invest Archives

Sep

2025

Exit Strategy for Investors: Definition and Examples

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

Table of Contents

What Is an Exit Strategy?
How Exit Strategies Work
When Should an Exit Strategy Be Used?
Exit Strategy Examples
5 Types of Exit Strategies
Why Exit Strategies Are Important
How to Develop an Exit Strategy Plan
FAQ

An exit strategy is a plan to liquidate a financial investment or dispose of a business in order to maximize potential gains and minimize losses. Thus, an exit strategy for stocks, options, and other assets can be useful, whether prices have moved in the desired direction or not.

An exit strategy assumes that certain criteria, laid out in advance, have been met — and thus exiting the position by selling one’s stake will help preserve capital and/or minimize the risk of loss.

Key Points

• Just as investors have a strategy for investing in stocks, it’s wise to have an exit strategy for stocks when the conditions are right to sell.

• An exit strategy presumes certain conditions have been met in order to liquidate a position.

• Investors, venture capitalists, and others may have an exit strategy for selling a stock, a business, or disposing of other assets.

• An exit strategy for stocks may help an investor cut loose an underperforming stock.

• By and large, an exit strategy is meant to preserve capital and minimize losses.

What Is an Exit Strategy?

Broadly speaking, an exit strategy refers to steps an individual takes in order to get out of a financial or business obligation, or even a personal one. For instance, an employee who’s interested in changing jobs may form an exit strategy for leaving their current employer and moving on to their next one.

What is an exit strategy in finance or business? It’s a plan crafted by business owners or investors that cover when they choose to liquidate their position in an investment. To liquidate means to convert securities or other assets to cash. Once this liquidation occurs, the individual or entity that executed the exit strategy no longer has a stake in the investment.

Creating an exit strategy prior to making an investment can be advantageous for managing and minimizing risk. It can also help with defining specific objectives for making an investment in the first place.

In other words, formulating your exit strategy beforehand, when investing in stocks, can give you clarity about what you hope to achieve.

Exit strategies often go overlooked, however, as investors, venture capitalists, and business owners may move ahead with an investment with no clear plan for leaving it.

How Exit Strategies Work

Investors use exit strategies to realize their profit or to mitigate potential losses from an investment or business. When creating an exit strategy, investors will typically define the conditions under which they’ll make their exit.

For instance, an exit strategy plan for investors may be contingent on achieving a certain level of returns when starting to invest in stocks, or reaching a maximum threshold of allowable losses. Once the contingency point is reached, the investor may choose to sell off their shares as dictated by their exit strategy.

A venture capital exit strategy, on the other hand, may have a predetermined time element. Venture capitalists invest money in startups and early stage companies. The exit point for a venture capitalist may be a startup’s IPO or initial public offering.

Again, all exit strategies revolve around a plan. The mechanism by which an individual or entity makes their exit can vary, but the end result is the same: to leave an investment or business when certain conditions are met.

Recommended: Stock Market Basics

When Should an Exit Strategy Be Used?

There are different scenarios when an exit strategy may come into play. For example, exit strategies can be useful in these types of situations:

• Creating a succession plan to transfer ownership of a profitable business to someone else.

• Shutting down a business and liquidating its assets.

• Withdrawing from a venture capital investment or angel investment.

• Selling stocks or other securities to minimize losses.

• Giving up control of a company or merging it with another company.

Generally speaking, an exit strategy makes sense for any situation where you need or want to have a plan for getting out, whether you’re investing online or through other channels.

Exit Strategy Examples

Here are some different exit strategy examples that explain how exit strategies can be useful to investors, business owners, and venture capitalists.

Exit Strategy for Investors

When creating an exit strategy for stocks and investing, including how to buy stocks, there are different metrics you can use to determine when to get out. For example, say you buy 100 shares of XYZ stock. You could plan your exit strategy based on:

• Earning target from the investment

• Avoiding a loss on the investment

• How long you want to stay invested

Say your goal is to earn a 10% return on the 100 shares you purchased. Once you reach that 10% threshold you may decide to exit while the market is up and sell your shares at a profit. Or, you may set your maximum loss threshold at 5%. If the stock dips and hits that 5% mark, you could sell to head off further losses.

You may also use time as your guide for making an exit strategy for stocks. For instance, if you’re 30 years old now and favor a buy-and-hold strategy, you may plan to make your exit five or 10 years down the line. On the other hand, if you’re interested in short-term gains, you may have a much smaller window in which to complete your exit strategy.

Exit strategies can work for more than just stock investments. For instance, you may have invested in crowdfunding investments, such as real estate crowdfunding or peer-to-peer lending. Both types of investments typically have a set holding period that you can build into your exit plan.

Recommended: 5 Investment Strategies for Beginners

Exit Strategy for Business Owners

An exit strategy for business owners can take different forms, depending on the nature of the business. For instance, if you run a family-owned business then your exit strategy plan might revolve around your eventual retirement. If you have a fixed retirement date in mind your exit plan could specify that you will transfer ownership of the business to your children or sell it to another person or company.

Another possibility for an exit strategy may involve selling off assets and closing the business altogether. This is something a business owner may consider if the business is not turning a profit, and it looks increasingly unlikely that it will. Liquidation can allow a business owner to repay their creditors and walk away from a failed business without having to file bankruptcy.

Exit Strategy for Startups

With startups and larger companies, exit strategies can be more complex. Examples of exit strategy plans may include:

• Launching an IPO to allow one or more founders to make an exit

• A merger or acquisition that allows for a transfer of ownership

• Selling the company

• Liquidating assets and shutting the company down

If a founder is ready to move on to their next project, they can use an IPO to leave the company intact while extricating themselves from it. And angel investors or venture capitalists who invested in the company early on also have an opportunity to sell their shares.

Startup exit strategies can also create possible opportunities for some investors. IPO investing allows investors to buy shares of companies when they go public.

The mechanics of using an IPO as an exit strategy can be complicated, however. There are IPO valuations and regulatory requirements to consider.

It’s important for startup founders to know how to value a business before taking it public to ensure that an IPO is successful. And early-stage investors may have to observe IPO lock-up period restrictions before they can sell their shares.

5 Types of Exit Strategies

There are different types of exit strategies depending on whether you’re an investor, a business owner, or a venture capitalist. Some common exit strategies include:

1. Selling Shares of Stock

Investors can use an exit strategy to set a specific goal with their investment (say, 12%), reach a certain level of profit, or determine a point at which they’ll minimize their loss if the investment loses value. Once they reach the target they’ve set, the investor can execute the exit strategy and sell their shares.

2. Mergers and Acquisitions

With this business exit strategy, another business, often a rival, buys out a business and the founder can exit and shareholders may profit. However, there are many regulatory factors to consider, such as antitrust laws.

3. Selling Assets and Closing a Business

If a business is failing, the owner may choose to liquidate all the assets, pay off debts as well as any shareholders, if possible, and then close down the business. A failing business might also declare bankruptcy, but that’s typically a last resort.

4. Transferring Ownership of a Business

This exit strategy may be used with a family-run business. The owner may formulate an exit plan that allows him to transfer the business to a relative or sell it at a particular time so that he or she can retire or do something else.

5. Launching an IPO

By going public with an IPO, the founder of a startup or other company can leave the company if they choose to, while leaving the business intact. As noted, using an IPO as an exit strategy can be quite complicated for business founders and investors because of regulatory requirements, IPO valuations, and lock-up period restrictions.

Why Exit Strategies Are Important

Exit strategies matter because they offer a measure of predictability in a business or investment setting. If you own a business, for example, having an exit strategy in place that allows you to retire on schedule means you’re not having to work longer than you planned or want to.

An exit strategy for investors can help with staying focused on an end goal, rather than following the crowd, succumbing to emotions, or attempting to time the market. For example, if you go into an investment knowing that your exit plan is designed to limit your losses to 5%, you’ll know ahead of time when you should sell.

Using an exit strategy can help prevent losses that could occur when staying in an investment in the hopes that it will eventually turn around. Exit strategies can also keep you from staying invested too long in an investment that’s doing well. The market moves in cycles and what goes up eventually comes down.

If you’re on a winning streak with a particular stock, you may be tempted to stay invested indefinitely. But having an exit strategy and a set end date for cashing out could help you avoid losses if volatility sends the stock’s price spiraling.

How to Develop an Exit Strategy Plan

Developing an exit strategy may look different, depending on whether it involves an investment or business situation. But the fundamentals are the same, in that it’s important to consider the specific conditions that must be met:

• What form an exit will take (i.e., liquidation, IPO, selling shares, etc.)

• Whether an exit is results-based or time-based (i.e., realizing a 10% return, reaching your target retirement date, etc.)

• Key risk factors that may influence outcomes

• Reasons and goals for pursuing an exit strategy

If you’re an individual investor, you may need to formulate an exit plan for each investment you own. For instance, how you exit from a stock investment may be different from how you sell off bonds. And if you’re taking on riskier investments, such as cryptocurrency, your exit strategy may need to account for the additional volatility involved.

For business owners and founders, exit strategy planning may be a group discussion that involves partners, members of the board, or other individuals who may have an interest in the sale, transfer, or IPO of a company. In either situation, developing an exit strategy is something that’s best done sooner, rather than later.

The Takeaway

Investing can help you build wealth for the long-term, and an exit strategy is an important part of the plan. It allows you to decide ahead of time how and when you’ll get out of an investment, and could help you lock in returns or minimize losses.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

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FAQ

What are different exit strategies?

Examples of some different exit strategies include selling shares of a stock once an investor realizes a certain return or profit, transferring ownership of a family business so an owner can retire, or selling all the assets and closing down a failing business.

What are the most common exit strategies?

The most common exit strategies depend on whether you’re an investor, the owner of an established business, or the founder of a startup. For investors, a common exit strategy is to sell shares of stock once they reach a certain high or low. For owners of an established business, a common exit strategy is mergers and acquisitions, because doing so is often favorable to shareholders. For founders of startups, a common exit strategy is an initial public offering (IPO).

What is the simplest exit strategy?

For an investor, the simplest exit strategy is to sell shares of stock once they reach a certain profit or target level of return. At that point they can sell their shares for more money than they paid for them.

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/Christian Guiton

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

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Cryptocurrency and other digital assets are highly speculative, involve significant risk, and may result in the complete loss of value. Cryptocurrency and other digital assets are not deposits, are not insured by the FDIC or SIPC, are not bank guaranteed, and may lose value.

All cryptocurrency transactions, once submitted to the blockchain, are final and irreversible. SoFi is not responsible for any failure or delay in processing a transaction resulting from factors beyond its reasonable control, including blockchain network congestion, protocol or network operations, or incorrect address information. Availability of specific digital assets, features, and services is subject to change and may be limited by applicable law and regulation.

SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. SoFi Bank does not provide investment, tax, or legal advice. Please refer to the SoFi Crypto account agreement for additional terms and conditions.

SOIN-Q325-099

Sep

2025

How to Trade ETFs: X Strategies for Retail Investors

How to Trade ETFs: A Guide for Retail Investors

By Brian O'Connell | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is an ETF (Exchange-Traded Fund)?
4 Reasons to Consider Trading ETFs
What Are the Risks of Trading ETFs?
How to Trade ETFs
FAQ

Trading ETFs is, in many ways, similar to trading stocks or other securities, and can be done on most stock-trading platforms or brokerages. And while conventional wisdom suggests investors are limited in what they can do with an exchange-traded fund (ETF), an investor can likely find a fund that fits their portfolio.

But investors have different goals and strategies, and that may include trading or otherwise buying and selling ETFs frequently. Trading ETFs is fairly simple, though, and investors would do well to know how to trade ETFs.

Key Points

• ETF trading is similar to stock trading, and is available on various platforms.

• Market orders execute at the best available current prices, while limit orders execute at specific prices or better.

• ETFs offer liquidity and a wide range of investment options.

• Trading strategies may be based on technical and fundamental analysis.

• Risks are comparable to stocks, but the liquidity of ETFs may help investors manage downside risks.

What Is an ETF (Exchange-Traded Fund)?

An exchange-traded fund, or ETF, is a popular investment vehicle that enables investors to buy a group of stocks in one bundle, thus promoting investment diversity and efficiency. They’re widely available, usually through major investment fund companies.

ETFs aren’t mutual funds, although they originate from the same fund investment family. One of the primary differences between the two is that mutual funds are usually more expensive than exchange traded funds, since mutual funds are typically actively managed while ETFs are usually passively managed.

Another benefit of ETFs is that whereas mutual funds can only be traded after the end of the market day, ETFs can be traded during open market sessions at any point in the day. ETFs have become wildly popular, too, over the years.

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

Different Types of ETFs

ETFs come in a variety of different types, including the following:

• Stock ETFs: This type of ETF is composed of various equity (stock) investments.

• Bond ETFs: Bond ETFs hold different types of bond vehicles, like U.S. Treasury bonds, utility bonds, and municipal bonds.

• Commodities: Commodity ETFs are popular with investors who want exposure to gold, silver, copper, oil, and other common global commodities.

• International ETFs: Global-based ETFs often include country-specific and location-specific funds, like an Asia ETF or a Europe ETF, which are made up of companies based in the country featured in the ETF.

• Emerging market ETFs: This type of ETF is composed of stocks from up-and-coming global economies like Indonesia and Argentina.

• Sector ETF: A sector ETF is focused on an economic sector, like manufacturing, health care, climate change/green companies, and semiconductors, among others.

Recommended: Tips on How to Choose The Right ETF

4 Reasons to Consider Trading ETFs

Trading ETFs offers the same advantages (and risks) associated with trading common stocks. These features and benefits are at the top of the list.

1. ETFs Can Provide Liquidity

In a multi-trillion dollar market, there is likely no shortage of investors looking to buy and sell ETFs. By and large, the bigger the market, the more liquidity it provides, and the easier it is to move in and out of positions.

2. There are Different Investment Options

With ETFs widely available in categories like stocks, bonds, commodities, and more recently, green industries and others, ETF traders have plenty of investment options.

3. ETFs Offer Portfolio Diversity

Investment specialists often extol the virtue of a diverse portfolio, i.e., one made up of both conservative and more aggressive investments that can balance one another and help reduce risk. With so many classes of ETFs available, it’s relatively easy to build an ETF trading portfolio that has different asset classes included.

4. ETFs Are Relatively Inexpensive to Trade

Exchange-traded funds are typically inexpensive to buy, with some brokerage platforms may offer commission-free ETFs.

What Are the Risks of Trading ETFs?

The main risk associated with trading ETFs is the same as with trading stocks, as you could lose money. While shedding cash is always a threat when trading any security, the liquidity associated with exchange-traded funds makes it relatively easy to sell out of a position if needed. A candid conversation with a financial advisor may help investors deal with ETF investment trading risks.

How to Trade ETFs

Just as you can trade stocks, you can trade ETFs, too, by taking these steps.

▶️

Video: How to Invest in ETFs with SoFi
Learn the basics in under 2 minutes.
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Step 1. Choose a Trading Platform

Traditionally, investors trade stocks through a brokerage house or more recently via an online broker. As with most things in life, it’s generally a good idea to look around, kick some proverbial tires, and choose a broker with the best ETF trading services for you.

Investors can choose from different categories of ETF trading accounts, ranging from standard trading accounts with basic trading services to retirement accounts, specialty accounts, or managed portfolio accounts that offer portfolios managed by professional money managers.

Step 2. Select an ETF Trading Strategy

The path to successful ETF trading flows through good, sound portfolio construction and management.

That starts with leveraging two forms of investment strategy — technical or fundamental analysis.

• Technical analysis: This investment strategy leverages statistical trading data that can help predict market flows and make prudent ETF trading decisions. Technical analysis uses data in the form of asset prices, trading volume, and past performance to measure the potential effectiveness of a particular ETF.

• Fundamental analysis: This type of portfolio analysis takes a broader look at an ETF, based upon economic, market, and if necessary, sector conditions.

Fundamental analysis and technical analysis can be merged to build a trading consensus, typically with the help of an experienced money manager.

Any trading strategy used to build ETF assets will also depend on the investor’s unique investment needs and goals, and will likely focus on specific ETF portfolio diversification and management. For example, a retiree may trade more bond ETFs to help preserve capital, while a young millennial may engage in more stock-based ETF portfolio activity to help accumulate assets for the long haul.

Step 3. Make the Trade

Executing ETF trades is fairly straightforward for retail investors. It may be best to consider starting out with small positional trading, so that any rookie mistakes would be smaller ones, with fewer risks for one’s portfolio.

Here are two trading mechanisms that can get you up and running as an ETF trader:

• Market order. With market order trading, you buy or sell an ETF right now at the current share price, based on the bid and the ask — the price attached to a purchase or a sale of a security. A bid signifies the highest price another investor will pay for your ETF and the ask is the lowest price an ETF owner will sell fund shares. The difference between the two is known as the trading “spread.”

A word of caution on market trades. ETFs tend to have wider trading spreads than stocks, which could complicate you’re getting the ETF shares at the price you want. Share trading spreads of 10% are not uncommon when trading ETFs.

• Limit trade orders. An ETF limit order enables you to dictate terms on an ETF purchase or sale. With a limit order, you can set the top price you’ll pay for an ETF and the lowest price you’ll allow when selling an ETF.

For investors who have qualms about buying or selling an ETF at a fixed price, limit orders can be a viable option, as they allow the investor to set the terms for a trade and walk away from an ETF trade if those terms aren’t met.

💡 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.

The Takeaway

Historically, exchange traded funds have been used primarily as passive, “buy and sell investments.” But as asset trading grows more exotic in the digital age, trading ETFs has become increasingly popular. It’s fairly simple to trade ETFs, too, as most investors simply need access to an online trading platform or brokerage.

As with any investment, though, there are risks to consider. While ETFs can be a great starting point for many investors, they’re not entirely safe investments, and investors should do their research before buying shares of any specific ETF, as they would with any other type of security.

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

FAQ

What are some different types of ETFs?

Different types of ETFs include stock ETFs, bond ETFs, international ETFs, emerging market ETFs, and sector ETFs, among others.

What are some advantages of investing in ETFs?

While there may be drawbacks to consider, some of the advantages of investing in ETFs are that they’re relatively liquid investments, there are numerous different types and options available, they can help diversify a portfolio, and are relatively inexpensive.

Is an ETF the same as a mutual fund?

ETFs aren’t mutual funds, although they may be similar. The primary differences between the two is that mutual funds are usually more expensive than exchange traded funds. Mutual funds tend to be actively managed, too.

Photo credit: iStock/PeopleImages

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

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SOIN-Q325-123

Sep

2025

What Is a Direct Stock Purchase Plan (DSPP)?

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

Table of Contents

Direct Stock Purchase Plans (DSPP), Explained
Pros and Cons of a DSPP
How To Invest in a DSPP
What to Consider Before Buying DSPPs
FAQ

A direct stock purchase plan (DSPP) is a plan that allows investors to purchase stock in a company without a broker and get it directly from the company instead. With DSSPs, fees, if any, are often low.

Meanwhile, discounts to the share prices may be available for larger purchases. With shares purchased through a DSPP, investors have the same profit and loss opportunities, access to dividends, as well as stockholder voting rights. However, direct stock purchase plans may not be right for every investor.

Key Points

• A Direct Stock Purchase Plan (DSPP) allows company stock to be purchased directly, often at a discount, without a broker.

• DSPPs may offer a low initial investment, dividend reinvestment, and shareholder rights, making them accessible for long-term investors.

• Potential drawbacks include limited diversification, investment caps, and fees when selling shares.

• Commission-free trading in brokerages has reduced the cost-saving appeal of DSPPs.

• Companies such as Walmart, Coca-Cola, Starbucks, The Home Depot, and Best Buy offer or have offered DSPPs to investors.

Direct Stock Purchase Plans (DSPP), Explained

What is a direct stock purchase plan? Typically, many investors use a broker to buy shares of stock. But you can sometimes purchase stocks directly from companies, no broker required. This is what it means to participate in a direct stock purchase plan.

Many blue-chip stocks tend to offer DSPPs. For example, let’s say Company X offers a plan that allows investors to buy $500 or more worth of company stock directly from it, up to $250,000 a year, with some service and transaction fees.

With a DSPP, investors directly purchase shares, sometimes at a small discount. Discounts can range from 1% to 10% to encourage investors to buy more shares. However, because many brokerage accounts now waive fees and commissions entirely for many investors, the savings difference is smaller than it used to be.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Pros and Cons of a DSPP

Direct stock purchase plans have benefits and drawbacks.

Pros

Pros of DSPPs include:

• No broker needed. Investors can purchase shares of stock directly from the company.

• Very little money is required to get started, and the process is typically simple to do, making them good for long-term investing.

• Some DSPP programs offer dividend reinvestment plans.

Cons

Cons of DSPPs include:

• An investor may not achieve portfolio diversification because not all stocks offer DSPPs.

• Companies may put maximum limits on how much an individual investor can purchase.

• When selling DSPP stocks, multiple types of fees can sometimes be charged.

How To Invest in a DSPP

Armed with information about how to buy directly from companies, investors may want to explore what specific opportunities exist. Perhaps they already have a publicly traded company in mind. In that case, they can go to that company’s investor relations website to see if the company offers this type of investment opportunity.

They can also search on the Internet to see which direct stock purchase plans are available.

More specifically, if someone wants to buy stocks in this way, they typically open an account and make deposits into it. Usually, these deposits are automatically made monthly through an ACH funds transfer from the investor’s bank account. In some cases you can write checks as well.

Then, that dollar amount is applied toward purchasing shares in that company’s stock, which can include fractional shares. For example, let’s say that one share of a company’s stock currently costs $20. If an investor sets up an ACH withdrawal of $50 monthly, then, each month they have purchased 2.5 shares of that company’s stock.

One of the benefits of investing through a direct stock purchase plan is the ability to incrementally invest in an inexpensive way. This might make it a good choice for some first-time investors with smaller amounts of money to invest, with initial deposits ranging from $100 to $500. In some cases, initial deposit minimums can be waived if you purchase a certain dollar value of stock every month. But again, it may be difficult to achieve portfolio diversification with DSPP.

Companies With DSPPs

A number of large, well-established companies offer DSPPs. Companies with direct stock purchase plans include Walmart, The Coca-Cola Company, Starbucks, and The Home Depot, and Best Buy, among others.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

What to Consider Before Buying DSPPs

When online investing was new, people typically needed to pay significant fees to brokers to buy stock. In that era, direct stock purchase plans could be money-savers for investors. Over time, though, fees for online investing have lessened, making this less distinctive of a benefit.

In addition, many DSPPs charge initial setup fees, and may have other investment fees, including ones for each purchase transaction or sale. Although they may be small, these fees can build up over time. And it may be challenging to re-sell shares without the use of a broker, which makes this investment strategy more of a long-term one.

Plus, any time a share is purchased, some degree of stock volatility comes along with it, though the level of volatility that may exist depends on many variables.

Here’s something else to consider: When owning stock in just one company, or only a couple of them, portfolios aren’t diversified. When you diversify your investment assets, it helps to spread out the degree of risk. That’s because, if one stock’s value decreases, others may rise to balance out that portfolio.

The Takeaway

Direct stock purchase plans are when individual investors can directly purchase shares of that company’s stock without the need for broker involvement. The benefits of DSPPs potentially include purchasing company shares at a discount, and not needing a broker to make the transaction.

The downside of DSPPs is that a limited number of companies offer them, which means that an investor who invests solely through DSPPs may not have the best portfolio diversification.

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

FAQ

What is the difference between a brokerage and a direct stock purchase?

The main difference between a brokerage and a direct stock purchase is this: With a direct stock purchase, an investor buys shares of one company. A brokerage, on the other hand, offers multitudes of different stock options an investor may choose from.

What is direct stock vs portfolio stock?

With direct stock, an investor purchases shares of stock directly from a company. A portfolio refers to a collection of different types of investments an investor may have, including stocks, bonds, or stock funds, to name a few.

What is the difference between DSPP and DRIP?

By using a DRIP (dividend reinvestment plan), investors can buy more stock in companies whose shares they own by reinvesting what they earn from dividends. With a DSPP, an investor can purchase stock directly from a company. Unlike a DRIP, they don’t have to use dividends to purchase shares.

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOIN-Q325-119

Sep

2025

What Is Volume in Stock Trading? How Investors Can Use It

By Austin Kilham | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is Volume in Stocks?
What Does Stock Volume Tell You?
Where Can You Find Stock Volume on a Chart?
How Traders Can Use Volume
Types of Indicators to Measure Stock Volume
FAQ

In stock trading, volume refers to the number of shares traded in a specific time period. When demand is high and the number of shares traded goes up, the volume goes up. Similarly, when sales are down, that stock’s trading volume drops.

Some investors may analyze volume as a part of a technical analysis strategy to help them make decisions about when to buy and sell a particular stock. Here’s a closer look at volume and how investors may be able to use it.

Key Points

• Stock trading volume is the number of shares traded in a specific time period.

• High trading volume can indicate strong interest in a stock, and high liquidity.

• Low trading volume can signal less enthusiasm, market uncertainty, or lower liquidity.

• Analyzing volume helps investors understand the strength of price trends and potential reversals.

• Various technical indicators, like On Balance Volume (OBV) and Volume Price Trend (VPT), use trading volume to aid investment decisions.

What Is Volume in Stocks?

Trade volume for stock and other securities tells investors how frequently shares in a company are being bought and sold.

Every buy and sell transaction of a particular stock helps contribute to its trade volume. A transaction takes place when a buyer agrees to purchase the shares a seller has put up for sale. If this type of transaction takes place 100 times during a day for a particular stock, that stock has a trade volume of 100.

For stock futures and options trading, volume is based on how many contracts change hands during the set period.

Volume doesn’t tell the whole story of a stock. There are a couple of terms that can help give investors a better idea of the size of a company and how many shares are actually available, including “float” and market capitalization, or market cap.

Volume vs Float

While volume is the number of shares that are being actively traded during a given period, float is the number of shares that are actually available to trade. This total does not include restricted shares, which are not registered and are usually given to corporate leaders as part of a compensation package. Outstanding shares refers to all of the stock a company has issued, including restricted shares.

Stocks that have a small number of shares — usually between 10 million and 20 million — available to trade are what is known as “low-float” stocks. Large corporations, by contrast, could have floats of billions of shares.

In certain circumstances when trade volume is very high, volume can surpass float or even number of outstanding shares.

Volume vs Market Cap

Market cap is the total number of outstanding shares multiplied by the current public market price. In other words, it’s the dollar amount required to buy up all outstanding shares of a company, including restricted shares.

Market cap helps investors understand the size of one company relative to another. For example, large-cap stocks tend to be companies worth $10 billion to $200 billion, while small-cap stocks tend to be companies worth $250 million to $2 billion.

Investors can calculate free-float market cap by excluding restricted shares.

What Does Stock Volume Tell You?

Stock volume tells investors how much demand there is for a stock. The greater the volume, the more demand there is, while smaller volume translates to lower demand

High trade volume can also indicate that stock orders are being executed quickly and that the market is highly liquid. In other words, high volume can mean that buying and selling the stock is relatively easy.

What It Means When Stock Volume Goes Up

When stock volume is on the rise, it typically means that prices are on the move, either in the upward or downward direction. As volume increases, it can mean that investors are committing to the price change; a trend may be gathering strength.

Generally speaking, higher volume means that there’s increased interest in buying a stock, and that the market for that stock is more liquid, making it easier to buy and sell shares.

What It Means When Stock Volume Goes Down

When stock volume starts to decrease, it can signal that investors are less enthusiastic about a company. Volumes can decrease even as stock prices increase.

Low volume can be a signal for investors to be cautious about a stock. It can signal market uncertainty, the possibility of stock volatility on the horizon, and lower liquidity.

Recommended: Stock Market Basics

Where Can You Find Stock Volume on a Chart?

Investors can usually find information about volume next to or below the stock chart provided by trading platforms or media sources, like Yahoo Finance or the Wall Street Journal.

Often, volume is tracked using a candlestick chart, in which investors look for patterns to help make investment decisions. Normally, candlestick charts measure a stock’s price, including highs, lows, and opening and closing prices over a given period.

The resulting figure looks a bit like a candle with a line, or “wick,” that represents highs and lows and a rectangle that marks opening and closing prices. Volume candlestick charts use the width of the rectangle to indicate volume. The higher the volume, the wider the candle.

How Traders Can Use Volume

We’ve already seen that volume can help investors understand when a price trend is picking up steam. There are a few other basic guidelines investors may want to consider as they’re deciding when to buy and sell stocks.

Exhaustion Moves

Exhaustion moves occur when there is a sharp movement in the price of stock coupled with a sharp increase in trading volume. This potentially signals the end of a current price trend. These moments can be accompanied by a period of volatility.

Price Reversals

If the price of a stock has moved in one direction for a long time and volume begins to increase at the same time that prices start to move very little, it can signal a reversal. So if stock prices were on an upward trajectory, changes start to slow and volume increases, it might mean the trend is about to reverse.

Breakouts

A breakout is a point at which changes in market trends occur. Changes in volume can clue investors into the strength of the breakout. Little change in volume suggests investors are paying the breakout little heed, while big changes in volume indicate a strong new trend.

Bullish Signals

Volume can also help investors identify bullish signs that suggest prices are likely to rise. For example, say stock prices increase and then decline. At the same time there is an increase in volume which drives prices up again. The stock again declines, but if it doesn’t decline the second time as much as it did the first time, it may be a bullish signal that prices will continue to rise.

Types of Indicators to Measure Stock Volume

There are a number of volume indicators that could help traders make investment decisions based on their approach and goals. Here are a few examples.

On Balance Volume (OBV)

On balance volume (OBV) is a cumulative technical indicator in which volume is added on days when overall volume is up and subtracted on days when overall volume is down. The direction of the indicator is what is most important to investors. When price and OBV are moving up or down together, it is likely the trend will increase in strength.

Volume Price Trend (VPT)

Similar to OBV, volume price trend measures cumulative volume. However, it differs in that it considers a percentage increase or decrease in price. VPT helps investors relate share price to trading volume. If the price of a stock increases, so does the value of the indicator. If prices fall, the indicator value falls, too.

Ease of Movement

This indicator helps traders see how easy it is for a stock price to move between levels based on trading volumes. Stocks that continue along a trend for a given period are considered “easy.” This indicator is used over longer time periods and in volatile markets in which it can be hard to spot trends.

The Takeaway

Stock trading volume measures the amount of shares traded in a given day or time period. Trading volume can also apply to other types of securities and derivatives, where contracts are traded. Examining volume and other tools in technical analysis can help investors make decisions about when to buy and sell stocks.

When buying any individual security, investors should be sure to consider how it fits into their overall financial plan, including their goals, risk tolerance, and time horizon.

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

FAQ

Is high trading volume good?

High trading volume indicates an uptrend in a stock’s shares being traded, which is often a sign of investor interest. This may lead to higher prices, but trading volume is only one indicator that investors should consider when buying and selling stocks or other securities.

Can trading volume rise, but prices fall?

Yes. If trading volume is high, but prices are dropping, that could indicate that there is downward pressure on that stock price — or it could be a bullish signal, that there might be a price reversal. Again, it’s wise to use more than one indicator to assess price trends.

What does low trading volume mean?

Low trading volume often indicates a lack of liquidity, which means that it can be harder to buy and sell shares. Low volume also indicates a lack of interest or demand for the stock.

Photo credit: iStock/shapecharge

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

SOIN-Q325-103

Sep

2025

How to Buy Bonds: A Guide for Beginners

By Austin Kilham | Growing Wealth, invest, Investing | Comments Off

Table of Contents

Why Invest in Bonds
Where Can You Buy Bonds?
What Type of Bonds Can You Buy?
How to Invest in Bonds
FAQ

Bonds are issued by governments, municipalities, and companies as a way to raise money. By investing in bonds, an investor is giving the issuer of the bond a loan for a set period of time. In exchange, the bond issuer pays the investor interest and returns the principal to them when the bond matures at the end of a predetermined period.

Investing in bonds might seem a little mystifying, but bonds can be a way for beginning investors — or any investors for that matter — to help achieve financial goals such as portfolio diversification and earning income. Read on to learn about the different types of bonds and how to invest in them.

Key Points

• Bonds function as loans to entities like the government, municipalities and companies, and they offer regular interest payments and eventual principal repayment.

• Credit ratings are a way to gauge the creditworthiness of the bond issuer and the likelihood that they will repay the debt and not default.

• Bond duration reflects how sensitive bond prices are to interest rate fluctuations.

• Investors can purchase bonds directly from the government or brokerages, or get exposure via mutual funds and ETFs.

• Before investing, investors can assess risks of bonds, including credit risk, interest rate risk, inflation risk, and liquidity risk.

Why Invest in Bonds

Essentially, investing in bonds is a method of lending money to a company or government. As investors choose between the different types of investments, there are several reasons they might opt for bonds. Bonds, which are typically fixed income investments, pay interest at regular intervals, such as twice a year, which provides investors with a predictable stream of income. Also, if investors hold the bond to maturity, they receive the entire principal amount (or par value) of the bond. In this way, investors may preserve their savings while investing.

Bonds are also an important tool for building a diversified portfolio. Compared with stocks, bonds are less volatile, so they can potentially help offset some of the risk inherent to stock investing.

However, while bonds are typically considered a less risky investment, it’s still possible to lose money when investing in them if the issuer is unable to fulfill its obligation. In addition, inflation can eat away at bond returns, since fixed returns tend to be worth less during periods of high inflation.

Where Can You Buy Bonds?

You can buy bonds in a variety from a variety of different sources, depending on the type of bond you’re interested in.

Federal Government

If you’re 18 or older, you can buy government bonds directly from the federal government through the TreasuryDirect website. The site gives investors access to Treasury bills, notes, bonds, Floating Rate Notes, Treasury Inflation-Protected Securities, and savings bonds.

Brokerage Account

Investors can buy a variety of bonds, including corporate, municipal, and government bonds, through their brokerage account. Bond prices vary depending on transaction fees and markups.

Exchange-traded Fund (ETF) or Mutual Fund

Rather than buying bonds outright, investors can gain access to them by buying shares of ETFs or mutual funds that invest in bonds.

Diversification is one main reason for investing in funds. Because issuers typically sell individual bonds in large units (a single bond might cost $1,000 or more, for instance) the average investor may only be able to purchase a few of them on their own, making it tricky to put together a diversified bond portfolio.

Meanwhile, funds typically hold a diversified basket of bonds that tracks a bond index or a certain sector of the bond market, making it much easier for individuals to diversify. It’s important to note that while the yield of individual bonds is fixed, the yield on bond mutual funds or ETFs can fluctuate over time.

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

What Type of Bonds Can You Buy?

There are a few basic types of bonds you may consider buying:

Corporate Bonds

Corporate bonds are a type of debt security issued by public and private corporations. Investment banks typically underwrite the debt and issue it on the entity’s behalf. Companies use the money they raise through bond sales for a variety of purposes, such as investing in new equipment, research and development, paying investor dividends, and stock buybacks.

Municipal Bonds

States, cities, and counties issue municipal bonds, sometimes called “munis,” to finance capital expenditures like the building of new roads or bridges. There are three general types of municipal bonds:

• General obligation bonds aren’t backed by assets, but rather the “full faith and credit” of the issuer. Governments have the power to tax residents to pay bondholders back.

• Revenue bonds are backed by revenue from a specific source, such as highway tolls. That said, some revenue bonds are “non-recourse” meaning that if the revenue source disappears, bondholders have no claim to it.

• Conduit bonds are issued on behalf of private entities like hospitals.

US Treasurys

The Department of the Treasury issues U.S. Treasury bonds for the federal government. Investors typically consider Treasurys one of the safest investments, since they have the full faith and credit of the U.S. government backing them.

• Treasury bills are short-term debt obligations that mature within one year or less. They are sold to investors for less than their face value but they pay their full value at maturity.

• Treasury notes are longer-term debt securities that mature within 2, 3, 5, 7, or 10 years and pay interest every six months.

• Treasury bonds mature in 20 or 30 years and pay bondholders interest every six months.

• Treasury Inflation-Protected Securities, or TIPS, are notes or bonds that adjust payments to match inflation. Investors can buy TIPS with maturities of five, 10 and 30 years, and they pay interest every six months.

Recommended: How to Buy Treasury Bills, Bonds, and Notes

Bond Mutual Funds

A mutual fund is a pool of money that’s invested by an investment firm according to a set of stated objectives. A bond mutual fund focuses specifically on bonds. They may concentrate on one type, such as corporate bonds, or they may contain all types. Unlike traditional bonds, investors do not hold the bond funds for a set period or receive a principal payment at maturity. Rather, the value of the bond fund can fluctuate with market demand. There may also be ongoing fees and expenses associated with owning shares of the mutual fund.

Bond ETFs

Like bond mutual funds, bond ETFs represent a way for investors to pool their money and spread it across many different investments. While investors can only trade mutual funds once a day, they can trade ETFs throughout the day. ETFs may have lower fees than mutual funds.

How to Invest in Bonds

As investors are exploring investing in bonds, it’s important to consider the following factors:

Credit Ratings

Credit ratings are a way to gauge the creditworthiness of companies or governments that issue bonds. The ratings give investors an idea of how likely the bond issuer is to default. Standard & Poor’s, Moody’s, and Fitch are the three private companies that control most bond ratings. The rating system is slightly different at each company, but generally speaking, a mark of AAA represents the highest rated and least likely to default issuers, while C or D denotes the riskiest issuers.

Duration

A bond’s duration is not the same at its term, or maturity. Rather it is a measure of how sensitive a bond’s price will be to changing interest rates. The longer a bond’s duration, the more likely its value will fall as interest rates rise.

Fees

If you buy bonds through a broker, you should expect to pay transaction fees. Brokers typically markup the price of a bond when they sell it to you in lieu of charging a commission. Markups may be anywhere from 1% to 5% of the bond’s original value, though the exact amount can vary based on the type of bond, the size of the transaction, and market conditions. Look for brokerages that have low fees and markups.

Risk Level

Before buying a bond, investors should understand the associated risks, including:

• Credit risk: The risk that issuers may fail to make interest payments and default on the bond.

• Interest rate risk: The possibility that changes in interest rate will raise or lower a bond’s value if sold before maturity.

• Inflation risk: The risk that inflation will decrease the value of bond returns.

• Liquidity risk: The risk an investor won’t be able to sell their bond when they want to due to low or no demand.

Timing

You might consider matching the maturity date to your investment timeline. For example, if you need your principal in five years to make a down payment on a house, you may not want to buy a 10-year bond. While you could sell the 10-year bond after five years, market conditions could make it less valuable than if you waited until maturity.

The Takeaway

Whether purchased individually or accessed through mutual funds or ETFs, bonds provide a way for investors to diversify their portfolios. They may also be able to help investors develop a stream of income, which can become increasingly important as they move toward retirement.

Before buying a bond, it’s important to research issuers and credit ratings to be sure you aren’t taking on undue risk. In addition, investors will want to make sure that whatever they buy fits into their long-term investment plan.

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

🛈 While SoFi does not offer direct purchases of bonds, you can gain exposure to the bond market by purchasing bond funds through our online investment platform.

FAQ

Are bonds a safe investment?

Bonds are generally considered a less volatile investment than stocks. However, investing in bonds does involve risk. How sound a bond is depends on such factors as the issuer of the bond and whether they are able to fulfill their payment obligations, and the bond’s credit rating. Different types of bonds involve different levels of risk. For instance, U.S. Treasury bonds are considered the safest bonds because they are backed by the U.S. government and have a minimal risk of default.

Is it better to hold cash or bonds?

Whether it’s better to hold cash or bonds depends on your timeline, risk tolerance, and goals. Cash is typically better for short-term needs, while bonds may be better as longer-term investments. Both have pros and cons. Cash could lose its buying power due to inflation, but it’s a completely liquid asset and offers protection against volatile markets. Bonds can provide consistent income through regular interest payments, but they carry the risk of default — if the bond issuer defaults, you could lose some or all of your investment. Consider all these factors to decide what’s right for you.

Will you lose money on a bond if you hold it to maturity?

Generally speaking, when an investor holds onto a bond until maturity, they receive the face value of the bond, which is the amount the issuer agrees to pay at maturity, in addition to the interest received. Those planning to hold until maturity, rather than sell beforehand, may be less concerned about interest rate risk, which is when changes in the interest rate increase or decrease a bond’s value. However, holding a bond to maturity is not risk-free — there is a possibility that the bond issuer could default on the bond or that rising inflation could erode the purchasing power of the bond’s return.

Photo credit: iStock/ILIA KALINKIN

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

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

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

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOIN-Q325-086