If someone has a love of animals and is looking to embark on a rewarding new career path, they may consider becoming a vet tech. While earning potential is not the only reason to pursue a career, it’s helpful to get an idea of a possible salary range before working towards a career as a vet tech. So, how much does a vet tech make? According to the latest figures from the U.S. Bureau of Labor Statistics (BLS), the median annual wage for a vet tech is $44,040.
Read on to learn more about how much vet techs make, how salaries vary by state, and what this type of job entails.
Key Points
• Veterinary technicians earn a median annual wage of $44,040.
• Annual salary range is from $30,180 to $59,310.
• Salaries vary by state, employer, and experience level.
• The role is rewarding but physically and emotionally demanding.
• Tasks include taking patient histories, assisting in surgeries, and providing specialized nursing care.
What Is a Vet Tech?
Vet techs, also known as veterinary technologists and technicians, work in veterinary clinics and hospitals, under the supervision of a licensed veterinarian. A vet tech can help with a wide variety of tasks around the office, such as obtaining patient case histories, collecting specimens, assisting in diagnostic and surgical procedures, and preparing animals and equipment for surgery. Other vet techs tasks may include:
• Ensure humane care of animals
• Provide specialized nursing care
• Bathe and groom animals
• Expose and develop X-rays
• Collect and perform laboratory tests
• Restrain animals during exams or procedures
• Provide client education
Working as a vet tech can be a good fit for introverts, as the role allows for a significant amount of one-on-one interaction with animals. However, it’s important to note that there will still be some degree of interaction with pet owners and colleagues.
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How Much Is a Vet Tech’s Starting Salary?
How much money does a vet tech make? The answer to that question depends on many different factors, such as how much experience someone has.
The median annual wage for a vet tech is $44,040, but salaries can range from $30,180 to $59,310. Generally speaking, entry-level vet techs earn lower salaries at first, though they’ll likely earn at least the minimum wage.
The type of employer can also impact how much a vet tech earns. Pharmaceutical and medicine manufacturing, for instance, tend to pay more (around $73,640 per year) than a college, university, or professional school (around $50,420 per year), according to the latest BLS data.
Of course, no matter how much you earn, it helps to keep tabs on where your money is coming and going. An online budget planner can give you insight into your budgeting and spending at a glance.
What Is the Average Salary for a Vet Tech?
An annual salary is one figure to consider. But how much can a vet tech make an hour? The median hourly pay rate for a vet tech nationwide is $21.18 per hour, though that rate — and the annual salary — can vary greatly by state.
For example, the annual median salary for vet techs in California is $47,880, which is much more competitive than in, say, West Virginia, where the median salary is $29,850.
On top of being paid for their labor, many vet techs also receive a suite of benefits that enhances their overall compensation package. Full-time vet techs often qualify for medical and dental insurance, as well as 401(k) retirement plans and paid sick days or vacation time.
Some unique benefits that come with working in this industry can also include discounted pet care or continuing education reimbursements.
Pros and Cons of a Vet Tech Salary
Before pursuing a career as a vet tech, you may want to consider the advantages and disadvantages associated with this career path.
Pros
• Work with animals all day
• Usually qualifies for health insurance
• Can make a difference in a pet’s life
• Fast-growing field (projected to grow 19 percent from 2023 to 2033)
Cons
• Physically demanding work
• Potentially dangerous
• Can be emotionally draining
• May have to work nights, holidays, or weekends
The Takeaway
The median annual salary for vet techs is $44,040 per year. But as they progress in their career and gain specialties, these professionals can expect to earn more. Many people find working as a vet tech to be a fun and rewarding job, especially if they love animals. While it can be a hard job and may often be physically (and emotionally) demanding, it also provides opportunities to care for animals. And that can feel really good at the end of the day.
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FAQ
What is the highest-paid vet tech?
One question potential vet techs likely have top of mind is how much a vet tech makes? According to the BLS, the median annual wage for veterinary technologists and technicians is $44,040. But it’s possible to earn more than $59,310 per year as a vet tech.
Is vet tech a stressful job?
Being a veterinary technician can be a demanding and sometimes stressful job. They often work in fast-paced environments, handle emotional situations with owners, and may encounter challenging cases or emergencies. However, the fulfillment of helping animals and the satisfaction of making a positive impact can also make it a rewarding career.
What state pays the best for vet techs?
How much someone stands to earn as a vet tech depends on a couple of different factors, including where they live. The District of Columbia pays vet techs the most, with median salaries reaching $56,420. Vet techs in California ($55,740) and New York ($55,540) earn the next best salaries in the countries.
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The stock market history dates back hundreds of years to 13th-century Europe, but the U.S. stock market didn’t become an established part of economic life until much later, during the 18th century.
Today, the performance of various stock markets in the U.S. and around the world is used daily to gauge the health of different parts of the economy. But the history of the stock market is a long, winding road, with many twists and turns.
Key Points
• The stock market has a long history dating back to 13th-century Europe and became established in the U.S. during the 18th century.
• The stock market works by facilitating transactions between buyers and sellers of financial securities.
• Stock market indexes, such as the Dow Jones Industrial Average and the S&P 500, measure the performance of specific portions of the market.
• The U.S. stock market has experienced significant events throughout history, including crashes, such as the one in 1929, and recoveries.
• Stock markets exist worldwide, with major exchanges in cities like London, Tokyo, and Shanghai.
When Did the US Stock Market Start?
Although the first stock market began in Amsterdam in 1611, the U.S. didn’t get into the stock market game until the late 1700s. It was then that a small group of merchants made the Buttonwood Tree Agreement. This group of men met daily to buy and sell stocks and bonds, which became the origin of what we know today as the New York Stock Exchange (NYSE).
Although the Buttonwood traders are considered the inventors of the largest stock exchange in America, the Philadelphia Stock Exchange was America’s first stock exchange. Founded in 1790, the Philadelphia Stock Exchange had a profound impact on the city’s place in the global economy, including helping spur the development of the U.S.’s financial sectors and its expansion west.
In 1971, trading began on another stock exchange in America, the National Association of Securities Dealers Automated Quotations or otherwise known as the NASDAQ. In 1992, it joined forces with the International Stock Exchange based in London. This linkage became the first intercontinental securities market.
Unlike the NYSE, a physical stock exchange, the NASDAQ allowed investors to buy and sell stocks on a network of computers, as opposed to in-person trading. In addition to the NYSE and the NASDAQ, investors were able to buy and sell stocks on the American Stock Exchange or other regional exchanges such as the ones in Boston, Philadelphia, and San Francisco.
These days, almost anyone can open an investment account on their computer or smartphone — a far cry from the days of in-person trading in specific exchanges.
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How Was the US Stock Market Created?
The New York Stock Exchange took centuries to become what it is today. In 1817, the Buttonwood traders observed and visited the Philadelphia Merchants Exchange to mimic their exchange model, creating the New York Stock and Exchange Board.
The members had a dress code and had to gain a seat in the exchange. They also had to pay a fee, which increased from $25 to $100 by 1837.
After the Great Fire of 1835 wiped out 700 buildings in lower Manhattan, Wall Street suffered a significant property loss. Fortunately, Samuel Morse opened a telegraph demonstration office, which allowed brokerages to communicate remotely.
In 1903, the doors of NYSE opened with hundreds of stock certificates held underground in vaults.
The stock market surged and hit a 50% high in 1928 despite indications of an economic downturn. In 1929, the market dropped 11% in an event known as Black Thursday. The drop in the market caused investors to panic, and it took all of the 1930s to recover from the crash. This period is known as the Great Depression.
Since then, the market has experienced several other crashes, such as the subprime mortgage crash in 2008.
Although the NYSE was created by a few merchants centuries ago, many investors, exchange executives, companies, and regulators have contributed to its growth and what it is today.
World Exchanges
The NYSE is the largest stock exchange in the world. Yet, there are now exchanges in major cities across the globe trading domestic and international stocks.
These include the London and Tokyo Stock exchanges. Some of the other world’s largest exchanges are located in China, India, Canada, Germany, France and South Korea.
Stock Market History: A Timeline
Here is a timeline of major events in the stock market’s history:
• Late 1400s: Antwerp, or modern-day Belgium, becomes the center of international trade. Merchants buy goods anticipating that prices will rise in order to net them a profit. Some bond trading also occurs.
• 1611: The first modern stock trading was created in Amsterdam. The Dutch East India Company is the first publicly traded company, and for many years, it is the only company with trading activity on the exchange.
• Late 1700s: A small group of merchants made the Buttonwood Tree Agreement. The men meet daily to buy and sell stocks and bonds, a practice that eventually comes to form the New York Stock Exchange.
• 1790: The Philadelphia Stock Exchange is formed, helping spur the development of financial sectors in the U.S., and the country’s expansion west.
• 1923: The early version of the S&P 500 was created by Henry Barnum Poor’s company, Poor’s Publishing. It begins by tracking 90 stocks in 1926.
• 1929: The U.S. stock market crashes after the decade-long “Roaring 20s,” when speculators made leveraged bets on the stock market, inflating prices.
• 1941: Standard & Poor’s is founded when Poor’s Publishing merges with Standard Statistics.
• 1971: Trading begins on another U.S. stock exchange, the National Association of Securities Dealers Automated Quotations, otherwise known as the NASDAQ.
• 1987: Corporate buyouts and portfolio insurance helped prices in the market run up until Oct. 19, what became known as “Black Monday.”
• 2008: The stock market crashes after the boom and bust of the housing market, along with the proliferation of mortgage-backed securities in the financial sector.
• 2020: The COVID-19 pandemic reaches the U.S. in early 2020, and the stock markets see a large decline and subsequent recovery.
Where Were Stocks First Created?
The concept of trading goods, which laid the foundation for where stocks were first created, dates back to the earliest civilizations. Early businesses would combine their funds to take ships across the sea to other countries. These transactions were either implemented by trading groups or individuals for thousands of years.
Throughout the Middle Ages, merchants assembled in the middle of a town to exchange and trade goods from countries worldwide. Since these merchants were from different countries, it was necessary to establish a money exchange, so trading transactions were fair.
As mentioned, Antwerp, or Belgium today, became the center for international trade by the end of the 1400s. It’s thought that some merchants would buy goods at a specific price anticipating the price would rise so they could make a profit.
For people who needed to borrow funds, wealthy merchants would lend money at high rates. These merchants would then sell the bonds backed by these loans and pay interest to the other people who purchased them.
Who Invented the Stock Market?
The first stock exchange in the world was created in Amsterdam when the Dutch East India Company was the first publicly traded company. To raise capital, the company decided to sell stock and pay dividends of the shares to investors. Then in 1611, the Amsterdam stock exchange was created. For many years, the only trading activity on the exchange was trading shares of the Dutch East India Company.
At this point, other countries began creating similar companies, and buying shares of stock was popular for investors. The excitement blinded most investors and they bought into any company that began available without investigating the organization. These days, this scenario is commonly referred to as a stock market bubble.
This resulted in financial instability, and eventually in 1720, investors became fearful and tried to sell all their shares in a hurry. No one was buying however, so the market crashed.
Another financial scandal followed in England shortly after — the South Sea Bubble. But even though the idea of a market crash concerned investors, they became accustomed to the idea of trading stocks, while keeping the risks of the market in mind.
How Does the Stock Market Work?
The stock market works by pairing buyers and sellers, who want to trade financial securities, and helping facilitate transactions. Or, in other words, a stock exchange or stock market is a physical or digital place where investors can buy and sell stock, or shares, in publicly traded companies, among other securities.
More stock market basics: the price of each share is driven by supply and demand, as well as investor sentiment, and domestic and global economic trends. Investors need to know what they’re willing to pay for a security (bid) and what a seller is willing to sell it for (ask). There are spreads between those two prices, but in the end, if the two come to an agreement, securities trade hands.
The U.S. stock market is volatile, too. The more investors want to buy shares (or, as demand rises), the higher the price goes. When there’s less demand, the price of a share drops. Prices or values of securities are almost always in flux, even when the markets are not officially open for trading.
And as for how investors make money? Generally, through asset appreciation, which is when an investor buys a security, that security increases in value, and then is sold. As such, investors can make money off of stock market fluctuations, though there are other ways to generate returns.
What Are Stock Market Indexes?
A stock market index measures the performance of a certain portion or subset of the overall market. Market indexes have many uses, and can come in many forms — there are indexes for assets from different parts of the world, from different industries, and so on. There are widely-followed market indexes, too, such as the Dow Jones Industrial Average, and the S&P 500.
History of Stock Market Indexes
As mentioned, the Dow Jones Industrial Average and the S&P 500 Index are two of the stock market’s most famous benchmarks, or barometers that try to capture the performance of the whole market and even the whole economy.
Founded in 1896 by Charles Dow and Edward Jones, the Dow is a price-weighted average. That means stocks with higher price-per-share levels influence the index more than those with lower prices. The Dow is made up of 30 large, U.S.-based stocks. It was designed as a proxy for the overall economy.
The Dow’s 12 initial components were mainly industrial companies, such as producers of gas, sugar, tobacco, oil, as well as railroad operators. It has since gone through many changes and now includes technology, healthcare, financial and consumer companies. General Electric was one of the original Dow members. Meanwhile, Procter & Gamble was added in 1932 and remains in the benchmark today.
Meanwhile, the S&P 500 index was created in 1923 by Henry Barnum Poor’s company, Poor’s Publishing. It began by tracking 90 stocks in 1926. Standard & Poor’s was founded in 1941, when the company merged with Standard Statistics.
Today, the S&P 500 is a market-cap-weighted index, meaning companies whose market value is larger have a bigger influence. Market value or market cap is calculated by multiplying the price-per-share by the number of shares outstanding. More so than the Dow or other gauges like the Russell 2000 Index, the S&P 500 has become synonymous among investors with the stock market.
💡 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.
What Are Stock Market Cycles?
Speaking of markets being up or down, stocks and the market can fluctuate on any given day. The U.S. stock market has historically gone through larger market cycles in which the market expands and shrinks over the course of weeks or even years.
There are typically four stages to a market cycle: accumulation, mark-up, distribution and the mark-down phase, which can also be reflected in the performance of cyclical stocks. The accumulation phase happens when a market is at a low and buyers begin to snap up stocks at discounted prices.
At the beginning of the mark-up phase prices have been stable for a while, and more buyers start jumping on the bandwagon driving up the price of stock. At the end of this phase, as buyers jump in en masse, the market makes a final spike as it nears the top of a bubble. During the distribution phase sentiment becomes mixed, and in the mark-down phase, prices typically plunge.
Here are some of the most famous U.S. stock market cycles:
1. During the decade-long “Roaring 20s,” speculators made leveraged bets on the stock market, inflating prices. The rise in share prices was followed by the stock market crash of 1929. Share prices took years to recover.
2. Corporate buyouts and portfolio insurance helped prices in the market run up until Oct. 19, 1987 — what became known as “Black Monday” among stock traders and investors. Panic selling, along with computerized trading, caused the Dow to fall 23% in a single day.
3. Investors flocked to technology stocks during the Internet boom of the late 1990s and early 2000s. However, some of these companies weren’t profitable and didn’t have promising business models, causing the bubble to burst until 2002.
4. A rapidly growing housing market, along with the proliferation of mortgage-backed securities in the financial sector, helped cause years of stock market gains from the early 2000s to 2008. The market then crashed, leading to a deep recession. Shares didn’t start to recover until March 2009.
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The Takeaway
The modern-day stock market actually evolved over many centuries. Early brokers traded commodities as well as various types of debt starting in the 12th or 13th centuries. By the 1600s, it became more common for companies to raise capital by selling shares of their stock to finance new enterprises as well as global exploration.
Today, investors enjoy access to a robust array of different markets and types of securities. And technology has made it possible for investors to trade online — or even right from their smartphones.
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The S&P sectors represent the different categories that the index uses to sort the companies it follows. There are 11 sectors that make up the S&P 500, and they include health care, technology, energy, real estate, and more.
Understanding how the S&P sectors work and break down further can help both institutional and retail investors manage risk through different economic cycles by allocating their portfolio across multiple sectors. For example, cyclical stocks and cyclical sectors tend to fare well when the economy booms. During a recession, however, defensive stocks may outperform them. However, it’s also possible for all 11 sectors to trend in the same direction.
Key Points
• The S&P 500 is divided into 11 sectors, including technology, healthcare, and financials, which help categorize the largest U.S. companies.
• Technology is the largest sector, reflecting significant growth and market influence from major companies like Apple and Microsoft.
• Utilities is the smallest sector, comprising just over 2% of the index, highlighting its smaller market impact compared to other areas.
• Sector weighting in the S&P 500 is dynamic, changing with the economic influence and size of constituent companies.
• Understanding these sectors aids investors in diversifying portfolios and strategizing investments based on economic conditions and market trends.
What Is the S&P 500
“S&P” refers to Standard & Poor, and the S&P 500 index tracks the movements of 500 large-cap U.S. companies. A number of mutual funds and exchange-traded funds (ETFs) use this index as a benchmark.
Many investors use the S&P 500 as a stand-in for the entire market when it comes to investing, particularly index investing. But again, the S&P 500 can be broken down into specific sectors in which companies of particular types are concentrated — allowing investors to get more granular, if they wish, with their investment strategies.
💡 Quick Tip: For investors who want a diversified portfolio without having to manage it themselves, automated investing could be a solution (although robo advisors typically have more limited options and higher costs). The algorithmic design helps minimize human errors, to keep your investments allocated correctly.
Examining the 11 Sectors of the S&P
The Global Industry Classification System (GICS) has 11 stock market sectors in its taxonomy. It further breaks down these 11 sectors into 24 industry groups, 74 industries, and 163 sub-industries. Here’s a look at the S&P Sector list, by size:
Technology is the largest sector of the S&P 500. This sector includes companies involved in the development, manufacturing, or distribution of tech-related products and services. For example, companies in the technology sector may produce computer software programs or electronics hardware, or research and develop new technologies.
Tech stock investments are typically cyclical, in that they usually perform better during economic expansions. The technology sector includes a number of growth stocks, which are companies that reinvest most or all of their profits in expansion versus paying dividends. Examples of some popular tech stocks include:
The financials sector covers a variety of industries, including banking and investing. Banks, credit unions, mortgage companies, wealth management firms, credit card companies and insurance companies are all part of the financial sector.
Financial services companies are usually categorized as cyclical. For example, a credit card issuer’s profit margins may shrink during a recession if unemployment rises and people spend less or can not keep up with credit card payments. But this can be subjective, as mortgage companies may benefit during recessionary periods if lower interest rates spur home-buying activity.
Some of the biggest names in the financial sector include:
The next largest of the S&P sectors is health care. This sector includes pharmaceutical companies, companies that produce or distribute medical equipment, and supplies and companies that conduct health care-related research.
The health care sector also includes alternative health companies, including companies that use cannabis as a part of their medical research and product development.
Health care stocks are typically non-cyclical, as demand for these products and services usually doesn’t hinge on economic movements.
4. Consumer Discretionary
The consumer discretionary sector is a largely cyclical sector that includes companies in the hospitality and entertainment sectors, as well as retailers.
Examples of stocks that fit into the consumer discretionary sector are:
Generally, these companies represent things consumers may spend more money on in a thriving economy and cut back on during a downturn. That’s why they’re considered cyclical in nature.
5. Communications Services
This sector spans companies that provide communications services of some kind. That can include landline phone services, cellular phone services, or internet services. Communications also includes companies responsible for producing movies and television shows.
The communications sector can be hard to pin down in terms of whether it’s cyclical or defensive. In a down economy, for example, people may continue to spend money on phone and internet services but cut back on streaming services. So there’s an argument to be made that the communication sector is a little of both.
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6. Industrials
The industrial sector covers a broad range of industries, including those in the manufacturing and transportation sectors. For example:
Industrials are often considered to be cyclical stocks, again because of how they react to changes in supply and demand. The airline industry, for example, saw a steep decline in 2020 as air travel was curtailed due to the coronavirus pandemic.
7. Consumer Staples
Consumer staples stocks represent things consumers regularly spend money on. That includes groceries, household products and personal hygiene products. The consumer staples sector is also a defensive sector because even when the economy hits a rough spot, consumers will continue spending money on these things.
From an investment perspective, consumer staples stocks may not yield the same return profile as other sectors. But they may provide some stability in a portfolio when the market gets shaky.
Companies that are recognized as some of the top consumer staples stocks include:
The energy sector includes companies that participate in the production and/or distribution of energy. That includes the oil and gas industry as well as companies connected to the development or distribution of renewable energy sources.
Energy stock investments can be more sensitive to economic movements and supply-demand trends compared to other sectors.
Some of the biggest energy sector companies include:
This sector includes real estate investment trusts (REITs) as well as realtors, developers and property management companies. REITs invest in income-producing properties and may pay out as much as 90% of profits out to investors as dividends.
Investing in real estate can be a defensive move as this sector is largely uncorrelated with stocks. So if stock prices fall, for example, investors may not see a correlating drop in real estate investments as property generally tends to appreciate over time.
Examples of real estate companies in the S&P 500 include:
The materials sector includes companies connected to the sourcing, processing or distribution of raw materials. That includes things like lumber, concrete, glass, and other building materials.
Materials is one of the cyclical S&P sectors, as it can be driven largely by supply and demand. During a housing boom, for example, the materials sector may benefit from increased demand for lumber, plywood and other construction materials.
Utilities represent one of the core defensive S&P sectors. This sector includes companies that provide gas, electricity, water, and other utilities to households, businesses, farms, and other entities.
Since these are essentials that people typically can’t do without, they’re generally less sensitive to major shifts in the economic cycle. They also often pay dividends to their investors.
Given that the S&P 500 is composed mostly of the largest companies, its weighting is relative to the size of those companies and their respective industries. As such, that’s why technology, health care, and financials are relatively large compared to other sectors.
It’s also important to understand that things change over time — in terms of company and industry size and influence on the overall economy. Accordingly, the index itself changes, and weighting of specific sectors and companies changes as well.
Which Is the Largest S&P 500 Sector?
As discussed, technology, or information and technology, is currently the largest sector in the S&P 500. That’s in large part due to the tech sector’s growth over the past couple of decades, and certain companies within the sector becoming larger with massive market caps — companies such as Apple, Microsoft, Alphabet, Meta, Netflix, and others.
Which Is the Smallest S&P 500 Sector?
As of March 2024, utilities is the smallest S&P 500 sector, comprising a little more than 2% of the overall index. But the materials and real estate sectors are not much bigger.
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What Can You Do As an Investor With This Information?
Investors can tap their knowledge of the S&P 500 sectors to help inform their investing strategy and plan. As discussed, while some sectors tend to be a bit more volatile, investors may look at specific and strategic allocations in other sectors to help “smooth” things out during times of volatility in the market.
Further, sector investing can help investors diversify their portfolios, or find additional opportunities to invest.
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The Takeaway
Knowing what the S&P sectors are and which types of industries or sub-industries they represent can help investors achieve diversification through different types of investments. While some financial experts liken the sectors to a pie, with several individual slices, it may be more helpful to think of them as a buffet from which investors can pick and choose.
You can either purchase stocks within or across sectors, or look for funds that can provide that diversification for you. It’ll all depend on your overall financial plan and investment strategy. If you need help honing that in, it may be beneficial to speak with a financial professional.
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.
FAQ
What are the S&P 500 sector weights?
As of March 2024, information technology is the largest sector in the S&P 500, comprising nearly 30% of the overall index. It’s followed by financials at 13%, health care at 12.5%, and consumer discretionary at 10.6%.
What is the sector breakdown of the S&P 500?
The eleven sectors of the S&P 500 are information technology, financials, health care, consumer discretionary, communication services, industrials, consumer staples, energy, real estate, materials, and utilities.
What is the smallest sector of the S&P 500?
As of March 2024, utilities is the smallest sector of the S&P 500, comprising 2.1% of the overall index.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
Photo credit: iStock/izusek
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In the financial space, the term “spoofing” refers to an illegal form of stock market and exchange trickery that is often used to change asset prices. Given that the stock markets are a wild place, and everyone is trying to gain an advantage, spoofing is one way in which some traders bend the rules to try and gain an advantage.
Spoofing is also something that traders and investors should be aware of. This tactic is sometimes used to change asset prices — whether stocks, bonds, or cryptocurrencies.
Key Points
• Spoofing is an illegal trading tactic where traders place and cancel orders to manipulate asset prices, influencing market supply and demand dynamics.
• Traders often use algorithms to execute high volumes of fake orders, creating a false perception of demand that can inflate or deflate security prices.
• The practice of spoofing is a criminal offense in the U.S., established under the Dodd-Frank Act, with serious penalties for those caught engaging in it.
• Significant fines have been imposed on both institutions and individual traders for spoofing, highlighting the risks of detection and legal consequences.
• Investors should remain vigilant against spoofing, as it can distort market activity and impact trading strategies, particularly for active traders and day traders.
What Is Spoofing?
Spoofing is when traders place market orders — either buying or selling securities — and then cancel them before the order is ever fulfilled. In a sense, it’s the practice of initiating fake orders, with no intention of ever seeing them executed.
Spoofing means that someone or something is effectively spamming the markets with orders, in an attempt to move security prices.
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
What’s the Point of Spoofing?
Because stock market prices are determined by supply and demand — for instance, the more demand there is for Stock A, the higher Stock A’s price is likely to go, and vice versa — they can be manipulated to gain an advantage. That’s where spoofing comes in.
By using bots or an algorithm to make a high number of trades and then cancel them before they go through, it’s possible for spoofers to manipulate security prices. For a trader looking to buy or sell a certain security, those valuations may be moved enough to increase the profitability of a trade.
Spamming the markets with orders creates the illusion that demand for a security is either up or down, which is then reflected in the security’s price. Because it would require an awful lot of “spoofed” orders to move valuations, spoofers might rely on an algorithm to place and cancel orders for them, rather than handle it manually. For that reason, spoofing is typically associated with high-frequency trading (HFT).
Is Spoofing Illegal?
If it sounds like spoofing is essentially cheating the system, that’s because it is. In the United States, spoofing is illegal, and is a criminal offense. Spoofing was made illegal as a part of the Dodd-Frank Act, which was signed into law in 2010. Specifically, spoofing is described as a “disruptive practice” in the legislation, straight from the U.S. Commodity Futures Trading Commission (CFTC), which is the independent agency responsible for overseeing and policing spoofing on the markets:
Dodd-Frank section 747 amends section 4c(a) of the CEA to make it unlawful for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that —
(A) violates bids or offers;
(B) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or
(C) is, is of the character of, or is commonly known to the trade as ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).
A hypothetical spoofing scenario isn’t too difficult to dream up. For instance, let’s say Mike, a trader, has 100,000 shares of Firm Y stock, and he wants to sell it. Mike uses an algorithm to place hundreds of “buy” orders for Firm Y shares — an algorithm that will also cancel those orders before they’re executed, so that no money is actually spent.
The influx of orders is read by the market as an increase in demand for Firm Y stock, and the price starts to increase. Mike then sells his 100,000 shares at an inflated price — an artificially inflated price, since Mike effectively manipulated the market to increase his profits.
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Consequences of Spoofing
Because spoofing is a relatively easy way to manipulate markets and potentially increase profits, it’s also a fairly common practice for some traders and firms, despite being against the law. That transgression can cost spoofers if and when they’re caught.
For example, one financial institution was fined nearly $1 billion by the SEC during the fall of 2020 after the company was caught conducting spoofing activity in the precious metals market.
But it’s not just the big players that can be on the receiving end of a smack down by the authorities. During August of 2020, an individual day trader was caught manipulating the markets through spoofing activity — actions that netted the trader roughly $140,000 in profits. The trader was ultimately ordered by the CFTC to pay a fine of more than $200,000.
Despite the cases that make headlines, it’s generally hard to identify and catch spoofers. With so many orders being placed and executed at once (especially with algorithmic or computer aid) it’s difficult to identify fake market orders in real time.
How to Protect Against Spoofing
There are a number of parties that are constantly and consistently trying to gain an edge in the markets, be it through spoofing or other means. For investors, it’s worth keeping that in mind while sticking to an investing strategy that works for you, rather than investing with your emotions or getting caught up in the news cycle.
In a time when a single social media post or errant comment on TV can send stock prices soaring or into the gutter, it’s critical for investors to understand what’s driving market activity.
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The Takeaway
Spoofing is meant to gain advantage in the markets, but as such it’s illegal and penalties can be steep. Beyond the spoofers trying to manipulate the market, spoofing has the potential to affect all investors.
If spoofers are manipulating prices for their own gain, that can cause traders and investors to react, not realizing what is going on behind the scenes. While this is more of an issue for active investors or day traders, it’s something to be aware of.
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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.
The Federal Reserve has two primary long-range goals: controlling inflation (hawkish) and maximizing employment (dovish). But these two aims can be at odds, and thus the Fed is often called hawkish or dovish.
While you may be thinking that monetary policy is for the birds, the Fed’s posturing, be it hawkish or dovish at any given time, is incredibly important for setting expectations and determining economic outcomes. That’s critical for investors to understand.
Key Points
• The Federal Reserve has two primary goals: controlling inflation (hawkish) and maximizing employment (dovish).
• Monetary policy decisions are made by the Federal Reserve, which can take a hawkish or dovish stance based on its goals.
• Hawkish monetary policy focuses on low inflation and may involve raising interest rates, while dovish policy prioritizes low unemployment and may involve lowering rates.
• The Federal Open Market Committee (FOMC), consisting of 12 members, is responsible for deciding monetary policy.
• Hawkish and dovish policies can impact savers, spenders, and investors through changes in interest rates and economic outcomes.
Who Decides Monetary Policy?
The Federal Reserve, the central bank of the United States, decides monetary policy. And, as mentioned, it can take different postures in achieving its goals. In fact, the Fed is striving to balance what can seem like opposing scenarios. For example:
• A monetary hawk is someone for whom keeping inflation low is the top concern. So if the Federal Reserve seems to be embracing a hawkish monetary policy, it might be because it’s considering raising interest rates to control pricing and fight inflation.
• A dove is someone who prioritizes other issues — especially low unemployment over low inflation. If the Fed seems to tilt toward a dovish monetary policy, it could signify that it plans to keep rates where they are — at least for the time being — because growth and employment are doing fine. Or it may plan to lower rates to stimulate the economy and add jobs.
It’s important to note that the Federal Reserve’s decisions on monetary policy aren’t left to just one person.
People often blame the sitting president or the chairman of the Federal Reserve if they don’t like the way interest rates are going — whether that’s up or down. But the Fed’s direction is determined by a group of central bankers, not by the Fed chair alone.
The 12 members of the Federal Open Market Committee (FOMC), who typically meet eight times a year to review economic conditions and vote on the federal funds rate, are responsible for deciding the country’s monetary policy. And they may have varying opinions about what the economy needs. So you might hear that the Fed is hawkish or dovish, or you may hear that an individual policymaker — or policy influencer — is a hawk while another is a dove.
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Why Would the Fed Take a Hawkish Stance?
When fiscal policy advisors in the government or banking industry are described as favoring a hawkish or “contractionary” monetary policy, it’s usually because they want to tighten the money supply to protect the economy from inflation and promote price stability.
If the price of goods and services rises due to inflation, consumers can lose their purchasing power. A moderate inflation rate is considered healthy for the economy. It encourages people to spend or invest their money today, rather than sock it away in a low-interest savings account where it could slowly lose value. The FOMC has determined that an inflation rate of around 2% is optimal for employment and price stability.
If inflation rises above that level for a prolonged period of time, the Fed may decide to pump the brakes to control inflation and keep the U.S. economy on track.
The Fed has several tools for controlling inflation, including raising its federal funds rate and discount rate, selling government bonds, and increasing the reserve requirements for banks. When access to money gets more expensive, consumers and businesses typically borrow less and save more, economic activity slows, and inflation stays at a more comfortable level.
A dovish or expansionary monetary policy is the opposite of hawkish monetary policy.
If the Fed is worried about the economy’s growth, it may decide to give it a boost by lowering interest rates, purchasing government securities by central banks, and lowering the reserve requirements for banks. Or, if it thinks employment and growth are on track, it might keep interest rates the same.
With lower interest rates, businesses can borrow more money to expand and potentially hire more workers or raise wages. And when consumers are in a low-interest rate environment created by a dovish monetary policy, they may be more likely to borrow money for big-ticket items like cars, homes, home improvements, and vacations. That increased consumption can also create more jobs. And doves tend to prefer low unemployment over low inflation.
Is It Possible to Be Both Hawkish and Dovish?
Yes. Some economists (and FOMC members) don’t take a completely hawkish or dovish attitude toward monetary policy. They are sometimes referred to as neutral or “centrists,” because they don’t appear to prioritize one economic goal over another. Fed Chair Jerome Powell, for example, has been called a hawk, a dove, a “cautious hawk,” a “cautious dove,” neutral, and centrist in various media reports.
And the media frequently pondered where Powell’s predecessor, U.S. Treasury Secretary Janet Yellen, stood on the hawk-dove continuum.
The current (as of 2023) FOMC includes members who have been identified as hawkish, dovish, and neutral. That mix of viewpoints can make it difficult to guess the group’s next move — so anxious investors are keeping a close eye out for clues as to what could happen next.
How Do Hawkish vs Dovish Policies Affect Savers, Spenders, and Investors?
Interest rates frequently rise and fall as the economy cycles through periods of growth and stagnation, and those fluctuations impact everyone. Whether you’re a saver, spender, or investor — or, like most people, all three — you can expect those rate changes to eventually impact your bottom line.
For Savers
Savings account rates are loosely connected to the interest rates the Fed sets, so you might not see a difference right away if there’s a cut or a hike.
When the Fed lowers the federal funds rate, however, financial institutions may move to protect their profits by lowering the interest paid on high-yield savings accounts, money market accounts, and certificates of deposit (CDs). That can be frustrating, and it may be tempting to give up on saving or move money to riskier investments. But specialists generally recommend keeping an emergency fund with at least three to six months’ worth of living expenses stashed in a low-risk account that’s easy to access and isn’t tied to the markets.
Savers may want to check out the more competitive rates offered by online accounts. Because online-only financial institutions have a lower overhead, they typically out-yield brick-and-mortar banks’ savings accounts, regardless of what the Fed is doing with its rates.
For Spenders
An increase or decrease in the federal funds rate can indirectly affect the prime rate banks offer their most credit-worthy customers. And it is often used as a reference rate, or base rate, for other financial products, including car loans, mortgages, home equity lines of credit, personal loans, and credit cards.
If interest rates go down, and borrowing gets cheaper, it can encourage consumers to go out and make those purchases — both big and small — that they’ve been wanting to make.
If those interest rates go up, on the other hand, consumers tend to be deterred from borrowing and spending. They might decide to wait for rates to drop before financing a house, a car, or an expensive purchase like an appliance or home renovation.
Impulse spending also can be affected. Spenders might choose to save their money instead — especially if the interest rate goes up on CDs, money market accounts, and other savings vehicles. Or consumers may focus on paying down credit card debt and other loans to avoid paying high interest on big balances, especially if those obligations carry a variable interest rate.
For Investors
There are no guarantees as to how any investment will react to changes in interest rates made by the Fed. Some assets (like bonds) can be more directly impacted than others. But nearly every type of investment you might have could be affected.
One way to reduce your risk exposure is to create a diversified portfolio, with a mix of assets — from stocks and bonds to real estate and commodities, and so on — that won’t necessarily react in the same way to changes in the interest rate (or other economic factors). If your investments all trend up or down together, your portfolio isn’t properly diversified.
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
Test your understanding of what you just read.
The Takeaway
The Federal Reserve has two primary goals: overseeing U.S. monetary policy in order to stabilize prices and control inflation — a stance that’s considered hawkish or contractionary — and maximizing employment, which is considered dovish. While these two aims can seem at odds, the Fed has been striving to take a mostly dovish or neutral stance in recent years.
A recent bout of inflation, however, forced the Fed to change its stance in 2022 and raise interest rates. It’ll likely change its stance again when inflation cools. It’s a never-ending game of posturing, all with the goal of maintaining low unemployment and stable prices.
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/drnadig
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.
