$4,000 Personal Loan: Pros, Cons, & Qualifications

Whether you’re making home repairs, planning a bucket-list trip, or consolidating debt, getting a $4,000 personal loan can be a flexible solution. As long as you meet the lender’s criteria, the process of applying for a loan is generally straightforward. However, before you apply, it’s a good idea to understand how personal loans work, where to find one, and what they offer.

Read on to learn about the pros and cons of a personal loan for $4,000 and the qualifications you’ll need to meet to get one.

Key Points

•   A $4,000 personal loan offers a flexible financial solution for expenses like home repairs, travel, or debt consolidation, with a generally straightforward application process.

•   Personal loans often provide lower interest rates than credit cards, fast approval times, and eligibility for those with bad credit, enhancing their appeal for various financial needs.

•   Borrowers should watch out for fees such as origination fees (1% to 8% of the loan amount) and potential prepayment penalties, which can increase the overall cost of the loan.

•   Those with poor credit (FICO® Score below 580) may still qualify for a $4,000 personal loan, though they might face higher interest rates, added fees, or the need to provide collateral.

•   Comparing loan offers from banks, credit unions, and online lenders is crucial to finding the best interest rates, terms, and flexibility to match your financial situation.

How to Get a $4,000 Personal Loan

Knowing how to apply for a $4,000 personal loan can make the process a lot easier. Here are some steps to help you get the loan that’s right for you.

Check Your Credit

When you apply for a personal loan, lenders will check your creditworthiness, so you’ll want to review your credit report first. You can get a free copy from the three main consumer credit bureaus — Equifax®, Experian®, and TransUnion® — at AnnualCreditReport.com®.

After you receive your credit reports, read them over closely and report any inaccuracies. Errors could impact your loan terms and chance of getting approved.

Shop Around

Interest rates and terms vary by lender, so shop around and compare your options. Many lenders will let you prequalify first, which gives you a sneak peek at potential interest rates, terms, and fees before you submit your final application. Comparing at least a few different offers can help you find the one that suits your needs and budget.

Apply for the Loan

Once you’ve selected the loan you want, it’s time to apply. Once you send in your application, the lender will do a hard credit check to see how creditworthy you are. You may also be asked to provide certain documents, including:

•   Identification

•   Proof of income

•   Proof of residence

After your application and required documents are in, the waiting game begins. Some lenders may swiftly approve your application and get you the funds in a lump sum — minus any origination fees — in a few hours or days. But if you have a more complicated loan application, you could be waiting a week or more for a decision.

Pros of a $4,000 Personal Loan

There are several benefits to taking out a personal loan. These include:

•   Flexibility. You can use the funds for just about any purpose.

•   Lower interest rates. Personal loan interest rates are often lower than credit card rates.

•   Bad credit eligibility. You may still qualify for a $4,000 loan even with bad credit.

•   Fast approval. Certain lenders offer fast approval, with funds available to you in a matter of hours or days.

Cons of a $4,000 Personal Loan

While personal loans have plenty of selling points, they also come with some drawbacks. Here are ones to keep in mind:

•   High fees. Personal loans can come with fees, such as origination fees ranging from 1% to 8% of the total loan amount.

•   Prepayment penalties. Some lenders charge penalties if you pay off your loan early.

•   Increased debt: A personal loan can add to your debt load, especially if you spend the funds on big-ticket items instead of consolidating high-interest debt.

•   Negative credit impact: When you apply for a personal loan, the lender will perform a hard inquiry. This can cause your credit score to drop slightly, though the dip is temporary.

Recommended: Fee or No Fee? How to Figure Out Which Loan Option Is Right for You

Can You Get a $4,000 Personal Loan With Bad Credit?

As we mentioned, even if you have poor credit or no credit history at all, you might still be able to qualify for a $4,000 loan. If your FICO® Score is lower than 580, it’s considered poor and you’re generally seen as a high-risk borrower.

While there’s no set credit score you need for a personal loan, many lenders prefer that borrowers have a credit score above 580. You can still qualify if you have a lower score, but the terms may not be as favorable. You could be offered loans with higher interest rates and additional fees. And you may be required to put up collateral, such as a car or your home, in order to secure the loan.

How to Compare $4,000 Personal Loans

Personal loans are offered through online lenders, traditional banks, and credit unions. Just like you shop around for the best deal on a big purchase, it’s smart to compare lenders’ rates and terms before you apply.

Here are a few things you’ll want to consider as you review your options.

Fees and Penalties

Some $4,000 personal loans come with fees, while others don’t. Lenders also have different ways of applying these fees. For example, some lenders may include fees in the loan amount, increasing your total debt. Others deduct fees from the loan proceeds, reducing the amount you receive. Be sure to crunch the numbers because they can increase your borrowing costs.

Prequalification

When you apply for a loan, the lender often looks at your credit to help determine the rates and terms you qualify for. This requires a hard inquiry, which can temporarily lower your credit score by up to 10 points. If you prequalify with multiple lenders, you can compare different offers without harming your credit. You might also want to use a personal loan calculator to get a better idea of what your monthly loan payments may be.

Flexibility

What if you face financial difficulties and struggle to pay back the loan? Or if you miss a payment and incur a late fee? Some lenders offer financial protection programs for borrowers, which can give you peace of mind when choosing a $4,000 personal loan.

The Takeaway

A $4,000 personal loan can be a quick way to get money for almost any need. You can get these loans from banks, credit unions, and online lenders. Requirements vary by lender, and each might offer different interest rates and terms. However, having a good credit score typically gets you a better rate.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.

FAQ

How much would monthly payments be on a $4,000 loan?

The amount you’d pay each month for a $4,000 loan depends on the interest rate and loan term. For example, if you had a three-year loan at 12.00% APR, your monthly payment would be around $133. However, with a two-year term at the same rate, the monthly payment would be closer to $188.

What is the interest rate on a $4,000 loan?

According to data from Forbes Advisor, personal loan interest rates can vary widely, though they’re typically between 7.00% and 36.00%. Rates for a three-year loan are generally between 12.00% and 15.00%. But keep in mind that the rate you qualify for depends on your credit score and loan terms.

What credit score do you need for a $4,000 loan?

In order to qualify for a $4,000 personal loan, most lenders typically prefer a credit score above 580. However, borrowers with lower scores may also qualify for a loan depending on the lender’s criteria.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



Photo credit: iStock/PeopleImages

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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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

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

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13 Scams on the Elderly to Be Aware Of

13 Scams Targeting Seniors and Tips to Protect Yourself

Scams targeting seniors are increasing at a frightening rate. Fraud victims over 60 reported roughly $1.7 billion in losses in 2021, according to the Federal Investigation Bureau (FBI). From government impersonation scams to tech support scams to lottery scams, it’s easy to be conned if you don’t know what to look for. Falling victim to a scam can leave you financially vulnerable and make recovering challenging.

Unfortunately, no one is immune to becoming a victim of fraud. While there is no antidote or way to guarantee you won’t be taken advantage of, becoming familiar with common scams and learning strategies to protect yourself can help you avoid becoming a fraud victim.

Read on to learn:

•   Why scams on elderly people are so common

•   What are the most popular kind of scams targeting seniors

•   How to protect yourself and loved ones from falling for these cons.

Why Are Elderly People Often Targeted for Scams

Fraudsters want money. Since older individuals are perceived to have more money in the bank, scammers assume seniors are easy targets. However, this doesn’t mean that you are not exempt from common money scams if you’re a low-income senior. You still must proceed with caution to protect your assets.

Other reasons swindlers target seniors with scams on elderly people includes:

•   Isolation. Loneliness can make seniors more vulnerable to elderly fraud scams since they strongly desire to build social relationships. This can make them more willing to engage with scammers by phone.

•   Overly trusting. According to the Federal Bureau of Investigation (FBI), elderly folks are more trusting than other generations, making them vulnerable to con artists.

•   Lowered cognition. Age can increase the probability of cognitive decline as well as conditions like dementia. As a result, it’s hard for these folks to remember things like the amount of money they have in the bank or differentiate between real and fake. This means a fraudster could impersonate a banker or someone close to an aging individual with dementia, and they may not know the difference.

•   Insecurities. Some scammers bully victims into doing what they want, like handing over their bank information. Or the fraudster plays on their insecurity about health care or Social Security. They may threaten that if they don’t pay a medical bill, their health coverage will be canceled. Cultivating this fear may motivate a senior to go with whatever the con artist requests.

•   Embarrassment. Many elderly folks are embarrassed after being scammed, so they choose not to report the crime. Because many of these crimes go unreported, cybercriminals know they can fly under the radar by targeting seniors.

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13 Scams Against the Elderly to Be Aware Of

Fraudsters use a variety of scams on the elderly. Here are some common old people scams you can watch out for.

1. Malware Scams

With this scam, the cybercriminal will send an email containing an innocent-looking malware link the recipient can download. Perhaps the link will supposedly download family photos from a relative or allow the user to update a compromised password. Once the recipient hits download, the link could install ransomware or other software that can harm the computer. Such software allows the scammer to access private information on your computers, such as tax files or other financial documents.

2. Lottery or Sweepstakes Scams

At first glance, receiving an email or phone call stating you’ve won the lottery or a sweepstake seems exciting. Unfortunately, fraudsters use this strategy as a scam on the elderly, cheating them out of hundreds or maybe thousands of dollars.

Here’s how it works: The scammer will tell you you’ve won a prize through a lottery or sweepstakes. But, to receive your winnings, you must pay the taxes upfront. Once you do so, they will send the remaining funds. But, unfortunately, your payday never comes, and the fraudster runs off with the victim’s cash that was sent as “taxes.”

Recommended: Budgeting for Elderly Family Members or Loved Ones

3. Robocall Scams

Robocalls automatically contact a large number of people across the world. While some robocalls contact people legally, others use robocalling as a gateway to scam many individuals efficiently. One example of a robocall scam targeting the elderly is the caller stating that there is an “impending lawsuit” that you’re involved in. The caller claims to be someone from a law enforcement agency or the government and tells the victim that a fine must be paid immediately to avoid litigation.

Another example is the “can you hear me” scam. This scam entails someone calling you and asking if they can hear you. Once you say “yes”, they record the call and hang up. They can use this signature voice recording to authorize purchase on your credit card.

4. Government Impersonation Scams

Government imposter scams targeting the elderly involve the fraudster contacting an elderly individual claiming to be someone from a government organization like Medicare, the Social Security Administration, or the IRS. The fraudster may say the victim owes back taxes that must be paid right away or they might be arrested or deported, depending on the situation.

The government impersonator will demand a specific type of payment such as a prepaid debit card or wire transfer. Usually, to make the call seem more legitimate, they will use a Washington D.C. area code, making the victim think the call is real.

5. Grandparent Scam

In the grandparent scam, a swindler will call an older adult impersonating one of their grandchildren. Once the senior picks up the phone, the fraudster will say, “Grandma, do you know who this is?” When the confused senior gives a response, guessing it’s a younger relative, the scammer will agree to secure their trust.

After the trust is built, the swindler will ask for money for a financial problem but beg them not to tell the rest of the family. They often request a money transfer or prepaid card since both may not require ID to access the funds.

6. Investment Scams

Investment scams involve someone illegally selling financial instruments with a promise of a guaranteed return and low risk. Or they might offer a get-rich-quick scheme. A common investment scam targeting seniors is when someone encourages an older adult to invest in digital assets such as Bitcoin.

In 2021, investment scams resulted in over $239 billion of loss for people over 60 years old.

7. Health Insurance and Medicare Scams

As a U.S. citizen or permanent resident, you’re eligible for Medicare once you reach age 65. Because swindlers know seniors usually have Medicare, it’s an easy way to target them. With this scam, the fraudsters will impersonate a Medicare representative and require personal information. Or they may offer fake services that the victim can purchase. However, these services never come to fruition, but the fraudsters do get the details they could use to commit identity theft or other ploys.

8. Sweetheart Scams

A sweetheart or romance scam is a scam on the elderly that plays on the victim’s emotions to entice them to hand over money. With this, the imposter will connect with a senior online and develop a relationship. Once they have the victim’s trust, they ask for money for financial issues such as debt.

Imposters usually prey on seniors who are isolated and crave human connection or widows/widowers who have just lost their spouses.

9. Phishing Scams

With a phishing scam, the imposter will send an email or text from what appears to be a legitimate source like your bank. They will request you verify personal information such as your Social Security number or log-in credentials. Once given this information, it’s difficult to keep a bank account safe online, and funds can be stolen.

10. Tech Support Scams

For victims over the age of 60, tech support scams are the most commonly reported type of fraud. Tech scams against the elderly typically involve a fraudster impersonating a recognizable tech company offering to fix an issue that doesn’t exist. They may also offer to renew fraudulent software. This imposter will then direct the victim to make a payment via wire transfer, overnight check, or prepaid credit card. They are then able to walk away with those funds.

Recommended: Tips to Keep Your Credit Card Safe from Hackers

11. Inheritance Scams

Similar to lottery or sweepstakes scams, imposters tell the victim that they have a distant relative who left them a large sum of money after their passing. All the victims need to do is pay the taxes and fees. Once that happens, the imposter says they will send the large sum of money to their account. But, the inheritance never comes, and the victim loses their money to fraud.

12. Credit Card Advance Scams

An elderly fraud scam involving a credit card advance works like this: An imposter will put a legitimate credit card company’s name (like Visa) on a credit card ad. The ad will offer an instant pre-approval of thousands of dollars of cash upfront. The catch is that you must pay the annual fee first, which usually requires the victim to provide their Social Security number and bank information. Remember, lenders and creditors usually need to know your credit score before loaning money.

Recommended: Identity Theft and Credit Card Fraud Statistics: 33 Eye-Openers

12. Caregiver Scams

Unfortunately, strangers are not the only ones trying to defraud the elderly. Caregivers or family members may also exploit and attempt to scam on elderly. They can do so by swiping cash from their wallet or requesting money for bogus expenses.

13. Home Repair Scams

Home repair scams involve a scammer showing up to your doorstep offering repair services like window replacement or a kitchen renovation. Then they will request an upfront payment or trick you into applying for a loan. After you make your payment, they never show up to do the work.

What Happens if You Are Victim to One of These Attacks?

It’s no surprise that victims of fraud suffer financial consequences. However, the severity depends on the exact crime. Unfortunately, many of these cons can wreak havoc with your checking and savings accounts and beyond. For example, if a fraudster steals your identity, the financial hardship could continue for months or even years. In addition, it can damage your credit, tamper with Social Security benefits, mess up tax returns, and compromise your bank and investment accounts. All of which can be an uphill battle to restore order.

Not only does falling victim to these crimes compromise your financial security, but it can take a toll on your emotional, physical, and social state. Therefore, that’s why protecting yourself or loved ones from elderly fraud scams is so important.

If you are a victim of an elderly fraud scam, here are a few steps to take:

•   Pay close attention to bank and investment accounts. Keep tabs on your bank activity so that you can spot suspicious transactions.

•   Change your passwords. If you think the scammer hacked your accounts, update your passwords.

•   Jot down every detail of the crime. Do your best to write as much information about the crime as possible. Information includes dates, times, email addresses, etc.

•   Report the crime. It’s best to report the incident to the Federal Trade Commission, the primary agency that collects scam reports. To report your scam, you can contact the FTC via phone at 1-877-382-4357 or online . Once you report the crime, the FTC will provide next steps for moving forward. It’s always wise to reach out to your bank or financial institution to make them aware of the incident.

Recommended: What Someone Can Do with Your Bank Account and Routing Number

Ways to Protect Yourself (And Loved Ones) From Elderly Scams

One of the best ways to protect yourself and loved ones from elderly scams is to avoid making quick financial decisions. Take a closer look at this point, along with several other ways you can protect yourself from scammers.

•   Take time to act if someone is trying to pressure you into making an immediate payment. Tell them you need to think about it. Legitimate businesses and government entities won’t force you to make a split-second decision.

•   Update your computer’s security software.

•   Avoid clicking on links or attachments from unknown senders.

•   Research domains to ensure they are legitimate before engaging in business online.

•   Make your social media account private.

•   Avoid sending wire transfers to someone you don’t know, even if you have a relationship with them online.

•   Reach out to your bank or financial institution if it seems they are attempting to communicate with you. You can find official numbers on the back of your credit card. Don’t assume that just because someone says they are calling “from your bank” that they are telling the truth.

•   Avoid unsolicited communication such as calls or emails that say you’ve won a prize.

•   Don’t make a deal with someone (say, a supposed tradesperson or utility-company representative) who shows up at your home. Request their contact information and tell them you will reach out at a later date.

•   Be skeptical of those who ask you to submit payment using a prepaid gift card.

Recommended: Helping Elderly Family Members Manage Their Finances

The Takeaway

As the world becomes more technologically advanced, so does the sophistication of scammers attempting to access your money and identity. Fraudsters are lurking around every corner in the hope that you will slip up and share your personal information. To keep you and your loved ones safe, avoid engaging in money activities with folks you don’t know and do your best to protect your personal information at all costs.

3 Money Tips

  1. Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.
  2. When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.
  3. If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

How many elderly people fall victim to scams every year?

According to the Federal Bureau of Investigation, in 2021, over 92,000 elderly Americans reported being the victim of a financial scam, resulting in roughly $1.7 billion of losses.

What should I do if I have fallen victim to a scam on the elderly?

If you have fallen victim to a scam, consider contacting your bank (if your bank accounts were involved), the local police, the Federal Trade Commission (FTC) , and the Adult Protective Services division close to you. You can find your local Adult Protective Services contact information here .

What can a scammer do with my information?

When a scammer accesses your personal information like your Social Security number, they can claim Medicare on your behalf, open a credit card, take out loans in your name, or steal your tax refund. Likewise, when a fraudster has your bank account and routing number, they can potentially shop online, write fraudulent checks, and transfer money.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



Photo credit: iStock/FG Trade

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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.


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.

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Tax Loss Carryforward

Tax Loss Tax Loss Carryforward: What Is It and How Does It Work?

The tax loss carryforward rule allows capital losses from the sale of assets to be carried over from one year to another. In other words, an investor can use capital losses realized in the current tax year to offset gains or profits in a future tax year, assuming certain restrictions are met.

Investors can use a capital loss carryforward to minimize their tax liability when reporting capital gains from investments. Business owners can also take advantage of loss carryforward rules when deducting losses each year.

Knowing how this tax provision works and when it can be applied is important from an investment tax-savings perspective.

Key Points

•   Tax loss carryforward allows investors to offset capital losses against future gains, as well as taxable income.

•   Investors who take advantage of the tax loss carryforward rule may reduce their overall tax liability.

•   Capital loss carryforward rules prohibit violating the wash-sale rule and have limitations on deductions.

•   Net operating loss carryforward is similar to capital loss carryforward for businesses operating at a loss.

•   Losses can be carried forward indefinitely at the federal level, but capital losses must be used to offset capital gains in the same year.

What Is Tax Loss Carryforward?

Tax loss carryforward, sometimes called a capital loss carryover, is the process of carrying forward capital losses into future tax years. A capital loss occurs when you sell an asset, like a stock, for less than your adjusted basis.

Capital losses are the opposite of capital gains, which are realized when you sell an asset for more than your adjusted basis. In either case, taxes may come into play.

Adjusted basis means the cost of an asset, adjusted for various events (i.e., increases or decreases in value) through the course of ownership.

When you invest online or through a brokerage to purchase a stock or other security, knowing whether a capital gain or loss is short-term or long-term depends on how long you owned it before selling.

•   Short-term capital losses and gains occur when an asset is held for one year or less.

•   Long-term capital gains and losses are associated with assets held for longer than one year.

The Internal Revenue Service (IRS) allows certain capital losses, including losses associated with personal or business investments, to be deducted from taxable income.

There are limits on the amount that can be deducted each year, however, depending on the type of losses being reported.

For example, the IRS allows investors to deduct up to $3,000 from their taxable income if the capital loss is from the sales of assets like stocks, bonds, or real estate. If capital losses exceed $3,000 ($1,500 if you’re married, filing separately), the IRS allows investors to carry capital losses forward into future years and use them to reduce potential taxable income.

Recommended: SoFi’s Guide to Understanding Your Taxes

How Tax Loss Carryforwards Work

A tax loss carryforward generally allows you to report losses realized on assets in one tax year on a future year’s tax return. Realized losses differ from unrealized losses or gains, which are the change in an investment’s value compared to its purchase price before an investor sells it.

IRS loss carryforward rules apply to both personal and business assets. The main types of capital loss carryovers allowed by the Internal Revenue Code are capital loss carryforwards and net operating loss carryforwards.

Capital Loss Carryforward

Another way to describe the process of using capital losses to offset gains is that IRS rules allow investors to “harvest” tax losses, meaning they use capital losses to offset capital gains, assuming they don’t violate the wash-sale rule.

The wash-sale rule prohibits investors from buying substantially identical investments within the 30 days before or 30 days after the sale of a security for the purpose of tax-loss harvesting.

If capital losses are equal to capital gains, they will offset one another on your tax return, so there’d be nothing to carry over. For example, a $5,000 capital gain would cancel out a $5,000 capital loss and vice versa.

Remember that short-term capital losses must be applied to short-term gains, and long-term capital losses to long-term gains, owing to the difference in how capital gains are taxed.

However, if capital losses exceed capital gains, investors can deduct a portion of the losses from their ordinary income to reduce tax liability. Investors can deduct the lesser of $3,000 ($1,500 if married filing separately) or the total net loss shown on line 21 of Schedule D (Form 1040).

But any capital losses over $3,000 can be carried forward to future tax years, where investors can use capital losses to reduce future capital gains.

To figure out how to record a tax loss carryforward, you can use the Capital Loss Carryover Worksheet found on the IRS’ Instructions for Schedule D (Form 1040).

Recommended: A Guide to Tax-Efficient Investing

Net Operating Loss Carryforward

A net operating loss (NOL) occurs when a business has more deductions than income. Rather than posting a profit for the year, the company operates at a loss. Business owners may be able to claim a NOL deduction on their personal income taxes. Net operating loss carryforward rules work similarly to capital loss carryforward rules in that businesses can carry forward losses from one year to the next.

According to the IRS, for losses arising in tax years after December 31, 2020, the NOL deduction is limited to 80% of the excess of the business’s taxable income. To calculate net operating loss deductions for your business, you first have to omit items that could limit your loss, including:

•   Capital losses that exceed capital gains

•   Nonbusiness deductions that exceed nonbusiness income

•   Qualified business income deductions

•   The net operating loss deduction itself

These losses can be carried forward indefinitely at the federal level.

Note, however, that the rules for NOL carryforwards at the state level vary widely. Some states follow federal regulations, but others do not.

How Long Can Losses Be Carried Forward?

According to IRS tax loss carryforward rules, capital and net operating losses can be carried forward indefinitely. Note that the loss retains its short- or long-term characterization when carried forward.

It’s important to remember that capital loss carryforward rules don’t allow you to roll over losses without corresponding gains. IRS rules state that you must use capital losses to offset capital gains in the year they occur. You can only carry capital losses forward when and if they exceed your capital gains for the year.

As noted above, the IRS also requires you to use an apples-to-apples approach when applying capital losses against capital gains.

For example, you’d need to use short-term capital losses to offset short-term capital gains. You couldn’t use a short-term capital loss to balance out a long-term capital gain or a long-term capital loss to offset a short-term capital gain.

Example of Tax Loss Carryforward

Assume that you purchase 100 shares of XYZ stock at $50 each for a total of $5,000. Thirteen months after buying the shares, their value has doubled to $100 each, so you decide to sell, collecting a capital gain of $5,000.

Suppose you also hold 100 shares of ABC stock, which have decreased in value from $70 per share to $10 per share over that same period. If you decide to sell ABC stock, your capital losses will total $6,000 – the difference between the $7,000 you paid for the shares and the $1,000 you sold them for.

You could use $5,000 of the loss of ABC stock to offset the $5,000 gain associated with selling your shares in XYZ to reduce your capital gains tax. Per IRS rules, you could also apply the additional $1,000 loss to reduce your ordinary income for the year.

Now, say you also have another stock you sold for a $6,000 loss. Because you already have a $1,000 loss and there is a $3,000 limit on deductions, you could apply up to $2,000 to offset ordinary income in the current tax year, then carry the remaining $4,000 loss forward to a future tax year, per IRS rules.

This is an example of tax loss carryforward. All of this assumes that you don’t violate the wash-sale rule when timing the sale of losing stocks.

Recommended: What to Know about Paying Taxes on Stocks

The Takeaway

If you’re investing in a taxable brokerage account, it’s wise to include tax planning as part of your strategy. Selling stocks to realize capital gains could result in a larger tax bill if you’re not deducting capital losses at the same time.

With tax-loss harvesting, assuming you don’t violate the wash sale rule, it’s possible to carry forward investment losses to help reduce the tax impact of gains over time. This applies to personal as well as business gains and losses. Thus, understanding the tax loss carryforward provision may help reduce your personal and investment taxes.

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About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.



About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.



Photo credit: iStock/bymuratdeniz

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

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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Top 10 Fastest Growing Jobs

Top 10 Fastest-Growing Jobs

Job growth is an important consideration when choosing a career. Some of the fastest-growing jobs, according to the Bureau of Labor Statistics (BLS), include nurse practitioners, wind turbine service technicians, and data scientists.

Whether you’re preparing to enter the job market or switching careers, it’s good to know which industries and fields have the brightest hiring outlook. Keep reading for a breakdown of the fastest-growing jobs in 2024 and beyond.

Key Points

•   Energy, healthcare, computers, and data science sectors drive job growth in 2024.

•   Wind turbine service technicians and solar photovoltaic installers lead job growth due to renewable energy demand.

•   Healthcare roles like nurse practitioners and medical managers are expanding with high earning potential.

•   Data scientist and information security analyst roles are growing and are crucial for data management and cybersecurity.

•   Operations research analysts and computer scientists develop innovative solutions but jobs require advanced education.

What Is Considered a Fast-Growing Job?

The BLS regularly projects which occupations will see the highest growth. The most recent data available predicts changes from 2023 to 2033. Some occupations grow faster than others as demand for those jobs rises. A fast-growing job is one that’s expected to grow at an above-average rate. Our list includes both on-site roles and remote opportunities. (Here’s a great roundup of more work-at-home jobs for retirees and stay-at-home parents.)

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Who Should Consider a Fast-Growing Job?

Fast-growing jobs are appealing to a wide range of people because it can be easier to find a position when there are more openings to go around. Companies may also be more likely to offer signing bonuses to attract talent.

However, it’s important to consider whether the current demand is sustainable over the long term. After large numbers of people rush to fill jobs in a specific industry, hiring may then taper off.

The economy is another consideration. A job that’s fast-growing in a healthy economy may be less so in a downturn or recession. In-demand jobs that are connected to entertainment, travel, or recreation, for example, may be less attractive if people are cutting back their spending on trips to the movies, vacations, or costly hobbies.

Recommended: Does Net Worth Include Home Equity?

Pros and Cons of Being in a Fast-Growing Job

Every job has advantages and disadvantages, and fast-growing fields are no exception. Considering the potential benefits and drawbacks can help you to decide if pursuing a fast growing job makes sense for you.

Pros of Fast-Growing Jobs

Cons of Fast-Growing Jobs

More room for advancement at a faster pace Accelerated job growth in newer industries may not be sustainable over the long term
Higher salaries if demand for qualified workers outpaces supply Fast growth does not always translate to higher pay, especially in fields that don’t require higher education
Opportunity to get in on the ground floor of a new industry or sector that’s poised for long-term growth and development May be more demanding in terms of the time involved and scope of duties

What to Expect in a Fast-Growing Job

One of the main advantages of a fast-growing job is that it may be easier to get hired when demand is high. Employers may also offer higher pay or enhanced employee benefits to attract talent. If a high salary is important to you, check out this list of the highest paying jobs by state.

On the other hand, landing a bigger entry-level salary isn’t guaranteed. Fast-growing tech jobs, for instance, will pay more than food service jobs even if demand is at a similar level.

If you do manage to snag a higher salary with a fast-growing job, it’s important to think about what you’ll be required to do in exchange for those paychecks. For example, accepting a role with a clean energy startup could pay well, but if the company is small, you might be expected to work well beyond the standard 40-hour week.

No matter the size of your paycheck, it helps to stay on top of your budget. A spending app lets you see all of your money in one place.

Top 10 Fastest-Growing Jobs in 2024

The BLS collects data on job growth and employment outlook across a variety of occupations. We’re breaking down the fastest growing jobs through 2033.

You may also be interested in our list of trades that make the most money.

1. Wind Turbine Service Technician

Median annual pay: $61,770

Job growth outlook: 60%

Job description: Install, repair, and service wind turbines. May work full-time or on-call for emergency repairs.

Job duties:

•   Install wind turbines

•   Make necessary repairs to turbine equipment

•   Complete regular maintenance and service to keep turbines operating properly

Pros:

•   Technical or trade school degree may be the only required education

•   Opportunity to travel

•   Job growth should hold steady as the industry develops

Cons:

•   Long on-the-job training period

•   Candidates must be comfortable with heights

•   Higher potential for accidental injury

Recommended: Jobs That Don’t Require College

2. Solar Photovoltaic Installers

Median pay: $48,800/year

Job growth outlook: 48%

Job description: Also called PV installers, solar photovoltaic installers are responsible for assembling and maintaining systems that convert sunlight into energy. They may also connect the system’s solar panels to the electrical grid. This job may be salaried or hourly.

Job duties:

•   Measure, cut, and assemble the support structure for solar panels

•   Install solar modules, panels, and support structures, then activate and test the system.

•   Perform routine PV system maintenance

Pros:

•   Significant job growth is expected through 2033

•   Higher education may not be required

•   There may be opportunities for advancement in the field

Cons:

•   Requires lifting and handling heavy equipment

•   Candidates should have strong math and communication skills

•   Must be comfortable with heights

3. Nurse Practitioner

Median pay: $126,260

Job growth outlook: 46%

Job description: Nurse practitioner (NP) is one of the fastest-growing healthcare jobs. NPs can act as primary care providers or specialty care providers in doctor’s offices, hospitals, and other healthcare facilities. NPs may specialize in a particular type of care, such as geriatrics or pediatrics.

Job duties:

•   Assess patients to determine care needs

•   Determine how to improve or manage patient health

•   Develop strategies for implementing a plan of care

Pros:

•   High earning potential (an all-in-one money tracker tool can help you stay on top of your money game)

•   Well above-average job growth

•   Opportunity to specialize

Cons:

•   Potentially a highly stressful job

•   Requires advanced education

•   May require working long shifts

4. Data Scientist

Median pay: $108,020/year

Job growth outlook: 36%

Job description: Extract and analyze data. May collect or categorize data, offer interpretations of data, or create visual representations to showcase their findings. These individuals typically work in an office setting or from home. Because this role doesn’t require much interaction with customers or colleagues, it can be a good job for antisocial people.

Job duties:

•   Collect and organize data

•   Test data and use it to develop algorithmic models

•   Analyze data to create recommendations for business entities

Pros:

•   Competitive pay and outstanding earning potential

•   Opportunity to work a flexible schedule or remotely

•   May appeal to people looking for a creative-adjacent job

Cons:

•   Some aspects of the job may be tedious or boring

•   Hours can be long and require the completion of menial tasks

•   Master’s degree or higher may be required for certain jobs

5. Information Security Analyst

Median pay: $120,360/year

Job growth outlook: 33%

Job description: Information security analysts review an entity or organization’s security measures and develop strategies for protecting and safeguarding data. This is one of the fastest-growing IT jobs as more companies turn their focus to increasing cybersecurity in order to prevent fraud or data hacks. This is a strong option if you need a job that will pay off your student loans.

Job duties:

•   Analyze security measures in order to look for potential flaws or weak spots

•   Develop cybersecurity strategies to enhance a company or organization’s data safety

•   Maintain security software, including encryption and firewall services

Pros:

•   Job growth may be sustainable long term as more companies seek to step up their cybersecurity efforts

•   Salary ranges are competitive compared to other fast-growing jobs

•   May offer opportunity for remote work

Cons:

•   Some jobs may require a master’s degree or higher

•   May be required to complete tasks on short notice

•   Potentially stressful and high-pressure

6. Medical and Health Services Manager

Median pay: $110,680/year

Job growth outlook: 29%

Job description: Responsible for managing their facility and coordinating medical and health services for patients. Should be up to date on the latest laws, regulations, and technology in healthcare.

Job duties:

•   Create and execute policies, goals, and procedures for facility

•   Ensure facility complies with laws and regulations

•   Recruit, train, and manage staff

Pros:

•   Competitive salary

•   Flexible hours

•   Room for advancement for those interested in leadership roles

Cons:

•   Hours may be long

•   May be required to have a bachelor’s degree, a license, and/or work experience

•   The job has a high rate of injury and illness

7. Physician Assistant

Median pay: $130,020/year

Job growth outlook: 28%

Job description: Responsible for examining, diagnosing, and treating patients under the supervision of a physician. PAs can work in a variety of settings, including a hospital, doctor’s office, outpatient care center.

Job duties:

•   Examine and diagnose patients

•   Prescribe medication

•   Educate patients on their health issues

Pros:

•   Can be rewarding to help care for patients

•   Competitive pay, particularly for jobs at outpatient care centers and hospitals

•   Can work in a variety of specialized areas, such as dermatology, pathology, or emergency medicine

Cons:

•   Work can be physically and emotionally demanding

•   May be required to work nights, weekends, or holidays

•   Must have a bachelor’s degree or higher and be licensed

8. Computer and Information Research Scientist

Median pay: $145,080

Job growth outlook: 26%

Job description: Use expertise and experience to improve existing technologies and create new ones. The work can help fuel innovation and solve problems in science, medicine, and business, among other fields.

Job duties:

•   Develop and/or improve computer software and hardware

•   Create new computing languages and tools

•   Design and oversee experiments on software systems

Pros:

•   Opportunity to work on cutting-edge projects

•   Ability to help create innovations and improvements

•   Can specialize in various fields, including artificial intelligence or robotics

Cons:

•   Much of the work is online, which could be an issue for extroverted people

•   Most jobs typically require a master’s degree or Ph.D.

•   May work long hours

9. Physical Therapist Assistant

Median pay: $64,080/year

Job growth outlook: 25%

Job description: Collaborate with physician therapists to help patients regain their mobility and manage their pain. PTAs may also be responsible for cleaning and setting up treatment areas or moving patients around the facility.

Job duties:

•   Treat patients through exercise, massage, and other interventions, under the supervision of a physical therapist

•   Record the patient’s progress and share progress with the physical therapist

•   Help move patients in and/or out of treatment area

Pros:

•   Solid earning potential

•   May have the option to work part-time

•   Helping patients recover can be professionally rewarding

Cons:

•   Often requires standing for long periods of time

•   Moving patients could put strain on the body

•   May be required to work nights and weekends

10. Operations Research Analyst

Median pay: $83,640/year

Job growth outlook: 26%

Job description: Evaluate a company’s operations using advanced analytical and mathematical techniques, and recommend ways to increase efficiency and solve problems.

Job duties:

•   Analyze data to identify or solve operational problems

•   Provide recommendations to decision makers

•   Document and present finding to support recommendations

Pros:

•   May have opportunities for advancement

•   Often work on teams, which can be a good fit for extroverts

•   Can help businesses operate more efficiently

Cons:

•   Advanced education and training are often required

•   Role can be demanding

•   May be required to work in the office

Fastest-Growing Jobs by 2025 Outlook

The fastest growing jobs in 2024 include all of the options listed above. Other jobs projected to have above-average growth through 2033 include:

•   Occupational therapy assistants

•   Actuaries

•   Financial examiners

•   Home health and personal care aides

•   Veterinary assistants and laboratory animal caretakers

•   Veterinary technologists and technicians

•   Logisticians

•   Veterinarians

•   Substance abuse, behavioral disorder, and mental health counselors

•   Epidemiologists

Which job skills will be most in demand in the future? According to the World Economic Forum, the following skills will be highly sought after by employers within the next few years:

•   Analytical thinking

•   Creative thinking

•   Resilience, flexibility, and agility

•   Motivation and self-awareness

•   Curiosity and lifelong learning

•   Technological literacy

•   Dependability and attention to detail

Some of these are “soft skills,” meaning they’re based around communication and self-management. However, it’s clear that technological skills and computer skills will continue to be an important consideration for employers in the future.

The Takeaway

The Bureau of Labor Statistics regularly publishes lists of jobs with good potential for recent grads and career changers. This year’s list of the top fields for job growth include energy, healthcare, computers, and data science. It’s a wide range, with something for everyone. And while some roles require a college degree, others welcome high school grads.

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See exactly how your money comes and goes at a glance.

FAQ

What is the most needed job in 2024?

According to the Bureau of Labor Statistics, nurse practitioners are among the fastest growing jobs for 2024 and beyond. That’s due largely to increased demand for healthcare providers during the pandemic era, but it was also one of the fastest growing jobs pre-COVID.

What job has the highest future growth?

The Bureau of Labor Statistics projects that wind turbine service technicians are set to see the highest job growth through 2033. As the country looks to reduce carbon emissions — and demand for electricity increases — more wind turbines are expected to be built. This will likely create more job opportunities for qualified service technicians who can install and maintain the equipment.

Which jobs will be in demand in the next 10 years?

Some of the jobs that will be in the highest demand in the next 10 years include nurse practitioners, wind turbine service technicians, data analysts, information security analysts, and medical and health services managers.


About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.



Photo credit: iStock/visualspace

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


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

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

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What Is the Arms Index (TRIN)? How to Use the Indicator

What Is the Arms Index (TRIN)? How to Use the Indicator

The Arms Index or Trading Index (TRIN) is a breadth indicator used to indicate when the stock market is overbought and oversold. In simpler terms, it measures how strong or weak the market is on any given day.

Technical analyst Richard W. Arms developed the Arms Index formula in 1967 as a tool for gauging market sentiment. Investors still use TRIN indicators to track volatility and price movements. By looking for upward or downward trends in the TRIN and comparing them to other technical indicators, investors can potentially identify buy or sell signals.

Key Points

•   The Arms Index, also known as TRIN, measures stock market strength or weakness.

•   It was developed by Richard W. Arms in 1967 to gauge market sentiment.

•   TRIN calculates by dividing the Advance/Decline ratio by the Advance/Decline volume ratio.

•   A TRIN value above 1.0 suggests a bearish market, while below 1.0 indicates bullish conditions.

•   Investors use TRIN alongside other indicators to identify potential buy or sell signals.

What Is the Arms Index (TRIN)?

The Arms Index, Trading Index or TRIN for short is a breadth oscillator used to identify pricing and value trends in the stock market. Specifically, the index looks at two things: Advance Decline ratio and Advance Decline volume ratio.

The former represents the number of advancing and declining stocks while the latter represents advancing and declining stock volume.

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

The TRIN Formula

TRIN = (Advancing stocks/Declining stocks) / (Composite volume of advancing stocks/Composite volume of declining stocks)

In this formula:

•   Advancing stocks refers to the number stocks trading higher

•   Declining stocks refers to the number of stocks trading lower

•   Advancing volume is the total volume of all advancing stocks

•   Declining volume is the total volume of all declining stocks

Investors use moving averages to smooth out the data and understand the relationship between the supply and demand for stocks during a given time period. The Arms Index aims to highlight bearish or bullish trends based on the relationship between the number of stocks being traded and the volume.

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How to Calculate TRIN

To calculate TRIN, you’d simply apply the formula outlined earlier. Again, it looks like this:

TRIN = (Advancing stocks/Declining stocks) / (Composite volume of advancing stocks/Composite volume of declining stocks)

Here’s what calculating TRIN might look like in action:

•   Find AD ratio by dividing the number of advancing stocks by the number of declining stocks

•   Find AD volume ratio by dividing total advancing volume by total declining volume

•   Divide AD ratio by AD volume ratio

You’d perform these calculations over a set time period, recording each figure on a graph or chart as you go. For example, you might space the calculations out every few minutes, hourly or daily. You’d then connect each data point on your graph or chart to whether the TRIN is moving up or down.

Dive Deeper: How to Calculate AD Ratio

What Does TRIN Show You?

TRIN shows you the market’s volatility and the short-term direction of prices to help investors identify buying opportunities. When reading or interpreting TRIN data, you’re looking to see if it’s above 1.0 or below 1.0. This can tell you whether the market is bearish or bullish. A reading of exactly 1.0 is considered neutral.

For example, a reading below 1.0 is common when there are strong upward trends in price movements. Meanwhile, a reading above 1.0 is typical when there’s a strong downward trend. Here’s another way to think of it. When the reading is below 1.0 that means advancing stocks are driving volume but when it’s above 1.0, declining stocks are in the driver’s seat for generating volume.

You may also look at the direction TRIN is moving. A rising TRIN could indicate a weak market, while a falling TRIN may mean the market is getting stronger. Understanding how to read the data matters when determining whether the market is overbought or oversold at any given time.

Overbought

In stock trading, overbought means a stock is selling at a price above its intrinsic value. When the market is overbought, there’s generally a bullish attitude as investors keep buying in and driving up market capitalizations.

But a sell-off can happen if market sentiment turns negative. In that case, you get a reversal and prices begin to drop, potentially pushing market capitalizations down. Investors use the Arms Index or TRIN to spot this type of price movement trend and get ahead of a reversal before it happens.

Oversold

When an asset is oversold it means it’s trading below its intrinsic value. In other words, it’s trading for less than what it’s actually worth. This scenario can happen if an asset is undervalued for an extended period of time.

When investors assume the market is oversold, that can lead to an increase in buying activity. This, in turn, can drive stock prices up.

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

Example of Using TRIN

If you wanted to apply the TRIN in real time, you could do that using stock charts that illustrate technical indicators. So, say you want to track the movements of the S&P 500 Index for a single day, looking at prices in five-minute intervals. You begin calculating TRIN at 10:00 am, at which time it’s 1.10. This sends a sell signal to the market and prices begin edging down.

An hour later, you see that TRIN has dropped to 0.85 sending a buy signal. At this point, prices begin to move upward again. By following TRIN throughout the day you could see whether the upward trend looks like it will continue or whether it will eventually reverse. If you’re following the rule of “buy low, sell high“, you might want to time trades to correlate with stock price movements based on the trends forecasted by the TRIN.

How Is TRIN Different Than TICK?

The TRIN measures the spread or gap between supply and demand in the markets. The Tick Index or Tick Indicator shows the number of stocks trading on an uptick minus the number of stocks trading on a downtick. This trend indicator measures all of the stocks that trade on an exchange such as the New York Stock Exchange (NYSE) or Nasdaq.

Unlike Arms Index or TRIN, the Tick indicator does not factor in volumes. Instead, Tick index aims to pinpoint extreme buying or extreme selling on an intraday basis.

Is TRIN a Good Indicator?

The TRIN has both good points and bad points when used as an investment decision-making tool. No technical analysis indicator can yield precise answers when determining the best time to buy or sell.

It’s important to keep in mind that the Trading Index is just one indicator analysts use to evaluate the stock market and stock volatility. The TRIN is most helpful when used with other indicators in order to create a more comprehensive snapshot of the markets at a particular moment in time.

Pros of TRIN

The Arms Index or TRIN closely analyzes trends between advancing and declining assets. By comparing net advances to volume, it provides a picture of price movements. Volume can be a useful indicator in itself, as higher volumes can suggest more significant shifts in stock pricing.

The TRIN is forward-looking so it can be useful in forecasting which way the market will head next. By pointing out stocks that may be overbought or oversold, the indicator can provide investors with some direction when trying to buy the bottom or sell the top to maximize profits in the market.

Cons of TRIN

If the TRIN has one big flaw it’s that it may generate inaccurate readings because of the way the index accounts for volume. Specifically, you can run into problems when advancing volume falls short of expectations.

For example, say that on a given day the number of stocks advancing significantly outpaces the number of stocks declining. Meanwhile, the same trend happens with volumes, with advancing volume outstripping declining volume. When you calculate TRIN, the numbers could effectively cancel one another out, resulting in a neutral reading.

This can make it difficult to figure out if the market is trending bearish or bullish. For that reason, it may be helpful to apply a 10-day moving average (MA) to help even out the numbers and provide a more accurate picture of pricing trends.

How Investors Can Use TRIN

Technical investors can use the TRIN to analyze the market, decide whether to buy or sell, and when to make those trades to produce the best results. When using the index, you’re looking for clear markers of strength or weakness in the markets. By gauging overall market sentiment, it may become easier to make predictions about future prices.

The TRIN is, by nature, designed to monitor short-term trading activity so it may not work as well for spotting longer term trends. But you can use it to get a feel for whether the market is leaning more on the bullish or bearish side and how likely that trend is to either continue or reverse.

The Takeaway

The Arms Index or TRIN is an important concept to understand if you’re an active day trader using technical analysis. With technical analysis, you’re trying to find trends in the near term so that you can take action to capitalize them.

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Photo credit: iStock/Delmaine Donson


About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.



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