InvestLL Archives | Page 2 of 71

Apr

2025

Understanding the Put/Call Ratio in Market Analysis

By Brian Nibley | Growing Wealth, invest, Investing, Terminology | 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.

The put to call ratio (PCR) is a mathematical indicator that investors use to determine market sentiment. The ratio reflects the volume of put options and call options placed on a particular security or market index. Analysts interpret this information into either a bullish (positive) or bearish (negative) near-term market outlook.

The idea is simple: The ratio of how many people are betting against the market, versus how many people are betting in favor of the market, should provide a gauge of the general mood investors are in.

A high put/call ratio is thought to be bearish because more investors are taking short positions, while a low put/call ratio is thought to be bullish as more investors are taking long positions. Investor Martin Zweig invented the put/call ratio and used it to forecast the 1987 stock market crash.

Key Points

• The put/call ratio measures market sentiment by comparing the volume of put options to call options traded.

• A ratio below typical averages (often around 0.7) indicates bullish sentiment, while a higher may suggest bearish sentiment.

• Traders use the put/call ratio alongside other indicators to inform trading strategies.

• Extreme values in the put/call ratio can signal potential market reversals.

• Historical benchmarks and current market conditions are essential for interpreting the put/call ratio.

What Is Put Call Ratio?

The put/call ratio is a measurement of the number of puts versus the number of calls traded during a certain timeframe. It can apply to a specific security, a market index, or the broader market. The options trading ratio is expressed as a simple numerical value.

Definition and Significance

The higher the number, the more puts there are, which shows that investors are betting in favor of future price declines. The lower the number, the more calls there are on a security, indicating that investors are betting in favor of future price increases.

Analysts most often apply this metric to broad market indexes to get a feel for overall market sentiment in conjunction with other data points. For example, the Chicago Board Options Exchange (CBOE) put-to-call ratio is one of seven factors used to calculate the Fear & Greed Index by CNN Business.

Key Takeaways

The put/call ratio can also be applied to individual stocks by looking at the volume of puts and calls on a stock over a certain period.

Calculating the Put-Call Ratio

The put/call ratio equals the total volume of puts for a given time period on a certain market index or security divided by the total volume of calls for the same time period on that same index or security. The CBOE put/call ratio is this calculation for all options traded on that exchange.

There can also be variations of this. For example, total put open interest could be divided by total call open interest. This would provide a ratio for the number of outstanding puts versus the number of outstanding calls. Another variation is a weighted put/call ratio, which calculates the dollar value of puts versus calls, rather than the number.

Looking at a put/call ratio chart can show you how that ratio, and thus the market sentiment, has changed over time.

Formula and Calculation Methods

The formula for the put/call ratio (PCR) is straightforward:

Put-Call Ratio = Volume of Put Options/Volume of Call Options

The ratio can also be calculated using open interest instead of volume. Open interest represents the total number of outstanding options contracts. For example, dividing the open interest for puts by the open interest for calls gives the PCR based on total market activity.

Suppose an investor is trying to assess the overall sentiment for a stock. The stock showed the following volume of puts and calls on a recent trading day:

Number of puts = 1,400
Number of calls = 1,800
The put/call ratio for this stock would be 1,400 / 1,800 = 0.77.

Index, Equity, or Total — What the Numbers Indicate

The put/call ratio can apply to different segments of the market, including individual equities, broad market indexes, or the total market.

• Equity PCR focuses on the sentiment surrounding a specific stock. A higher equity PCR for a stock signals bearish sentiment, while a lower ratio indicates bullish sentiment.

• Index PCR examines options activity on market-wide indexes, such as the S&P 500, providing insight into overall market sentiment.

• Total PCR aggregates all options activity across equities and indexes, offering a broad perspective on market dynamics.

Each PCR value must be interpreted in the context of historical benchmarks and market conditions to provide actionable insights.

Interpreting the Put-Call Ratio

The PCR offers valuable insights into market sentiment, but its interpretation requires context and nuance. By analyzing the PCR alongside historical benchmarks and current market conditions, traders can gauge whether sentiment is overly optimistic, overly pessimistic, or balanced. This can help traders guide their strategies effectively.

How to Read the Ratio

A specific PCR value can broadly be defined as follows:

• A PCR below 0.7 implies that investors are expecting upward price movement, as they’re buying more call options than put options.

• A PCR of more than 0.7 implies that investors are expecting downward price movement, as they’re buying more put options than call options.

• A PCR equal to 0.7 indicates investors expect a neutral trend, as purchases of both types of options are at the same level.

Contrarian Indicator — What the Numbers Mean

Although PCR has a specific, mathematical root, it is still open to interpretation, depending on your options trading strategy. Different investors might take the same value to mean different things.

Contrarian investors, for example, may believe that the market sentiment is wrong or unfounded. Their move is to act contrary to what others are doing. A contrarian investor might therefore perceive a high put/call ratio to be bullish because it suggests that most people believe prices will be heading downward soon.

Momentum investors believe in trying to capitalize on prevailing market trends. If the price of something is going up, it could be best to capitalize on that momentum by buying, based on these investors’ perspectives. A momentum investor could also believe the opposite, however, and that a high PCR should be seen as bearish because prices could be trending downward soon.

To take things a step further, a momentum investor might short a security with a high put/call ratio, hoping that since most investors appear to already be short, this will be the right move. On the other hand, a contrarian investor could do the opposite and establish a long position, based on the idea that what most people expect to happen is the opposite of what’s actually coming.

Using the Put/Call Ratio in Trading

The put/call ratio is a versatile tool in trading, offering insights into potential market reversals or confirming existing trends. Investors often use PCR values in conjunction with other technical indicators like moving averages, Bollinger Bands, and momentum oscillators.

One approach is to monitor extreme PCR values. A significantly high PCR might indicate oversold conditions, suggesting a potential reversal upward, while an extremely low PCR could suggest overbought conditions, pointing to a possible downward correction.

Trading Strategies Based on the Ratio

Traders can employ various strategies using the put/call ratio:

• Trend Confirmation: Uses the PCR to confirm existing trends. For instance, if the ratio is low during a market uptrend, it may reinforce bullish sentiment.

• Contrarian Trading: Identifies overbought or oversold market conditions by observing PCR extremes. Contrarians might go against prevailing sentiment by taking long positions when the PCR is unusually high.

Options Spread Strategies: Combines the PCR with spread strategies, such as straddles or strangles, to capitalize on expected volatility.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

Put/Call Ratio as a Market Sentiment Tool

The PCR provides a snapshot of market sentiment, serving as a barometer for investor confidence. A low PCR often signals optimism, as more investors are betting on upward movement, while a high PCR reflects pessimism or risk aversion.

Traders frequently use the PCR in tandem with news events, economic data, or earnings reports to gauge the prevailing mood and position their portfolios accordingly.

Advanced Analysis of the Put/Call Ratio

In more sophisticated market analysis, the put/call ratio can provide deeper insights beyond simple bullish or bearish signals. By examining extremes, smoothing techniques, and adjustments based on varying market conditions, traders can refine their understanding of market sentiment and make more informed decisions. Consider these advanced methods for analyzing the PCR to enhance trading strategies.

Analyzing Put/Call Ratio Extremes

Extreme PCR values — either very high or very low — can signal turning points in the market. For example, a PCR above 1.5 might suggest panic selling, a potential precursor to a rebound. Conversely, a PCR below 0.5 might signal overconfidence, increasing the likelihood of a pullback.

Smoothing and Adjusting the Put/Call Ratio

Traders can use moving averages of the PCR to mitigate noise and short-term fluctuations. A 10-day moving average smooths out daily variations, making it easier to identify trends. Additionally, weighting the PCR based on the value of options contracts provides a more balanced view of sentiment.

The Put/Call Ratio in Different Market Contexts

The PCR takes on different implications depending on the broader market context:

• Bull Markets: In a sustained uptrend, a low PCR reinforces optimism, while a high PCR may signal caution.

• Bear Markets: During downturns, a high PCR aligns with prevailing sentiment, while a low PCR could indicate that short-covering is driving temporary rallies.

Market cycles and external influences like monetary policy changes or geopolitical events should be factored in when analyzing PCR values.

CBOE Equity Put/Call Ratio Analysis

The CBOE Equity Put/Call Ratio measures sentiment in equities traded on the exchange. A high ratio signals bearish sentiment as investors hedge against declines, while a low ratio reflects bullishness, with more bets on price increases. Comparing current values to historical benchmarks helps identify potentially overbought or oversold conditions.

Put/Call Ratio in ETFs and Other Instruments

The Put/Call Ratio in ETFs gauges market sentiment around broader sectors or themes. For example, a high PCR in a sector-based ETF may indicate pessimism, whereas a low ratio suggests optimism. The ratio can also be applied to non-equity instruments, such as commodities or volatility indexes, offering insights tailored to each market’s unique drivers.

Practical Applications of the Put/Call Ratio

Traders use the Put/Call Ratio to spot extremes in market sentiment, with high values signaling potential buying opportunities and low values suggesting caution. Long-term investors incorporate it alongside other metrics to assess trends and manage risk, making it a key tool for sentiment-driven decision making. These are just two practical uses for the put/call ratio.

Historical Data

Analyzing historical PCR data helps traders understand typical ratio ranges for specific securities or market indexes. This historical context provides a benchmark for evaluating current readings.

For example, if the S&P 500’s PCR historically oscillates between 0.7 and 1.2, any values outside this range could signal a significant shift in sentiment.

Real-World Examples of Put/Call Ratio Usage

A trader might observe a spike in the PCR for a major index ahead of a Federal Reserve announcement. This could indicate that investors are hedging against potential market volatility. If the announcement turns out to be market-neutral, the PCR may normalize, allowing traders to capitalize on the unwinding of positions.

The Takeaway

The put/call ratio is a simple metric used to gauge market sentiment. While often used on broad market indexes, investors may also apply the PCR to specific securities. Calculating it only involves dividing the volume of puts by the volume of calls on the market for a security.

The put/call ratio is one factor you might consider as you start trading options.

Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.

Explore SoFi’s user-friendly options trading platform.

Photo credit: iStock/PeopleImages

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Apr

2025

How to Save Up for a Car

By Jacqueline DeMarco | Budgeting & Goals, money | Comments Off

According to Car & Driver, the average transaction price for a new car tops $48,000 in spring of 2023. And Kelley Blue Book says that the average used car price tops $26,000.

Whichever option you may be pursuing to get yourself some wheels, that’s not an insignificant amount. You likely know that the more money you put down, the lower your monthly payments will be. That’s even more incentive to save up as much as you can for a car.

There are a few simple steps that can jumpstart the process and help you get your funds together for a car. These can include researching your options, then setting a budget for a new vehicle, and putting systems in place so it’s faster and easier to save.

Here’s how to make saving up for a car as quick and easy as possible.

Key Points

• The average price for a new car exceeds $48,000, while used cars average around $26,000, highlighting the need for substantial savings.

• Establishing a budget and calculating a down payment can lead to lower monthly payments and potentially better loan terms from lenders.

• Setting a monthly savings goal helps in accumulating the necessary funds for a down payment, considering potential maintenance costs for an older vehicle.

• Opening a separate high-yield savings account and automating contributions can streamline the saving process for a car purchase.

• Cutting non-essential expenses and exploring additional income sources can significantly boost savings toward buying a car.

Researching Your Options

If your plan is to buy a new car, you can start getting a sense of costs by researching car options that might fit your needs and budget.

Some questions to consider when buying a car include:

• Do you want a compact, sedan, wagon, minivan, truck or SUV?

• Will you use it for work, travel or school?

• What features are important, and which can you live without?

You can read articles, peruse car review sites, visit dealerships in person, and/or review manufacturers’ websites to research car models that appeal to you.

You may also want to look into purchasing a used or preowned vehicle, and seeing exactly how much this could save you. You can get a sense of costs by reviewing the used car market for the makes and models you are considering.

Calculating Your Down Payment

Once you have a rough idea of how much it will cost to get the car you want, you can start figuring out how much you may need for a downpayment.

Parting with a solid chunk of cash is never fun, but an appropriate down payment can help to make your car repayment process more manageable.

A 20% down payment is often recommended when purchasing a new car, and a downpayment of 10 percent is a general guideline for a used car.

But this is not a set rule.

A higher down payment can lead to lower monthly car payments. For one reason there’s less money to finance. For another, a lender might extend better terms, such as a lower interest rate, when you make a substantial downpayment.

Your down payment can include cash, the trade-in value of the vehicle you drive now, or a mix of the two.

Recommended: 12 Mobile Banking Features

Calculating Your Monthly Payments

If you believe you can save up enough to buy the car outright, way to go! That means you will ultimately pay less for the car because you’ll avoid paying any interest.

But if, like many people, you plan to get an auto loan, you may next want to determine how much your monthly car payments will be.

You can sit down and crunch the numbers, or you can let an online car loan calculator do the work. These calculators are designed to help you estimate what your monthly car loan payments will be throughout the life of your auto loan.

Steps to Saving up for a Car

Once you have a general idea of how much you need to save up for a downpayment, and how much money you’ll need to budget each month after you purchase your vehicle, you can set the saving money process in motion.

Here are some smart steps to help you get to the finish line.

Figuring Out How Much to Save Each Month for a Car

You can come up with a monthly savings goal by taking the amount you’ve determined you’ll need for a car upfront (subtracting any money that may come from selling or trading in your current car), and then dividing it by however many months you have left until your ideal purchase date.

The number you get after doing this equation is how much money you ideally want to save each month to meet your goal. You might also think about saving more than that per month so you can prepare for your monthly payments.

And if you’re currently driving an older vehicle that is prone to issues, you may want to save a little extra as a cushion for any necessary maintenance or repair costs.

Remember, saving for a car isn’t an overnight process and it may take longer than you initially expected, and that’s okay–the key is to get started.

Finding the Right Savings Account to Save Up for a Car

If you haven’t set up a savings account yet, this may be a good time to do so.

Good options for a short-term saving goal like buying for a car include: a high-yield savings account, money market account, online savings account, or a checking and savings account.

These options can offer a higher interest rate than a standard bank account, yet allow you to access your money when you’re ready to buy your car.

Having a savings account that is separate from your spending account can help you keep track of your progress, and allow you to know exactly how much money you have for a down payment for your car.

Making Saving for a Car Automatic

Once you have a good place to start and build your car savings, consider setting up automatic contributions to this account. You may hear this referred to as automating your savings.

You can time these transfers to happen on the same day each month, maybe right after you get your paycheck.

This makes sure the savings happens (since you won’t have to remember to transfer the money), and also ensures that you don’t accidentally spend the money you want to put aside each month to save up for your car.

Cutting Back on Extras

If your current budget doesn’t give you much room to save for a car, you may want to see if you can pair back some of your monthly expenses.

For instance, if you’re paying a high price for cable each month, but primarily watch streaming services, you may be able to cut that line item right out of your budget for a significant savings.

Or, if you seldom use your gym membership, you might want to pause or cancel it and jog around the neighborhood and/or stream workout videos at home for free instead.

Or, you might be able to save money on food by cooking more and eating out/getting takeout less often. You might also decide to only use your credit card for essentials for the next few months.

Any changes you make don’t necessarily have to be permanent. You may decide that you can go back to certain spending habits once you have a sufficient down payment to buy a car.

Finding a Extra Stream of Income

If your current income is only enough to cover your current bills, you may want to look into taking on a low-cost side hustle to help you save up for a car.

You might be able to get some extra work delivering people’s groceries, mowing lawns, babysitting, cleaning houses, driving for a ride-share service, selling homemade goods online, or working as a virtual assistant.

Or you might be able to turn one of your talents into some freelance work, such as designing websites or managing social media for a local business.

Earning a little extra cash can go a long way, giving you the chance to put more toward a car, borrow less money, and lower your monthly payment.

Trading in or Selling Your Old Car

Trading in your old car to help fund your next car purchase, and is often a good option to lower the overall amount you’ll owe on your new vehicle.

To get the most money, it’s a good idea to compare what different dealers will offer you for the car.

You can also research what your car may be worth on sites like Edmunds and Kelley Blue Book to see if your trade-in offer seems reasonable.

You may also want to look into selling the car yourself to a private party since it could yield a higher price than trading in. The tradeoff is that this typically requires a little more work.

Recommended: How to Switch Banks

Getting the Best Deal on a Car

When you’re ready to start seriously shopping for a car, you’ll want to take advantage of any deals you can find, such as rebates and special dealership offers.

You can receive quotes from multiple dealerships; it’s a good idea to ask them if the price quoted includes deducted rebates. This process may feel tedious, but it can help you learn which make and model you can afford.

If you’ll be financing the car, you may also want to shop around for auto loans. You can check with various lenders, including banks and credit unions, to see who might offer the best lending terms.

With that information in hand, you can ask the car dealership whether it can offer a better financing deal.

If you do decide to go the used car route, it’s a good idea to follow the steps recommended by consumer.gov, such as finding out if the car has any recalls, researching if the warranty is still in effect, and having a mechanic inspect the vehicle before making a purchase, for your financial (and physical) protection.

The Takeaway

A car is a major purchase, and it’s a good idea to save up as much as you can before you take the plunge.

For one reason, you may be able to buy the car outright, and avoid taking a loan (and paying interest). For another, the higher your down payment, the lower your monthly car payments may be once you purchase the car.

Learning how to save money for a car can take a little trial and error. You may need to rejigger some of your expenses and find ways to cut back and/or bring some extra money, at least temporarily.

Ready to start saving up for that car? You may want to consider signing up for a SoFi Checking and Savings account.

With SoFi Checking and Savings’s Vaults feature, you can separate your spending from your savings (even create a Vault specifically for car savings) while still earning competitive interest on all your money.

Plus, you’ll earn a competitive annual percentage yield (APY), and there are no account fees.

Sign up for SoFi Checking and Savings, and start saving up for that car today!

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

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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.

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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.

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Apr

2025

How to Catch up on Bills When You’re Behind

By Jacqueline DeMarco | Debt Payoff, Family Finances, money | Comments Off

Sometimes life throws a few curveballs your way. When those curveballs include unexpected expenses (like an emergency car repair or medical bills) or a job loss, it can be hard to keep your budget on track. This may lead to paying some bills late, or not at all, which only puts you further in the hole, thanks to interest and late fees. Your credit can also take a hit.

While you may not be able to get back in the black overnight, there are ways to regain control of your finances and work toward financial stability. Read on for simple strategies that can help you get caught up on bills, plus tips on how to avoid getting behind in the future.

6 Tips for Getting Caught up on Bills

Falling behind on bills can feel overwhelming, but it’s a challenge that many people face at some point. The key is to face missed payments head on and come up with a plan to gradually bring all of your accounts up to date. These tips can help.

1. Make a Master List of Bills

A good place to start is by organizing your bills and making a master list of everything you owe. This includes rent/mortgage, utilities, insurance, credit card payments, personal loans, and any other debts. Consider organizing them by due date, amount owed, and interest rates. Having a clear picture of your financial obligations helps you prioritize and plan your payments more effectively. This list will serve as a roadmap to ensure you don’t overlook any bills and can systematically address each one.

2. Reach Out to Your Creditors

Communication with your creditors is crucial when you’re struggling to keep up with payments. Companies and creditors may be willing to work with you if you explain your situation honestly. They may offer solutions such as extended payment deadlines, reduced interest rates, or temporary payment plans. And you don’t have to wait until your accounts are severely delinquent — reach out as soon as you know you’re having trouble. Proactive communication can prevent additional fees and negative marks on your credit report.

Recommended: How to Negotiate Medical Bills

3. Pay Priority Bills

All bills are not equally important, and when funds are limited, it’s essential to prioritize which bills to pay first. You might start with necessities that ensure your basic living conditions, such as housing, utilities, and food. These are critical to maintain your daily life and stability. Next, you may want to focus on any bills that have legal consequences if left unpaid, such as child support and taxes. Secured debts, like car loans, should also be a priority to avoid repossession. Once these essentials are covered, you can move on to other debts.

4. Pay Bills with the Highest Interest Rates

High-interest debt can quickly spiral out of control, making it harder to catch up. After prioritizing essential bills, consider paying down debts in order of interest rate, from highest to lowest. This repayment strategy, known as the avalanche method, can save you money in the long run by reducing the amount of interest you’ll pay over time. Consider making larger payments toward these debts while maintaining minimum payments on lower-interest obligations.

5. Cut Unnecessary Expenses

To free up more money for paying bills, take a close look at all of your monthly expenses and identify areas where you can cut back. Dining out, subscription services, gym memberships, and entertainment are examples of expenses you may be able to cut until your finances are in better shape. Creating a bare-bones budget can help you focus on what’s necessary until you’re caught up. Redirect the money saved from cutting expenses toward paying down your debts. Even small savings can add up and make a significant difference over time.

6. Boost Your Income

Increasing your income can provide a much-needed boost to catch up on bills and put more padding in your checking account. Consider taking on a part-time job, freelancing, or selling items you no longer need. If you have any special skills or hobbies, you might look into starting a side business. Or you might explore opportunities to work extra hours or seek a raise at your current job. While increasing your income may require additional effort and time, the extra money can help you get back on track faster.

How to Avoid Falling Behind After You’re Caught Up

Once you’ve managed to catch up on your bills, it’s important to implement strategies to avoid falling behind again. Here are some ways to help you stay on track.

Create a Budget

A well-structured budget is the cornerstone of good financial management. Now that things are more stable, you might want to take a closer look at what’s coming and going out each month to ensure that your spending aligns with your priorities. One simple budgeting framework to consider is the 50/30/20 rule. This suggests dividing your after-tax income into three main categories, with 50% going to “needs,” 30% going to “wants,” and 20% going to savings and debt payments beyond minimums.

Enroll in Autopay

Automating your bill payments is one of simplest ways to avoid missing payments and getting hit with late fees. Consider setting up autopay for your recurring bills, such as rent, utilities, and credit card payments. To make sure you don’t accidentally overdraft your account, put reminders on your calendar or set up alerts on your phone before each bill is due. That way you can make sure you have sufficient funds in your account to cover these automated payments.

Build an Emergency Fund

An emergency fund acts as a financial safety net, allowing you to cover unexpected expenses without disrupting your regular budget. Aim to save at least three to six months’ worth of living expenses in a separate, easily accessible account, such as a high-yield savings account. Start small if necessary and gradually build up your fund over time. Having an emergency fund can prevent you from relying on credit cards or loans if you get hit with an unexpected expense or loss of income and can help you maintain your financial stability.

The Takeaway

Catching up on bills when you’re behind can be challenging. Fortunately, by assessing your situation and coming up with a strategic pay-off plan, it’s possible to get back on track. Staying proactive and disciplined can help you avoid falling behind again and allow you to work toward long-term financial stability and growth.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

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

What to do when you can’t catch up on bills?

Consider making a list of all your outstanding bills, then prioritizing the ones that are for necessities (housing, for instance) and those with the highest interest rates. To free up funds to pay off your bills, you may need to temporarily cut or reduce unnecessary expenses, like dining out, streaming services, and entertainment. It’s also a good idea to reach out to your creditors and explain your situation. They may be willing to work with you by offering a more manageable payment plan and crediting late fees.

What bills should I prioritize?

If you’re behind on bills, you’ll want to prioritize any bills relating to necessities, such as housing and utilities. Next, you might focus on obligations that, if neglected, could have legal consequences (like past-due taxes or child support), followed by secured debts (like an auto loan or mortgage) to avoid repossession. After that, you might prioritize high-interest debts (like credit cards), since the longer it takes to pay them off, the more expensive they get.

Why is it so hard to catch up on bills?

Catching up on bills can be challenging due to high-interest rates that make debts grow quickly. Having a limited income, getting hit with unexpected expenses, and poor financial habits (such as lack of budgeting or overspending) can also make it difficult to catch up once you fall behind.

About the author

Jacqueline DeMarco

Photo credit: iStock/Ratana21

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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.

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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.

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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.

SOBK-Q224-1920530-V1

Apr

2025

How Are Leverage and Margin Similar and Different?

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

The terms margin and leverage are often used interchangeably in the world of finance. While both terms refer to strategies that can be used to amplify an investor’s buying power when trading stocks and other securities, they have some key differences.

Margin trading, or “buying stocks on margin,” means borrowing money from your brokerage to purchase more stock than you could with your own funds. Your existing securities serve as collateral.

You will also pay interest on the amount borrowed from the broker.

Leverage is a broader financial concept, referring to the use of debt to take a larger position (whether in securities trading or business acquisitions) to potentially amplify returns. In the context of trading, leverage means using borrowing funds in order to increase trading positions — taking on more risk with the hope of more gains.

The use of leverage also means the possibility of losing more than you have. In addition to the risk of a trade going south, the borrowed funds must be repaid with interest. It’s important to understand how leverage works in terms of margin trading so that you know the amount of risk exposure you have.

Key Points

• Margin trading and leverage use debt to increase buying power and potential returns.

• Both methods significantly increase the risk of substantial financial losses.

• Leverage can be applied through various financial instruments, not just margin accounts.

• Margin trading involves borrowing funds from a broker, increasing exposure.

• With a margin account, the borrowed funds must be repaid with interest, regardless of the outcome of the trade.

Leverage vs Margin

The reliance on borrowed funds, or debt, to enable bigger trades or purchases is commonly known as leverage. Margin trades are a type of leveraged trade.

What Is Leverage?

The use of leverage refers to investors who use debt to finance bigger positions.

The same is true in business: a highly leveraged company is one that has taken on large amounts of debt to fund an expansion or acquisition; in other words, a company with a high debt ratio.

What Is Margin?

Again, margin is a type of leverage. Investors use margin, i.e., borrowed funds, to place bigger trades than they could afford with cash. The securities in their brokerage account are used as collateral for the margin loan.

Margin, or margin accounts, can be set up through a traditional brokerage account or when investing online. Access to margin is highly regulated in terms of how much investors can borrow, and how much collateral is required to place a margin trade.

Investors can use leverage via other means (e.g., leveraged ETFs, which do not require margin accounts).

A Closer Look at Margin

Margin trading is a sophisticated, higher-risk strategy that enables experienced investors to trade securities using money that they’ve borrowed from their broker. As noted, margin can allow bigger trades, with the potential for bigger gains — as well as the potential for steep losses.

For investors who qualify, a margin loan generally allows them to borrow up to 50% of the cost of a trade. Like any other loan, margin funds require collateral from the existing cash and securities in the account; in addition, the loan accrues interest. Margin interest rates fluctuate and are generally decided by the broker.

Traders must also maintain a minimum balance in their margin accounts called maintenance margin. Along with collateral, this can cover potential losses.

The Margin Call

If the account falls below that threshold, the broker can require a deposit to bring the balance up to the minimum amount. This is known as a margin call. If the investor fails to cover the shortfall, the broker can sell securities in the account to restore the necessary balance.

How Margin Trading Works

When using a cash account vs. a margin account to execute trades, every cash trade is secured by moneyfo in the investor’s account, entailing no risk to the broker.

With margin, though, a portion of each trade is secured by the initial margin (or cash), while the rest of the trade is covered by borrowed funds. If the margin requirement is 50%, and you want to place a $10,000 trade, you would need $5,000 in cash.

So while margin trading affords more buying power than investors could achieve with cash alone, the additional risk exposure means that investors always need to maintain a minimum level of collateral to meet margin requirements, or they may face a margin call.

Though margin requirements vary by broker, following are minimums currently required by financial regulators.

Term	Amount	Definition
Minimum margin	$2,000	Deposit amount needed to open a margin account
Initial margin	50%	Percentage of a trade that must be funded by cash
Maintenance margin	25%	Minimum amount of equity in the margin account
Margin call	Any	If a margin account falls below the maintenance margin, the broker will require a deposit to cover the shortfall, or will sell securities in the account to do so.

As noted above, margin trading offers experienced investors some potential upsides as well as risks.

thumb_up

Pros:

• Increases buying power

• Potential for returns

• Can provide an opportunity for diversification

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Cons:

• Must meet and maintain margin requirements

• Potential for steep losses

• Investors owe interest on borrowed funds

Increase your buying power with a margin loan from SoFi.

Borrow against your current investments at just 11%* and start margin trading.

*For full margin details, see terms.

A Closer Look at Leverage

Leverage in finance is a word used to describe borrowing money to increase returns. Investors might borrow capital from a broker or bank in order to make trades that are larger than their account’s equity, increasing their trading power.

Companies might use leverage to invest in parts of their business that they hope will ultimately raise the value of the company.

How Leverage Works

Leverage in a stock account is the result of borrowing money to trade securities, using an account’s margin feature. Leverage can work to the benefit or detriment of an investor depending on the movements of an account’s holdings.

Companies often use leverage to amplify returns on their investment projects, and the same logic applies to trading equities. You may see the potential for significant returns on the upside — or you may see your account value drop rapidly if the market moves against you.

Trading with leverage is riskier than strictly using your own cash, because there is the possibility of total loss.

Futures and forex trading often use higher leverage versus a margin account. Forex trading may allow a 1% initial margin. So a $1000 deposit would enable an investor to trade $100,000.

The initial margin amount required for a futures contract can range from 2% to 12%, depending on the commodity.

The Takeaway

Margin trading and leverage can be used to boost returns, but there are substantial risks to consider.
A margin account with stocks allows you to borrow against cash and securities when trading stocks online. Leverage measures the increase in trading power because of using margin.

It’s important to understand your personal risk tolerance before trading on margin and using leverage

If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.

Get one of the most competitive margin loan rates with SoFi, 11%*

FAQ

Is leverage the same as margin?

Leverage is different from margin. You use a margin account to increase your leverage ratio when trading stocks. Futures and forex trading requires a trader to post margin to use leverage.

Can you trade without leverage?

You can trade without leverage, using securities with cash in your account instead. This method also avoids paying interest on margin balances. The downside is you will not be able to amplify returns as you would when trading on margin or with leverage. You can also trade leveraged ETFs without a margin trading account.

What is margin in stock trading?

Margin in stock trading happens when an investor takes out a loan on an investment with the goal of seeing that asset’s price rise. When the investment is sold, the borrowed funds are returned to the lender, but you as the investor keep the profits. The downside is if the security’s price drops, you will see enhanced losses. In either event, you owe the lender interest on borrowed funds.

Photo credit: iStock/DuxX

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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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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.

SOIN-Q125-113

Apr

2025

What’s the Difference Between Homeowners Insurance and Title Insurance?

By Jacqueline DeMarco | Budgeting & Goals, Home Ownership, mortgage | Comments Off

When you’re buying a home, you probably have a million questions that need answering, especially when it comes to getting the proper insurance to protect your investment.

Soon-to-be homeowners may see both title and homeowners insurance on the lending documentation and wonder what the difference is between the two. While both types of insurance can provide vital coverage for homeowners, they differ vastly in their purpose and protection.

What Is Homeowners Insurance?

A homeowners insurance policy protects a home and personal property from loss or damage. It may also provide insurance in the event someone is injured while they are on the property.

Here are some common things homeowners insurance may cover:

• Damage that may occur in the home, garage, or other buildings on the property

• Damaged, lost, or stolen personal property, such as furniture

• Temporary housing expenses if the homeowner must live elsewhere during home repairs

Depending on the policy, homeowners insurance may also cover:

• Physical injury or property damage to others caused by the homeowner’s negligence

• An accident that happens at home, or away from home, for which the homeowner is responsible

• Injuries that take place in or around the home and involve any person who is not a family member of the homeowner

• Damage or loss of personal property in storage

Some coverage may also apply to lost or stolen money, jewelry, gold, or stamp and coin collections.

Buying Homeowners Insurance

While someone can legally own a home without taking out homeowners insurance, the mortgage loan holder may require the homeowner to purchase an insurance policy. Typically, lenders do require this as a condition of the home loan.

It’s important to understand that homeowners need to insure the home but not the land underneath it. Some natural disasters — tornadoes and lightning, for example — are covered by typical homeowners policies. Floods and earthquakes, however, are not. If you live in an area where floods or earthquakes are common, you may want to consider purchasing extra insurance to cover damages from potential disasters.

Special coverage may also be worthwhile for those who own valuable art, jewelry, computers, or antiques.
There are two policy options that can help homeowners replace insured property in the event of damage or a loss. Replacement cost coverage covers the cost to rebuild the home and replace any of its contents, while actual cash value simply pays the current value of the property at the time of experienced loss.

When it comes time to shop for and buy homeowners insurance, start by asking trusted friends, family, or financial advisors for their recommendations. Do some online research, too. Before you make a final decision, contact multiple companies and request quotes in writing to compare their offerings. That process can give you a good idea of who is offering the best coverage for the most affordable price.

What Is Title Insurance?

Title insurance provides protection against losses and hidden costs that may occur if the title to a property has defects such as encumbrances, liens, or any defects unknown when the title policy was first issued.

The insurer is responsible for reimbursing either the homeowner or the lender for any losses the policy covers, as well as any related legal expenses.

Title insurance can protect both the homeowner and lender if the title of the property is challenged. If there is an alleged title defect, which the homeowner may be unaware of at the time of purchase, title insurance can provide protection to cover any losses resulting from a covered claim.

The policy will cover legal fees incurred if there is a claim against the property.

Recommended: How to Read a Preliminary Title Report

Buying Title Insurance

Both home buyers and lenders can purchase title insurance. If the home buyer is the purchaser, they may want to insure the full value of the property. (The value of the property will affect how much the policy costs). When the lender is the purchaser, they typically only cover the amount of the homeowner’s loan. When it comes time for a home buyer to purchase title insurance, they have full choice of the insurer.

According to the Real Estate Settlement Procedures Act (RESPA) of 1974, the seller cannot require the home buyer to purchase title insurance from one certain company.

Lenders are required to provide a list of local companies that provide closing services, of which title insurance is just one. But it may be worth doing independent research. Lenders may not select their recommendations based on the home buyer’s best interest, but instead because a service provider is an affiliate of the lender and provides a financial incentive in exchange for a recommendation.

Again, it’s a smart idea to seek the counsel of friends and family and do online research to uncover competitive prices and learn which service providers have a solid reputation.

The Takeaway

Homeowners insurance is an ongoing cost (billed monthly, quarterly, or annually) that helps cover damage or loss of the home and possessions within the home. Title insurance, on the other hand, can help protect against losses caused by defects in the title and is a one-time fee payable during the closing process. The advantage to having both types of coverage is that each policy can protect homeowners against financial loss in very different circumstances.

Shopping for homeowners insurance often requires considering several options, from the amount of coverage to the kind of policy to the cost of the premium. To help simplify the process, SoFi has partnered with Experian to bring customizable and affordable homeowners insurance to our members.

Experian allows you to match your current coverage to new policy offers with little to no data entry. And you can easily bundle your home and auto insurance to save money. All with no fees and no paperwork.

Check out homeowners insurance options offered through SoFi Protect.

About the author

Jacqueline DeMarco

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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

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.

SOPT0623005

Understanding the Put/Call Ratio in Market Analysis

What Is Put Call Ratio?

Definition and Significance

Key Takeaways

Calculating the Put-Call Ratio

Formula and Calculation Methods

Index, Equity, or Total — What the Numbers Indicate

Interpreting the Put-Call Ratio

How to Read the Ratio

Contrarian Indicator — What the Numbers Mean

Using the Put/Call Ratio in Trading

Trading Strategies Based on the Ratio

Put/Call Ratio as a Market Sentiment Tool

Advanced Analysis of the Put/Call Ratio

Analyzing Put/Call Ratio Extremes

Smoothing and Adjusting the Put/Call Ratio

The Put/Call Ratio in Different Market Contexts

CBOE Equity Put/Call Ratio Analysis

Put/Call Ratio in ETFs and Other Instruments

Practical Applications of the Put/Call Ratio

Historical Data

Real-World Examples of Put/Call Ratio Usage

The Takeaway

How to Save Up for a Car

Researching Your Options

Get up to $300 when you bank with SoFi.

Calculating Your Down Payment

Calculating Your Monthly Payments

Steps to Saving up for a Car

Figuring Out How Much to Save Each Month for a Car

Finding the Right Savings Account to Save Up for a Car

Making Saving for a Car Automatic

Cutting Back on Extras

Finding a Extra Stream of Income

Trading in or Selling Your Old Car

Getting the Best Deal on a Car

The Takeaway

How to Catch up on Bills When You’re Behind

6 Tips for Getting Caught up on Bills

1. Make a Master List of Bills

2. Reach Out to Your Creditors

3. Pay Priority Bills

4. Pay Bills with the Highest Interest Rates

5. Cut Unnecessary Expenses

6. Boost Your Income

Get up to $300 when you bank with SoFi.

How to Avoid Falling Behind After You’re Caught Up

Create a Budget

Enroll in Autopay

Build an Emergency Fund

The Takeaway

FAQ

What to do when you can’t catch up on bills?

What bills should I prioritize?

Why is it so hard to catch up on bills?

How Are Leverage and Margin Similar and Different?

Leverage vs Margin

What Is Leverage?

What Is Margin?

A Closer Look at Margin

The Margin Call

How Margin Trading Works

Pros:

Cons:

Increase your buying power with a margin loan from SoFi.

Borrow against your current investments at just 11%* and start margin trading.

A Closer Look at Leverage

How Leverage Works

The Takeaway

FAQ

Is leverage the same as margin?

Can you trade without leverage?

What is margin in stock trading?

What’s the Difference Between Homeowners Insurance and Title Insurance?

What Is Homeowners Insurance?

Buying Homeowners Insurance

What Is Title Insurance?

Buying Title Insurance

The Takeaway

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