a lender can see a borrower has year-round employment and a regular paycheck — even if he or she works fewer than 40 hours a week — that consistency can help with qualifying for a mortgage.

• Even if you work full-time or overtime in a seasonal job (as a store cashier during the holidays, for example, or at a theme park during the summer), you may have a harder time proving that your income is stable.

Proof of Income Documentation

Proving income stability also can be a challenge for freelancers and gig workers who are trying to qualify for a mortgage.

Instead of pulling out pay stubs and W-2s to prove their income, as employees with more traditional jobs do, self-employed workers have to round up their 1099s and other documentation from their business (bank statements, tax returns, profit and loss statements, etc.). They need to share those as proof of income for a mortgage, along with the required information about their personal finances.

Documentation requirements can vary depending on the lender or the type of loan, but freelance and contract workers typically need to provide proof of at least two years of self-employment income to qualify for a home mortgage loan. And if that income is significantly different from one year to the next, or is going down instead of up, the lender may have questions about the borrower’s ability to keep up with mortgage payments over the long-term.

Something else to keep in mind:

• Though it may be tempting to take advantage of every tax break for your freelance business, those deductions might affect how a mortgage lender looks at your bottom line.

• If you have accepted some payments under the table to avoid taxes, you won’t be able to count that money as income on your loan application.

Gathering Your Income Documentation

Not having the proper income documentation can slow down the mortgage loan process, so it can be a good idea to gather up your paperwork well before you actually sit down to apply.

If you’re a first-time homebuyer, or you aren’t clear on what you might need as a seasonal or self-employed worker, a good lender will walk you through the list — but here are a few things you’ll likely need:

• Tax returns from the past two years. (Personal and business returns if you’re self-employed.)

• Two years’ worth of W-2s or year-end pay stubs. (If you’re self-employed, you can use your 1099s.)

• Bank statements. (Personal and business bank statements if you’re self-employed.)

• Letter verifying your employment. (If you’re a seasonal worker, your employer would state that you’re expected to be hired again. If you’re self-employed, you might provide a letter from a CPA verifying that you’ve been in business for at least two years. You also could include a client list with contact information or your company’s website.)

• Statements verifying additional assets.

• Proof of other income sources. (Alimony and child support, disability income, Social Security, etc.)

Improve Your Chances of Mortgage Approval

A stable income can be key to getting a mortgage, but lenders also will consider several other financial factors when evaluating an application. If you want to improve your chances of qualifying for a home loan — and get the lowest interest rate possible — here are a few things to focus on:

Credit Score

Generally, borrowers need a FICO® credit score of at least 620 to qualify for a fixed-rate conventional mortgage. But a higher score (670 to 739 is considered “good”) could make you more appealing to lenders and help you get a lower interest rate. Before you apply for a loan, it’s a good idea to check on your credit score and make sure your credit reports are accurate and up to date.

Down Payment

Coming up with a larger down payment could boost your chances of being approved for a loan. (The tools in SoFi’s Home Loan Help Center can help you figure out the amount you can afford.)

Debt-to-Income Ratio (DTI)

In general, mortgage lenders like to see a DTI ratio of no more than 36%. To figure out your DTI, add up your monthly bills, such as housing costs and any monthly loan or debt payments, and divide that total by your monthly gross (pre-tax) income to get your DTI percentage. If your DTI is running high, lowering or eliminating some debt before applying for a mortgage can make you look like less of a risk.

Cash Reserve

Your lender also may want you to see that you have a backup emergency fund or an asset you can liquidate easily, just in case your income falls short of expectations.

Recommended: Mortgage Pre-Approval Need to Knows

The Takeaway

If you don’t have a traditional job with a regular paycheck, you may have to jump through a few extra hoops to qualify for a mortgage. But if you can show your lender that you have reliable and consistent income sources, good credit, and can afford your monthly payments, a home loan shouldn’t be out of reach.

How can SoFi help? SoFi’s online application makes it easy for all types of borrowers to get started. And SoFi’s mortgage loan officers can provide one-on-one assistance as you work your way through the mortgage application process, so you can know what’s expected.

With SoFi, it takes just minutes to find your mortgage rate.

FAQ

Can I qualify for a mortgage using seasonal income?

If you can prove you’ve worked in a seasonal job for at least two years, the money you’ve earned, once documented as proof of income for a mortgage, may help you qualify.

Can I include tips as part of my income when qualifying for a mortgage?

If you keep good records and claim the tips you receive from customers on your income tax return, you may be able to include that money as income on your mortgage application. But if you pocket the money and don’t report it on your taxes, you can’t expect your lender to count it.

Are there any exceptions to the two-year employment requirement when applying for a mortgage as a seasonal or freelance worker?

If you change employers but remain in the same line of work from one year to the next, you may be able to get around a lender’s two-year requirement. Let’s say, for example, you’re a swimming coach. If you move from one county to another, but you’re still teaching swimming at a community pool, the fact that you changed employers may not affect your income eligibility.

Photo credit: iStock/Prostock-Studio

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOHL0223007

Guide to Speculative Investments

What Are Speculative Investments?

How Does Speculation Work?

4 Examples of Speculative Investments

1. Foreign Currencies

2. Precious Metals

3. Cryptocurrencies

4. Bond Market

Pros and Cons of Speculative Investment

Pros

Cons

Speculative Investments vs Traditional Investments

Speculative Investments vs Gambling

Other Risky Investments

Margin Trading

Options Trading

Penny Stocks

The Takeaway

FAQ

What are some examples of some speculative investments?

Is speculative investing the same as gambling?

Is Bitcoin considered a speculative investment?

Guide to Protective Collars in Options Trading

What Is a Protective Collar?

How Do Protective Collars Work?

Maximum Profit

Maximum Loss

Break Even

Constructing Protective Collars

Pros and Cons of Protective Collars

When Can It Make Sense to Use Protective Collars?

Finally, user-friendly options trading is here.*

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

Protective Collar Example

Collars and Taxes

The Takeaway

FAQ

Are protective puts worthwhile? When does it make sense to buy protective puts?

What does protective, covered, and naked mean in options?

What are the benefits of collar trades?

How Does a Credit Card Work: In-Depth Explanation

What Is a Credit Card?

How Do Credit Cards Work?

Credit Card Fees

3 Common Types of Credit Cards

Rewards Credit Cards

Balance Transfer Credit Cards

Secured Credit Cards

How Does Credit Card Interest Work?

Credit Cards vs Debit Cards

Pros and Cons of Using Credit Cards

How to Compare Credit Cards

Important Credit Card Terms

Credit Cards and Credit Scores

The Takeaway

FAQ

How does a person shop for a credit card?

Can I use my credit card abroad?

How do you use a credit card as a beginner?

How do credit cards work in simple terms?

How do payments on a credit card work?

Guide to Synthetic Longs

What Is a Synthetic Long?

How Do Synthetic Longs Work?

Setup

Maximum Profit

Breakeven Point

Maximum Loss

Exit Strategy

Synthetic Long Example

Finally, user-friendly options trading is here.*

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

Calculating Returns

Pros and Cons of Synthetic Longs

Alternatives to Synthetic Longs

The Takeaway

FAQ

What is a long combination in options trading?

How do you set up a synthetic long?

What is the maximum payoff on a synthetic long put?

Finally, user-friendly options trading is here.^*

Finally, user-friendly options trading is here.^*

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Student Loan
Refinancing

Personal
Loans

Online
Investments