InvestGen Archives

Sep

2025

A Guide to Corporate Bonds and How They Work

What Are Corporate Bonds?

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

Table of Contents

What Is a Corporate Bond?
How Do Corporate Bonds Work?
Benefits and Drawbacks of Corporate Bonds
Types of Corporate Bonds
Difference Between Corporate Bonds and Stocks
How to Buy Corporate Bonds
FAQ

Corporate bonds are similar to government bonds: When investors buy corporate bonds they are loaning a company money for a specified period of time. The company agrees to pay interest for that time. When the bond reaches maturity, the company returns the principal.

Corporations typically issue bonds, usually in $1,000 increments, in order to raise funds for capital improvements, acquisitions, and other needs. Because corporate bonds carry more risk, these bonds typically offer a higher interest rate.

It’s also possible to invest in corporate bonds via exchange-traded funds (ETFs) or mutual funds.

Key Points

• Corporations issue bonds to raise funds for various needs.

• Investors typically receive semi-annual interest payments until the bond matures.

• Corporate bonds are usually issued in $1,000 blocks and generally offer higher rates than Treasurys due to higher risk.

• Some corporate bonds offer a fixed interest rate, while others pay a floating rate.

• Bond-focused mutual funds and ETFs are alternative ways to invest and may offer additional portfolio diversification.

What Is a Corporate Bond?

A bond is a debt security that functions much like an IOU. When an investor buys a corporate bond, they are effectively lending money to that company for a specified period of time, with the agreement that the company will pay interest until the bond matures, at which time the company repays the principal.

What Is the Purpose of Bonds?

Governments and companies issue bonds in order to raise funds for different needs. For example, a state might issue bonds to build a new bridge, and the U.S. Treasury issues Treasury Bills (T-Bills) to cover its expenses.

Corporations also sell bonds to raise capital. They might use the money raised through these financial securities to reinvest in their business, pay down debts, or even buy other companies.

The Size of the Bond Market

Bonds make up more of the global markets than equities, worth about $145.1 trillion in 2024 versus $126.7 trillion for global equity market capitalization, according to the Securities Industry and Financial Markets Association (SIFMA). The U.S. fixed income market is the biggest in the world, making up 58.2% of global securities.

How Do Corporate Bonds Work?

As noted, corporate bonds follow similar rules to other types of bonds. Say an investor buys $10,000 worth of bonds from Company A, at a certain interest or coupon rate, for a specified time period until maturity.

These bonds might have shorter terms (e.g, up to five years); medium terms (between five and 12 year maturities); or longer terms (more than 12 years).

The investor can expect interest payments, usually semi-annually, until the bond matures — at which point the company repays the original $10,000 in principal.

Bond Terminology

To understand the bond market and how bonds work, it helps to know a few important terms:

• Issuer: The entity issuing bonds to raise money (e.g., a government, municipality, or a corporation).

• Par Value or face value: Also known as the nominal value of the bond, the par value is the amount the investor pays for the bond (i.e., the dollar amount of the loan) — which the bond issuer promises to repay when the bond reaches maturity. It’s the principal amount. This amount does not fluctuate over the life of the bond.

• Coupon rate: This is the interest rate paid by the bond issuer on the principal amount (e.g., a $100 bond with a 2% coupon will pay $2 per year). Some coupon rates are fixed. Some can be variable.

• Maturity: The date at which a bond’s issuer must repay the original bond value to the bondholder.

• Price: A bond’s price can change based on a bond’s rating, its interest rate, and time left to maturity. The price is the amount an investor pays for a bond in the secondary market.

• Yield to maturity (YTM): Investors who buy and sell bonds on the secondary market often focus on a bond’s yield to maturity, which is different from the coupon rate. Bond yield represents the total return at maturity, incorporating the bond’s market price and the coupon rate.

Corporate Bond Ratings

Well-known ratings agencies, such as Moody’s, Standard & Poor’s, and Fitch, rate the creditworthiness of the bond issuer. The bond rating can influence the coupon rate, as it reflects the relative risk involved in purchasing the bond. More on ratings below.

The Potential for Diversification

Investors may find bonds appealing for a couple of reasons. The first is that bonds can provide a steady source of income from interest (i.e., coupon payments), which is why they are referred to as fixed-income securities. (That said, equities have historically outperformed bonds over time.)

Another reason is that bonds are generally not correlated with the stock market, and thereby may offer investors some portfolio diversification.

Benefits and Drawbacks of Corporate Bonds

While corporate bonds may offer some benefits to investors, it’s important to consider their drawbacks, as well.

Benefits	Drawbacks
Bonds can provide some portfolio diversification.	Bonds may offer lower returns than other securities, such as stocks.
Many investors consider corporate bonds to be a riskier investment than U.S. government bonds. As a result, they tend to offer higher interest rates.	Corporate bonds carry a higher risk of default than U.S. Treasurys.
Bonds are relatively liquid, meaning it is easy to buy and sell them on the market.	Some bonds are “callable”, which means issuers can pay them back early. When that happens, bond holders don’t earn as much interest and may have to reinvest.

Types of Corporate Bonds

There are three main ways to categorize corporate bonds:

Maturity Dates

This category reflects the bond’s maturity, which may range from one to 30 years. There are three maturity lengths:

• Short-term: Maturity of within five years.

• Medium-term: Maturity of five to 12 years.

• Long-term: Maturity of more than 12 years. Longer-term bonds typically offer the highest interest rates.

Risk

Every once in a while, a corporation defaults its bonds. The likelihood of default impacts a company’s creditworthiness, and investors should consider it before purchasing a bond. Bond ratings, assigned by credit rating agencies, can help investors understand this risk.

Bonds can be rated as:

• Investment grade: Companies and bonds rated investment grade are unlikely to default. High-rated corporate bonds — from AAA to BBB, depending on the agency — typically pay a slightly higher rate than government securities.

• Non-investment grade: Non-investment grade bonds are more likely to default. Because they are riskier, non-investment grade bonds tend to offer a higher interest rate and are often known as high-yield or junk bonds.

Coupon

Investors may also categorize bonds based on the type of interest rate they offer.

• Fixed rate: With a fixed-rate bond, the coupon rate stays the same over the life of the bond.

• Floating rate: Bonds that offer floating rates readjust interest rates periodically, such as every six months. The floating rate depends on market interest rates.

• Zero-coupon bonds: These bonds have no interest rate. Instead, the bond is sold at a discount. When the bond reaches maturity, the issuer makes a single payment that’s higher than purchase price (effectively paying interest).

• Convertible bonds: Convertible bonds act like regular bonds with a coupon payment and a promise to repay the principal. However, they also give bondholders the option to convert their bonds into company stock according to a given ratio.

Difference Between Corporate Bonds and Stocks

Bonds differ from other types of investments in a number of important ways.

When investors invest in stocks, they are buying ownership shares in the company. Share prices may fluctuate depending on the markets and the health of the company. If the company does well, the stock price may rise, and the investor can sell their shares at a profit. Additionally, some companies share profits with their shareholders in the form of dividends.

When an investor purchases a corporate bond, on the other hand, they do not own a piece of the company; they’ve given a loan to the company. The bondholder is therefore entitled to interest plus their original principal. Those amounts don’t change based on company profits or the stock price. When a company goes bankrupt, bondholders have priority over stockholders when it comes to claims on the issuer’s assets.

How to Buy Corporate Bonds

Investors interested in purchasing corporate bonds have a number of options to consider.

Direct Investment

Investors can buy individual corporate bonds directly through brokerage firms or banks. Corporations typically issue them in increments of $1,000. Much like investing in an initial public offering, or IPO, it can be tricky for retail investors to get in on newly issued bonds. Investors may need a relationship with the organization that’s managing the offering.

However, investors can also purchase individual bonds on the secondary market.

Bond Funds

Another way to gain access to the bond market is by purchasing bond funds, including mutual funds and exchange-traded funds (ETFs) that invest in bonds. These funds can be a good way to diversify a bond portfolio as they typically hold a diverse basket of bonds that tracks a bond index or a certain sector.

Retirement Accounts

Investors can also purchase bonds or bond funds through an Individual Retirement Account, or IRA, as well as an employer-sponsored retirement account such as a 401(k).

The Takeaway

Before buying bonds, it’s important that individuals consider how these securities might fit in with their financial goals, risk tolerance, and time horizon. For example, if you’re working toward retirement and have decades to save, you may want a portfolio that’s tilted toward stocks, since stocks generally tend to outperform bonds in the long run. If you’re close to your goal — or have a low appetite for risk — you may want to stick with bonds.

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FAQ

Are corporate bonds a good investment?

Corporate bonds generally pay a higher rate of interest than government bonds, but they come with a higher risk of default. While some investors may find the income potential from corporate bonds appealing, others may not want the added risk exposure.

What’s the difference between a Treasury bond and a corporate bond?

All types of U.S. Treasury bonds, bills, and notes are issued by the United States government and “backed by the full faith and credit” of the same. The United States has never defaulted on its debts. Corporate bonds carry more risk, and therefore offer higher interest rates.

Are bonds safe if the market crashes?

Generally speaking, bonds are less likely to be impacted by a stock market crash, and therefore can provide some ballast in a portfolio during times of market volatility. That said, no investment is 100% guaranteed to be “safe” under any circumstances.

Photo credit: iStock/Prostock-Studio

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

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SOIN-Q325-092

Sep

2025

Understanding the Different Stock Order Types

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

Table of Contents

Stock Order Types Explained
Trailing Stop-Loss Order
Bracket Order (BO)
Timing Instructions
Which Order Type Is Best?
FAQ

There are several ways to execute stock trades, from the common and relatively simple market order, to more complex stop orders and timing instructions. Each type of order is a tool tailored to specific situations and needs of an investor or trader, and can result in a different outcome.

It’s important to understand the types of order in the stock market thoroughly to know when and how to use them. That way, you’ll be able to know which order will best help you reach your goals as you buy and sell stocks.

Key Points

• Market orders guarantee execution but not price, trading at the current market rate.

• Limit orders specify a price or better for buying or selling, offering more price control.

• Stop orders trigger when a stock reaches a set price, helping to lock in profits or limit losses.

• Stop-limit orders combine stop and limit features, providing execution control at a specific price.

• Timing instructions, such as Day Orders, GTC, IOC, and FOK, modify order duration and execution conditions.

Stock Order Types Explained

Different types of stock orders have different outcomes for investors. The best stock order type for you will depend on your investing style and risk appetite. You’ll need to understand each of them, particularly if you’re working with a self-directed brokerage account.

Here’s a look at the different types of stock orders:

Market Order

A market order is an order to buy or sell a security as soon as possible at its current price. These types of orders make sense when you want to get a transaction done as quickly as possible.

A market order is guaranteed to be carried out, or executed. Investors buying stocks with a market order will pay an amount at or near the “ask” price. Sellers will sell for a price at or near the “bid” price.

However, while you’re guaranteed that your order will execute, you do not get a guarantee on the exact price. In volatile markets, stock prices may move quickly, deviating from the last quoted price, although.

For example, if you put in an order to buy a stock at an ask price of $50 per share, but many other buy orders are executed first, your market order may execute at a higher price as demand rises.

Recommended: What Is a Market-On-Open Order (MOO)?

Limit Order

Limit orders are another common type of stock orders. They are orders to buy or sell stock at a specific price or better within a certain time period. There are two basic types of limit orders:

• Buy limit orders can only be executed at the limit price or lower. For example, say you want to buy shares in a company only when prices hit $40. By placing a limit order for that amount, you can ensure your order only executes when that price, or a lower price, is reached.

• A sell limit order executes when stock hits a certain price or higher. For example, if you don’t want to sell your stock until it hits $40 or more, a sell limit will ensure that you own the stock until it hits that price.

Stop Order

In addition to the more commonly used market orders and limit orders, brokerage firms may also allow investors to use special orders and trading instructions, such as the stop order, also known as a stop-loss order. Stop orders are orders to buy or sell a stock when it reaches a predetermined price, known as the stop price. Stop orders help investors lock in profits and limit losses.

When a stock’s price reaches the stop order price, the stop order becomes a market order. Like a market order, the stop price is not a guaranteed price. Fast moving markets can cause the execution price to be quite different.

Stop-limit Order

Stop-limit orders are a sort of hybrid between stop orders and limit orders. Investors set a stop price, and when a stock hits that price, the stop order becomes limit order, executed at a specific price or better.

Stop-limit orders help investors avoid the risk that a stop order will execute at an unexpected price. That gives them more control over the price at which they’ll buy or sell.

For example, say you want to buy a stock currently priced at $100 but only if it shows signs that it’s on a clear upward trajectory. You could place a stop-limit order with a stop price of $110 and a limit of $115. When the stock reaches $110, the stop order becomes a limit order, and it will only execute when prices reach $115 or higher.

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Trailing Stop-Loss Order

Investors who already own stocks and want to lock in gains may use these relatively uncommon orders. While stop-loss orders help investors buy or sell when a stock hits a certain stop price, trailing stop-loss orders put guardrails around an investment.

For example, if you buy a stock at $100 per share, you might put a trailing stop loss order of 10% on the stock. That way, if, at any time, the stock’s share price dips below 10%, the brokerage will execute the order to sell.

Bracket Order (BO)

Bracket orders are similar to stop-loss orders in that they’re designed to help investors or traders lock in their profits or gains. They effectively create an order “bracket” with two orders: A buy order with a high-side sell limit, and a sell order with a low-side limit.

With a bracket order set up and in place, an order will execute when a security’s value goes outside of the predetermined range, either too high or too low.

Timing Instructions

Investors use a set of tools, known as timing instructions (or time in force instructions), to modify the market orders and limit orders and tailor them to more specific needs.

Day Orders

If an investor does not specify when an order will expire, the brokerage enters it as a day order. At the end of the trading day, it expires. If at that point, the brokerage has not executed the trade, it will have to be reentered the following day.

Market-on-Open (MOO) and Market-on-Close Orders (MOC)

Investors can request to buy or sell shares when the market opens at 9:30am ET, called market-on-open orders. MOO orders must typically be entered two or more minutes prior to the market opening, and can’t be changed or canceled after that point.

A market-on-close order is a request to buy or sell shares near the market’s end-of-day (4pm ET) price, though the price cannot be guaranteed. Nasdaq and NYSE set their own time limits for entering MOCs, each a few minutes before closing.

Good ‘Til Canceled (GTC)

A GTC order allows investors to put a time restriction on an order so that it lasts until the completion or cancellation of an order. Brokerage firms typically place a time limit on how long a GTC order can remain open.

Immediate or Cancel (IOC)

IOC orders allow investors to ask that the brokerage execute the buying or selling of stock immediately. It also allows for partial execution of the order. So, if an investor wants to buy 1,000 shares of a company but it’s only possible to buy 500 shares immediately, these instructions will alert the broker to buy the shares available. If the broker can not fulfill the order, or any portion of the order, immediately, the broker will cancel it.

Fill-Or-Kill (FOK)

Unlike IOC orders, fill-or-kill orders do not permit partial execution. The brokerage must execute the order immediately and in its entirety, or cancel it.

All-Or-None (AON)

Similar to FOKs, all-or-none orders require the complete execution of the order. However, AONs do not require immediate execution, rather the order remains active until the broker executes or cancels it.

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Which Order Type Is Best?

The type of order or special instructions you use when buying and selling stock depends on your goals with the transaction. Most beginner investors probably only need to execute market orders and perhaps limit orders.

Those trying to execute more complicated trades in shorter time frames, such as professional traders, may be more likely to use stop orders and special timing instructions.

The Takeaway

There are numerous types of stock orders, including limit orders, stop orders, bracket orders, and more. Investors and traders can use each individually or in concert to execute their strategy, though beginner investors likely won’t dig too far into their order tool kit when learning to navigate the markets.

Before using any of trade orders or timing instructions it’s critical to understand their function and to think carefully about how and whether they apply to your specific needs. Using the right order for your situation can potentially help you reduce risk and protect your portfolio, no matter how many stocks you own.

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FAQ

What is the safest type of stock order to use?

The stock order type that is all but guaranteed to execute per an investor’s desires is a market order, which executes immediately and at a given price. Other order types depend on specific conditions dictated by the investor and the market.

What is the difference between stop-loss vs stop-limit orders?

The main difference between a stop-loss order and a stop-limit order is that a stop-loss order guarantees to execute a market order if the stock hits the stop price, while a stop-limit order triggers a limit order when the assigned value is reached.

What is a standard stop-loss rule?

An example of a more or less standard stop-loss rule would be setting the stop-loss order parameters at 2% of the buy price, which would mean that an investor is not putting more than 2% of their initial investment at risk.

Photo credit: iStock/Alina Vasylieva

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

SOIN-Q325-112

Sep

2025

Comparing Stock Warrants vs Options

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

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Table of Contents

What Are Stock Warrants?
What Are Options?
Similarities and Differences Between Warrants and Options
Pros and Cons of Warrants
Pros and Cons of Options
FAQ

Stock warrants give the holder the right to buy or sell shares of stock at a set price on or by a set date directly from the public company that issues them, whereas stock options convey the right to buy or sell shares on or before a specific date at a specific price.

The chief difference between stock warrants and stock options is that warrants are issued directly by a company that’s typically seeking to raise capital. Options are derivative contracts that investors can trade to take advantage of price fluctuations in the underlying security.

Key Points

• Stock warrants allow investors to buy shares at a specified price on a set date, directly from the issuing company, while stock options are derivative contracts traded among investors.

• Companies typically issue stock warrants to raise capital, whereas stock options are created and traded by investors, which may allow for more flexibility in trading.

• Exercising a warrant results in the issuance of new shares, which can lead to dilution, while exercising options does not typically create new shares and is settled between traders.

• Both stock warrants and options provide speculative opportunities, but differ in terms of issuance, market trading, and potential dilution effects.

• Understanding the differences between stock warrants and options is important for investors, as each serves distinct purposes and carries unique risks and potential benefits.

What Are Stock Warrants?

A stock warrant is a contract that allows the holder the right to buy shares of stock at a future date at a predetermined price. The terms of the stock warrant typically allow the holder to purchase shares at a price that is often set above the stock’s price at the time of issue. Warrants generally have longer expiration periods than standard options, often lasting up to 10 years or more.

Companies issue stock warrants directly to investors. The companies set the terms of the warrant, including the stock’s purchase price and the final date by which the investor can exercise the warrant. Warrant holders do not have an obligation to buy the shares, but if they decide to do so they would exercise the warrants via their brokerage account.

Stock warrants are typically call warrants, which give the holder the right to purchase the shares at the predetermined price, as noted above. However, there are also put warrants, which give holders the right to sell shares at a predetermined date by the expiration date.

Public companies may issue stock warrants as a means of raising capital to fund new expansion projects. A company may also issue stock warrants to investors if it faces financial trouble and needs to raise funds to potentially avoid a bankruptcy filing.

In some cases, warrants are issued by financial institutions rather than the company itself. These are called “covered warrants” and may be cash-settled, meaning they do not result in new shares or dilution of existing shares.

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What Are Options?

An option is a contract that gives holders the right, but not the obligation, to buy (in the case of a call option or sell, in the case of a put option, an underlying security on or before a specified date at a specified price. As with stock warrants, option holders do not have to buy or sell the underlying shares, but they have the right to do so. If they do, they would exercise the options through their brokerage account.

Exercising options means you use your right to buy or sell the option’s underlying shares. If an investor chooses not to exercise the option, it expires worthless. (Note that the seller, or writer, of an options contract is obligated to fulfill the terms of the contract if it’s exercised.) Investors can trade some options on a public exchange alongside stocks and other securities.

Recommended: How to Trade Options: An In-Depth Guide

Similarities and Differences Between Warrants and Options

Warrants and options sound alike and at first glance, they seem to imply the same thing: the right to buy or sell shares of a particular stock. But there are also important differences between these two contracts that investors should be aware of.

Similarities

Warrants and options both offer investors an opportunity to benefit from movements in a stock’s price, though options can be traded without exercising while warrants typically require exercising to acquire shares.

With both warrants and options, the investor must exercise the contract to actually acquire shares. Both have specific guidelines with regard to the price at which investors can purchase (or sell, in the case of puts) their shares and the deadline for exercising them.

Warrants and options are both speculative in nature, since investors are essentially making a directional bet on which way the underlying asset’s price may move. Neither instrument provides voting rights or dividend payments prior to exercise. Investors can use different strategies when trading options or exercising warrants to potentially improve profitability while attempting to reduce losses.

Differences

Warrants and options also have important differences. While companies issue stock warrants, traders typically buy and sell options with each other directly. Warrants create new shares when exercised, which can result in dilution. Exchange-traded stock options generally do not create new shares, aside from employee stock options, which are basically a type of call option that, when exercised, can also dilute existing shares by increasing the total amount.

When investors exercise a warrant, they receive the stock directly from the company, while options are typically settled between traders.

💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.

Stock Warrants vs Options: A Summary

Here’s a closer look at options vs. warrants.

Stock Warrants	Stock Options
Confers the right to purchase (or sell) shares of stock at a specified price on or before a specified date. Holders of the contract have the right, but not the obligation, to exercise the contract.	Confers the right to buy (or sell) shares of stock at a specified price on or before a specified date. Holders of the contract have the right, but not the obligation, to exercise the contract.
Warrants create new shares, which may result in dilution.	Options do not create new shares, so there’s no dilution (unless they are employee stock options).
Issued by the company directly to investors.	Issued by traders or market makers who write call or put options.
Original issue warrants are not listed on exchanges, but there is a secondary market for the securities.	Options can be traded on public exchanges alongside other securities.
Primarily used to raise capital for the company.	Traders can buy (or write) options to try to benefit from price movements.
Warrant holders may have a decade or more in which to exercise their right to buy shares.	Options tend to be shorter-term in nature, with expiration periods usually lasting anywhere from a few days up to 18 months.
Less commonly used in the U.S.	Options are regularly traded on public exchanges in the U.S.

Pros and Cons of Warrants

If you’re considering warrants versus options, it’s helpful to understand the advantages and disadvantages of each.

Stock warrants can offer both advantages and disadvantages to investors. Whether or not it makes sense to include stock warrants in a portfolio can depend on your individual goals, time horizon for investing and risk tolerance. Warrants are also considered geared instruments, meaning small moves in the underlying stock can produce amplified gains or losses. This leverage may increase risk.

Stock Warrant Pros	Stock Warrant Cons
Warrant holders have the right to purchase (or sell) shares of stock, but are not required to do so.	Price volatility can diminish the value of stock warrants over time.
Stocks may be offered to investors at a premium relative to the current market price.	When warrants are exercised, new shares are issued, which may result in dilution.

Pros and Cons of Options

As with stock warrants, trading options has both upsides and potential downsides. Beginning traders should have a thorough grasp of the essentials, prior to trading, to understand the complexities and risks involved. Here are some of the key points to know about trading options.

Stock Option Pros	Stock Option Cons
Options may amplify gains compared to trading in individual shares of stock.	Stock options are more sensitive to volatility which can mean higher risk for investors.
May be suited to active day traders who are hoping to capitalize on short-term price movements.	Frequent options trades can mean paying more in commissions, detracting from overall returns.
Traders can use options as a hedging tool to manage risk in uncertain market environments.	Time value decays the value of options over time.

The Takeaway

Understanding the difference between options and warrants matters if you’re considering either of these types of securities. While the language of stock warrants may sound similar to some of the terms used in options trading, these are in fact two different instruments.

Companies issue stock warrants primarily to raise capital, whereas traders typically buy and sell options with each other directly. Warrants create new shares of companies, while options do not typically cause any dilution.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

FAQ

Is a warrant the same thing as an option?

No. Warrants and options are not the same thing. Companies issue stock warrants to give investors the right to buy shares of stock at a specified price on a specified date. Stock warrants may allow investors to purchase shares of stock at a premium, while providing a longer window in which to decide whether to exercise the warrant.

Options are derivatives contracts that give buyers the right, but not the obligation to buy (in the case of a call) or sell (in the case of a put) an asset at a specific price within a certain period of time.

Can warrants exist in a SPAC?

Yes. A Special Purpose Acquisition Company (SPAC) is typically created for the purpose of acquiring or merging with an existing company. This type of arrangement may enable private companies to circumvent the traditional IPO process. A SPAC may use warrants to raise capital from investors. These warrants are generally good for up to five years following the completion of a merger or acquisition.

Why would you buy stock warrants?

Stock warrants may appeal to some investors seeking speculative exposure at a lower upfront cost than purchasing shares outright. Warrants offer the right, but not the obligation, to buy stock at a set price in the future, and this can be attractive if the stock’s price rises. Warrants may expire worthless if the share price does not exceed the strike price, however. They are generally considered higher-risk instruments and are not commonly used in traditional portfolios.

Can I sell my stock warrants?

Some stock warrants are transferable, and may be sold on a secondary market. This depends on the issuing company and the terms of the warrant terms. Liquidity can vary: while exchange-listed warrants may be easier to sell, others may have limited or no market activity. It’s important to check the specific warrant agreement to understand whether the security is tradable and what restrictions might apply.

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/Inside Creative House

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

SOIN-Q325-016

Sep

2025

What Are Power Hour Stocks? What to Know When Trading

Power Hour Stocks: What Are They and How Do You Trade Them?

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

Table of Contents

What Is the Stock Market Power Hour?
When Does Stock Power Hour Occur?
Red Flags and Triggers to Look for During Power Hour Trading
FAQ

The power hour is a period of active trading, high volume, and volatility that tends to occur when the market opens and again when it closes. Many short-term traders find the power hour appealing because of the trading opportunities it presents.

Power hour trading generally isn’t as compelling to buy-and-hold and longer-term investors, as these short-term trades come with much higher risk exposure, despite the opportunity for gains.

Key Points

• The “power hour” refers to periods of high trading activity, volume, and volatility typically at the market’s open and close.

• While appealing to short-term traders, power hour trading carries more risk for longer-term investors.

• The first hour of trading is active due to reactions to overnight news, while the last hour sees increased activity as traders look to close positions or capitalize on heightened selling.

• Triggers for intense power hour trading include earnings reports, news about “daily gainers,” major economic news, and quarterly triple witching hour events.

• Due to increased volatility and risk, it is advisable for investors unfamiliar with choppy markets to avoid power hour trading.

What Is the Stock Market Power Hour?

During the trading day, the power hour is when traders have a concentrated time to leverage specific market opportunities. That goes for anyone trading common market securities like stocks, index funds, commodities, currencies, and derivatives, especially options trading and futures.

The power hour period typically occurs when the market opens at 9:30am ET and lasts until approximately 10:30am. Some traders identify a second power hour at the end of the day: roughly 3:30pm to 4:30pm, when the market closes.

The heightened activity during these periods comes from a confluence of factors.

• Traders digest recent news and upcoming events.

• They place new trades and look for opportunities.

• The combined activity can create short-term price volatility that some traders can take advantage of.

When Does Stock Power Hour Occur?

The term power hour is subjective, but most market observers land on two specific times in defining the term:

• The first trading hour of the market day. This is when news flows in overnight from across the world that can impact portfolio positions that investors may want to leverage, when investing online or using a brokerage.

• The last hour of the trading day. This is when sellers may be anxious to close a position for the day, and buyers trading stocks may be in a position to pounce and buy low when selling activity is high.

One commonality between the first hour of a stock market trading session and the last hour is that trading volatility tends to be higher than it is during the middle of a normal trading day. That’s primarily because traders are looking to buy or sell when demand for trading is robust, and that usually happens at or near the market opening or the market close.

Each power hour brings something different to the table, when it comes to potential investing opportunities.

Recommended: Stock Trading Basics

Power Hour Start of Day

The first hour of any trading session tends to be the most active, as traders react to overnight news and data numbers and stake out advantageous positions.

For example, an investor may have watched financial or business news the previous night, and is now reacting to a story, interview, or prediction.

Some traders refer to this scenario as “stupid money” trading, as conventional wisdom holds that one news event or headline shouldn’t sway an investor from a strategy-guided long-term investment position. The fact is, by the time the average investor reacts to overnight data, it’s likely the chance for profit is already gone.

Here’s why: Most professional day traders were likely already aware of the news, and have already priced that information into their portfolios. As the price goes up on a stock based on artificial demand, the professional traders typically step in and take the other side of the trade, knowing that in the long run, investing money will drift back to the original trade price for the stock and the professional investor will likely end up making money.

Power Hour End of Day

The last hour of the trading day may also come with high market volatility, which tends to generate more stock trading. Many professional traders tend to trade actively in the morning session and step back during mid-day trading, when volatility is lower and the market is quieter than in the first and last hours of the day.

Regular traders can perk up at the last hour of trading, where trading is typically more frequent and the size of trades generally climb as more buyers and sellers engage before the trading session closes out. Just as in the first hour of the trading day, amateur investors tend to wade into the markets, buying and selling on the day’s news.

That activity can attract bigger, more seasoned traders who may be looking to take advantage of ill-considered positions by average investors, which increases market trading toward the close.

Recommended: 7 Day Trading Strategies for Beginners

Red Flags and Triggers to Look for During Power Hour Trading

For any investor looking to gain an advantage during power hour trading, the idea is to look for specific market news that can spike market activity and heighten the chances of making a profit in the stock market.

These “triggers” may signal an imminent power hour market period, when trading can grow more volatile.

Any Earnings Report

Publicly-traded companies are obligated to release company earnings on a quarterly basis. When larger companies release earnings, the news has a tendency to move the financial markets. Depending on whether the earnings news comes in the morning or after hours, investors can typically expect higher trading to follow. That could lead to heavier power hour trading.

News on Big “Daily Gainers”

Stock market trading activity can grow more intense when specific economic or company news pushes a single large stock — or stock sector — into volatile trading territory.

For instance, if a technology company X announces a new product release, investors may want to pounce and buy that tech stock, hoping for a significant share price uptick. That can lead to higher volume trading stock X, making the company and the market more volatile (especially later in the day), thus ensuring an active power hour trading time.

Reserve/Economic News

Major economic news, like jobs reports, consumer sentiment, inflation rates, and gross domestic product (GDP) reports, are released in the morning. Big news from the Federal Reserve typically comes later in the day, after a key speech by a Fed officer or news of an interest rate move after a Fed Open Markets Committee meeting.

Make no mistake, news on both fronts can be big market movers, and can lead to even more powerful power hour trading sessions.

Anticipation of huge economic news, like a Federal Reserve interest rate hike or the release of the U.S. government’s monthly non-farm labor report, can move markets before the actual news is released, potentially fueling an even larger trading surge after the news is released, either at the open (for government economic news) or at the end of the trading day (for Federal Reserve news).

Triple Witching Hour Events

Quarterly triple witching hours — when stock options, futures and index contracts expire on four separate Fridays during the year — historically have had a substantial impact on market activity on those Friday afternoons, in advance of the contracts expiring at the days’ end.

When options contracts involving larger companies expire, market activity on a Friday afternoon prior to closing can be especially volatile. Thus, any late afternoon power hour on a triple-witching-hour Friday can be highly active, and may be one of the largest drivers of power hour trading during the year.

The Takeaway

The concept of a stock market “power hour” is based on the increased activity at certain times of day — typically the market’s open and close. While the power hour presents opportunities for some traders, others may find it risky.

Consequently, it’s a good idea to give power hours a wide berth if you’re not familiar with trading in choppy markets, where the risk of losing money is high when power trading activity is at its highest.

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

FAQ

Is the power hour a good time to trade?

For sophisticated short-term traders, trading power hour stocks can be advantageous. The heightened market activity often presents a number of opportunities. For those less skilled at maximizing these short windows of opportunity, power hour trading can be highly risky.

Is the power hour more volatile?

Yes, the hallmark of the power hour, whether at the market’s open or close, is its volatility. In short, the power hour is a high-risk time in the market for most ordinary investors.

Can you make money during the power hour?

It’s possible to make money during the power hour, assuming you have the skill and the strategies to seize the opportunities presented by short-term price movements.

Photo credit: iStock/Tatiana Sviridova

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

SOIN-Q325-089

Sep

2025

What Is Hedging & How Does It Work? Strategies & Examples

What Does Hedging Mean? How Does It Work? Strategies & Examples

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is Hedging?
How Does Hedging Work?
Pros & Cons of Hedging
Hedging Examples and Strategies
Is Hedging Viable for Retail Investors?
FAQ

When investors talk about hedging, it refers to a common risk-management strategy that involves taking a position with one investment to help offset the potential risk of loss in another investment.

For example, bonds and cash may be used to counterbalance potential risk exposure from the equities portion of a portfolio.

Hedging methods vary widely, depending on what the investor views as the main risk factors in their portfolio. Common hedges include derivatives, like options and futures contracts, or investments in commodities like gold or oil, or fixed-income investments.

Key Points

• Hedging is a risk-management strategy where one investment is used to offset potential loss in another investment.

• Common hedging methods include derivatives (options, futures), commodities (gold, oil), or fixed-income investments.

• Hedging acts like an insurance policy, protecting holdings in the event of risk, but it also comes with costs in time and money.

• Various hedging strategies exist, such as diversification, spread hedging, forward hedging, and more.

• Hedging is viable for retail investors, ranging from simple diversification to more complex options strategies.

What Is Hedging?

Hedging can be defined as making an investment to reduce the risks associated with another investment. For some investors, protecting a portfolio against downside risk can be as important as generating returns, whether investing online or with a brokerage.

Often, some investors may hedge to protect themselves in the event that their investments decline in value, in order to limit potential losses. While technically speaking hedging means investing in a particular security to offset the risk from a related security, there are many ways to hedge.

One common hedge is through basic diversification: choosing an investment whose price movements historically do not correlate to the main investment (e.g., when fixed-income securities are used to hedge against equities).

Also, many investors go about hedging with options contracts, purchasing securities that move in the opposite direction of the main investment.

Recommended: Options Trading 101

How Does Hedging Work?

In many ways, hedging investments works like an insurance policy. A homeowner may purchase insurance to protect their home from fire or other potential risks. That insurance policy costs money, which is an investment of sorts. So if there’s a fire, that insurance may protect the homeowner from greater losses.

Hedging is like that insurance policy. Investors trading stocks and other securities can’t protect against all risks. But with the proper hedges in place they can protect their holdings from possible risk factors. But, like insurance, those hedges cost money to make.

Hedging may also reduce an investor’s exposure to the upside of the other elements of their portfolio.

Pros & Cons of Hedging

To understand the pros and cons of hedging, consider an airline, whose fuel costs impact the company’s profitability. The airline may have a trading desk whose sole job is to buy and sell options and futures contracts related to crude oil, as a way of protecting the company against the shock of a sudden upturn in oil prices.

Pros of Hedging

The first pro of hedging for the airline is that those financial derivative instruments allow it to project its fuel costs with some degree of certainty at least a few months into the future.

The other pro of hedging comes when the price of oil skyrockets for some reason. In that case, the airline knows it can buy oil at the previously predetermined price in the oil futures contracts it owns.

Cons of Hedging

The con of hedging would be the constant ongoing expense of maintaining it. The airline has to pay for the oil futures contracts, even if it never exercises them. Futures contracts expire on a regular basis, requiring the company to continue buying them. And if fuel costs don’t go up, then it’s likely that the futures contracts the airline buys will be worthless when they expire.

Recommended: Stock Trading Basics

The company also has to devote personnel to maintaining the portfolio of its hedges, to buy and sell the derivatives, and to periodically test the hedge to make sure it continues to protect the company as the markets shift. For the airline that represents money and talent that is diverted away from its core business.

The analogy for investors is clear. While hedges can protect an investment plan, they also come with a cost in time and money. And it’s up to each investor to determine whether the cost of a hedge is worth the protection it offers.

Hedging Examples and Strategies

There are several ways that investors can use hedging to help protect their portfolios.

Diversification

Portfolio diversification is probably the best known and most widely used risk management strategy. It relies on a broad mix of investments within a portfolio to help protect the portfolio from facing too large of a loss if one investment loses value.

A diversified portfolio will hold several distinct asset types to reduce its exposure to any single investment risk. For example, investors may balance out the risk of a stock holdings with bond securities, since bonds tend to perform better in markets where stocks struggle.

Spread Hedging

Spread hedging is a risk-management strategy employed by options traders. In this strategy, a trader will buy and/or sell two or more options contracts on the same underlying asset with the goal of limiting their losses if the price of the asset moves against them, typically in exchange for limited profit potential.

In a bull put spread, for example, a trader might purchase one put option with a lower strike price and sell another put with a high strike price with the hope of benefitting from a rise in the underlying asset’s price, while capping losses if the price falls.

Forward Hedge

Forward contracts are financial derivatives used mostly by businesses to protect themselves from changes in the value of a currency. For the purchaser, the contract effectively fixes the rate of exchange between two currencies for a period of time. The airline example discussed above is a forward hedge.

Delta Hedging

Delta hedging is a strategy used by options traders to reduce the directional risk of price movements in the security underlying the options contracts. In the strategy, the trader buys or sells options to offset investment risks and reach a delta neutral state, in which the investment is protected regardless of which way the asset price moves.

Tail Risk Hedging

Tail risk hedging refers to an array of strategies whose goal is to protect against extreme shifts in the markets. The strategies involve a close study of the major risk factors faced by a portfolio, followed by a search for the least expensive investments to protect against the most extreme of those risks.

For example, an investor overweight U.S. equities might purchase derivatives based on the Volatility Index, which tends to negatively correlate to the S&P 500 Index.

Binary Options Hedging Strategy

In a binary options hedging strategy, the investor buys both a put and a call on the same underlying security, each with a strike price that makes it possible for both options to be in the money at the same time. Binary options only guarantee a payout if a predetermined event occurs.

Forex Hedging

A forex hedge in the forex market refers to any transaction made to protect an investment from changes in currency values. As a hedge, they may be used by investors, traders and businesses. For example, since GBP/USD and EUR/USD typically have a positive correlation, you could hedge a long position in GBP/USD with a short position in EUR/USD.

Another example of forex hedging is purchasing a currency-hedged ETF. Doing so gives investors the protection of a forex hedge against the investments within their ETFs, without having to actually purchase the hedge on their own.

Hedging for Hyperinflation

Inflation hedges are those investments that have outperformed the market when inflation is a major factor in the economy. While every inflationary period is different, with various global, market and macroeconomic factors in play, investors have historically found shelter — and sometimes growth — during inflation by investing in certain assets.

Some investments that have a reputation as inflation hedges include precious metals such as gold, and commodities like oil, corn, beef, and natural gas. Other inflation hedges include alternative investments, such as REITS and real estate income.

Dollar-Cost Averaging

Some investors view dollar-cost averaging, which involves investing a set amount of money at preset intervals regardless of market performance, as a way to hedge against market volatility. That’s because dollar-cost averaging, by definition, means that you’re buying investments when they’re both high and low — and you don’t have to worry about trying to time the market.

Is Hedging Viable for Retail Investors?

Yes. While some hedging involves complicated options strategies, you can also hedge your portfolio by simply making sure that you have diversified holdings. If you’re investing to protect against certain risks, such as inflation or interest rate increases, that’s also an example of hedging.

The Takeaway

Hedges are investments, often derivatives, that help protect investors from risk. Hedging is a common strategy to use certain types of securities to offset the risk of loss from another security.

However, it’s possible to hedge some investments without investing in derivatives. Building a diversified portfolio of stocks and bonds, for example, or investing in real estate to protect against inflation risk are also examples of hedging.

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

FAQ

How does hedging work in simple terms?

Hedging works by counterbalancing the risk of an existing investment. For example, if you own stocks, you might use options or bonds to reduce your overall exposure to stock market volatility, thereby limiting potential downside.

What are some common methods for hedging?

Diversification is one widely used risk management strategy. Other common hedging methods include derivatives (options, futures), commodities (gold, oil), or fixed-income investments.

What is the downside of hedging?

Hedging requires time and effort to set up the appropriate hedge for your investments, and there may be associated costs as well. In addition, because hedging focuses on avoiding downside risks, it may limit a certain amount of upside.

Photo credit: iStock/Rossella De Berti

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.

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

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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.

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

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.

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

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