Apr
27
2022

5 Popular Investing Trends of 2023

By | Growing Wealth, Investing | Comments Off on 5 Popular Investing Trends of 2023

Heading into 2023, many investors had a brighter outlook on the U.S. economy and financial markets. Both staged impressive rebounds in 2021 after Covid-19 quarantine measures triggered wild volatility. Vaccine breakthroughs and stimulus checks further stoked optimism that the finances of many businesses and individuals were on the mend.

However, rising inflation, higher interest rates, and geopolitical conflict have been several headwinds getting in the way of continued economic and financial market growth in 2022. Year-to-date, the benchmark S&P 500 Index is down about 7% through April 20, 2022, after rising nearly 27% in 2021.

Nonetheless, there are opportunities in some areas of the financial markets for investors looking beyond Covid-19. Here’s a look at five popular investment trends for 2023.

1. Looking Beyond Covid-19

Some of the success stories in the stock market in 2020 and 2021 were companies that benefited from coronavirus-related stay-at-home measures, like entertainment streaming businesses, video conferencing services, and at-home workout companies. But many companies in these sectors are losing their luster as the country reopens; investors are looking for other opportunities as the world returns to normal.

Investors have wagered that airline, cruise line, travel website operators, and other transportation stocks will benefit now that most Covid-19 restrictions are in the rearview mirror. While these sectors, like the rest of the economy, may be hindered by rising interest rates and inflation, many investors still see them poised to grow because of pent-up demand.

2. ESG Investing Movement

Financial advisors often tell clients to take their emotions out of investing. However, a new breed of ethically-minded investors has become increasingly interested in putting their money where their values are in recent years.

This strategy is known as environmental, social, and governance (ESG) investing. A Bloomberg study estimated that ESG investments may hit $41 trillion globally by the end of this year and $50 trillion by 2025, a third of global assets under management.

In early 2022, the Russian invasion of Ukraine set off global protests and pronouncements against the unprovoked conflict. Many American companies followed by pulling their business operations out of Russia and issuing statements on their commitment to Ukrainian democracy. This development is just one example of companies looking beyond the bottom line in their business decisions. Moreover, shareholder advocacy groups are applying pressure on some companies to back their pledges with transparency on diversity, equity, and inclusion issues.

3. Web 3.0

Bitcoin and other cryptocurrencies were among the most discussed investments in 2021, with wild swings in prices across the entire sectors. The prices of crypto assets cooled off in the early portion of 2022, but they are still in the front of the minds of a lot of investors for a number of reasons, including potential risks, possible regulation, notable hacks, failures, and more.

Because of the attention paid to crypto over the past several years, some investors are interested in related investments: companies involved in what is known as Web 3.0, or the next phase of the internet. Web 3.0 companies include those involved with blockchain technology, decentralized finance (DeFi), the metaverse, and artificial intelligence.

Recommended: Learn the basics of cryptocurrency with this Crypto Guide for Beginners.

4. Commodities Markets

After years of muted returns, commodity prices rebounded in 2021. Investors wagered that recovering economies would lead to more construction, energy usage, and food consumption. Tight supplies also boosted these markets.

Moving into 2022, the attention paid to the commodities market has only intensified, especially with the geopolitical turmoil in Ukraine and Russia affecting critical commodities like oil, natural gas, and wheat. Prices of these key commodities have spiked as the Russian-Ukrainian conflict constrains supplies.

Rising prices of agriculture, lumber, and industrial and precious metals have sparked a debate about whether commodities are going through a new supercycle. A supercycle is a sustained period, usually about a decade, where commodities trade above long-term price trends.

Recommended: Commodities Trading Guide for Beginners

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5. Hot Housing Market

The housing market will continue to be an area of focus for investors, policymakers, and potential homebuyers in 2022. During 2020 and 2021, rock-bottom mortgage rates, a shortage of housing supply, and homebuyers looking to purchase larger houses to accommodate working from home led to houses selling quickly and at high prices. Additionally, investors and real estate investment trusts (REITs) bought an increasing share of homes on the market.

During the first quarter of 2022, mortgage rates are rising at a record pace, with the average 30-year mortgage nearing 5% for the first time since 2018. Analysts are looking to see if rising mortgage rates will cool the hot housing market or if buyers will continue to purchase homes.

Recommended: Pros & Cons of Investing in REITs

The Takeaway

Putting hard-earned dollars into any investment — whether it’s trendy or traditional — can be daunting. Investors should be aware that, while momentum can feed investment fads for long periods, some market trends can become vulnerable because of frothy valuations and turn on a dime.

However, if investors still want to try their hand at choosing popular investment trends themselves, SoFi’s Active Investing platform makes it easy by making it easy to track their picks of stocks, ETFs and fractional shares. Investors can also make trades online without incurring management fees from SoFi Invest®.

Open an Active Investing account with SoFi today.

Photo credit: iStock/MicroStockHub
SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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Mar
14
2022
How to Save Money on Gas

How to Save Money on Gas

By | Credit, Financial Independence | Comments Off on How to Save Money on Gas

With gasoline and home heating oil prices surging since the Russian invasion of Ukraine, consumers are looking for ways to cut their gas bills.

Crude oil prices have risen to their highest level since 2014 amid the war in Ukraine, which began in February 2022 — and has no clear path for a ceasefire in sight. Gasoline and heating oil are some of the petroleum products derived from crude oil, so higher gasoline and heating oil prices may be around for some time.

Fortunately, motorists and homeowners can save money on gas by embracing energy-efficient practices. Here are some of the easiest ways to reduce the pain both at the pump and when paying for heating costs.

15 Ways to Pay Less for Gas for Your Car and Home

Here are 15 ways you can pay less on fuel for your car and home heating system:

1. Follow the Speed Limit

Following the speed limit can help you save money on gas. In general, gas mileage decreases rapidly as you accelerate above 50 mph. Driving 55 mph rather than 65 mph can improve your gas mileage by 15%, according to the U.S. Environmental Protection Agency.

2. Avoid Aggressive Driving

Aggressive driving, including speeding and rapid acceleration, can lower your gas mileage by 33% on the highway and by 5% on city roadways. Motorists who avoid aggressive driving can realize cost-savings by burning less fuel on roads and highways.

3. Remove Unnecessary Weight

Removing unnecessary weight from your vehicle can save money on gas. Storing an extra 100 pounds in your vehicle could reduce your miles per gallon by up to 2%, according to the U.S. Department of Energy.

4. Use Cruise Control on Highways

Using cruise control on highways can help you save up to 14% on gas by maintaining a continuous speed. Constantly accelerating and decelerating burns more fuel, which gives you less bang for your buck on the road.

5. Keep Tires Properly Inflated

Keeping your tires properly inflated can improve your gas mileage by 3%. Conversely, driving with underinflated tires can decrease your gas mileage by 0.3% for each unit drop in pounds per square inch (psi) of air pressure.

6. Stick With Regular Gasoline

Gasoline prices vary by their octane level, with regular being the cheapest and premium being the most expensive. Unless your car requires premium fuel, you can save money by sticking with unleaded regular gasoline as opposed to choosing midgrade or premium alternatives.

President Joe Biden has predicted gas prices will go up further as a result of Russia’s invasion of Ukraine. The potential for crude oil prices to continue rising may motivate some observers to invest in energy stocks. Others may see this as an ideal time to invest in utilities.

7. Don’t Idle When Parked

Allowing your car engine to run idle while parked is wasteful. Idling can consume up to half a gallon of fuel per hour, according to the U.S. Department of Energy. You can save gas money by turning off your car when it’s parked.

8. Search Online for Cheapest Fuel Stations

Some gas stations may offer cheaper fuel than other gas stations in your geographic area. You can search online for the cheapest gas stations in your area. Websites or apps like GasBuddy can help you find the lowest gas prices in your city or town.

9. Reduce Aerodynamic Drag

Your vehicle has to overcome wind resistance or aerodynamic drag whenever you drive it in the open. Reducing aerodynamic drag can save money on gas, and motorists can reduce aerodynamic drag by driving with the windows closed.

10. Minimize A/C Usage

Minimizing your vehicle’s air conditioner usage can save gas money. Using the air conditioner in some cases can reduce your vehicle’s fuel economy by more than 25%, which is akin to paying more at the pump over time, according to the EPA and U.S. Department of Energy.

11. Clean or Replace Air Filter as Necessary

Cleaning or replacing your vehicle’s air filter as necessary can save gas money, particularly if you’re driving an older vehicle manufactured before 1980. Older vehicles may feature a carbureted engine that becomes less fuel efficient when operating with a clogged air filter, according to the U.S. Department of Energy.

12. Get Engine Tune-Ups as Needed

Getting engine tune-ups as needed can improve gas mileage by an average of 4%, according to the U.S. Department of Energy. An engine tune-up is a comprehensive inspection that determines whether any components of the engine need to be replaced.

13. Consider New Vehicle Options

You can consider buying a new or used vehicle with better gas mileage to save money on gas. Consumers can also consider buying all-electric vehicles to move away from gasoline and diesel fuel entirely.

14. Insulate Your Home

Homeowners can save up to 15% on heating and cooling costs by air sealing their homes and adding insulation in attics and other areas of the home, according to the EPA. This could be a worthwhile investment considering how the Ukraine invasion may affect oil, gas, and clean energy investments.

15. Lower Your Thermostat

Homeowners can save money on their home heating bills by setting their thermostats to 68 degrees Fahrenheit. The Delaware Public Service Commission says you can save 5% on your home heating costs for every degree you lower your thermostat below 70.

Considering the global economy and looking at oil and natural gas to understand Russia-Ukraine, homeowners in the New England and Mid-Atlantic states may consider thermostat adjustments as a cost-saving measure.

The Takeaway

The price of gasoline and heating oil may stay at its high level – or even rise as the conflict in Eastern Europe continues. Feeling the pinch in their wallets, consumers may want to try changing their habits and practices to be more energy efficient.

Another simple way to save money on gas is to pay for it using a credit card that offers cash back. [cc_three_percent]

Photo credit: iStock/ADragan

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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.

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


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Mar
09
2022
What Is a Golden Cross Pattern in Stocks? How Do They Form?

What Is a Golden Cross Pattern in Stocks? How Do They Form?

By | Growing Wealth, invest, Investing | Comments Off on What Is a Golden Cross Pattern in Stocks? How Do They Form?

The Golden Cross pattern is a popular candlestick chart pattern used by traders. It is a technical indicator that appears when a security’s short-term moving average rises above its long-term moving average.

It is popular because it is easy for chart watchers to spot and interpret. The Golden Cross doesn’t occur as often as other chart patterns, but when it does it sometimes even makes news headlines because it is a strong bullish indicator for a stock or index.

How Do Golden Cross Patterns Form?

The Golden Cross candlestick chart pattern happens when two moving averages cross, specifically when the short-term moving average rises above the long-term moving average. It is an indicator that the market will probably head in a bullish direction.

A moving average is simply a plot of the average value of a stock price for some trailing period of time. Commonly used moving averages are the 50-day moving average as a short-term measure and the 200-day moving average as a long-term measure.

Recommmended: Important Candlestick Patterns to Know

3 Stages of a Golden Cross

There are three stages that form the Golden Cross pattern:

1.    The first stage of the golden cross happens before the moving average lines cross. A downtrend happens and the short-term average is lower than the long-term average, but buyers volume starts exceeding seller volume.

2.    Next, the cross happens. The short-term moving average crosses over and above the long-term moving average, reflecting an upward trend.

3.    Finally, the trend continues and the price continues to rise, confirming a bullish market. Both moving averages establish support levels and the short-term average remains above the long-term.

What Does a Golden Cross Tell Traders?

When the short-term average is higher than the long-term average, this means that short-term prices are rising compared to previous prices, showing bullish momentum. A sharper trend line for the Golden Cross implies a more bullish indicator.

The candlestick pattern that’s opposite the Golden Cross is the Death Cross, which is when the short-term average goes below the long-term average, indicating a bearish market trend.

Does a Golden Cross Work?

The Golden Cross can be a useful technical pattern for traders to use to spot changes in market trends. However, on its own it has some limitations.

Benefits of the Golden Cross

The Golden Cross can be a good indicator that stock prices will rise. It is known as one of the strongest bullish indicators, and can reflect other positive underlying factors in a particular stock. Furthermore, since the pattern is so widely known, it can attract buyers, thereby helping to fulfill its own prediction.

Drawbacks of the Golden Cross

Like any chart pattern, there is no guarantee that prices will rise following the golden chart pattern. The Golden Cross is a lagging indicator. It shows historical prices, which are not necessarily an indicator of future price trends. Even if prices do rise, they might not rise for long after the Golden Cross forms. Due to these uncertainties, it is best to use the Golden Cross in conjunction with other indicators.

How to Trade a Golden Cross

Both long-term and short-term traders can use the Golden Cross to help them decide when to call their broker and enter or exit trades. It can be used both for individual stocks and for trading market indexes.

Most traders use the Golden Cross and Death Cross along with other indicators and fundamental analysis, such as the relative strength index (RSI) and moving average convergence divergence (MACD). RSI and MACD are popular indicators because they are leading indicators, providing more predictive and real-time information than the Golden Cross lagging pattern.

What Time Frame is Best for Golden Cross?

The most popular moving averages to use to spot the Golden Cross are the 50-DMA and the 200-DMA. However, day traders may also spot the Golden Cross using moving averages of just a few hours or even one hour. Traders enter into the trade when the short-term average crosses over the long-term, and they exit the trade when the price reverses again.

Oftentimes, investors enter a trade when the stock price itself rises above the 200-DMA rather than waiting for the 50-DMA to cross over the 200-DMA, because the Golden Cross is a lagging indicator. If traders wait for the pattern to form they may have missed the best opportunity to enter into the market. Short sellers also use the Golden Cross to determine when the market is turning bullish, which is a good time for them to exit their short positions.

Golden Cross Pattern in Crypto

While the Golden Cross has traditionally been used as a stock and index trading indicator, some crypto traders also use it. In crypto, traders use in the same way as stock traders, generally using the 50-DMA and the 200-DMA.

However, it’s important to remember that crypto assets tend to be more volatile than stocks and other assets. Therefore, the Golden Cross may have less utility for crypto traders than stock traders, since it is a lagging indicator.

One way to make the Golden Cross more useful for crypto is to change the moving averages used. In addition to using 50-DMA and 200-DMA, a trader might look at the 10-DMA compared to the 50-DMA and 200-DMA. This provides a more recent look at the market to see if the Golden Cross is still relevant for current trades.

A trader may actually find that the crypto price is returning to a downtrend, in which case it would not be a good time to buy. Technical patterns are especially popular with crypto traders because there is little else to go on when trying to determine whether a coin is headed ‘to the moon.’ There are no company reports of earnings, debt, or other information that might be informative for traders looking to do fundamental analysis.

The Takeaway

Chart patterns are useful tools for both beginning investors and experienced traders to spot market trends and find entry and exit points for trades. The Golden Cross is one indicator that technical analysts might look at to determine whether a stock or market is bullish.

If you’re ready to start investing, a great way to get started is by opening an account on the SoFi® Invest investment app. The online stock trading app lets you research, track, buy and sell stocks, ETFs, and other assets, and all you need is a few dollars to get started.

Alongside chart patterns like, another useful tool in your investing journey is a user-friendly options trading platform. SoFi’s platform allows you to trade options from the mobile app or web platform. Plus, you can continue learning as you go, thanks to the educational resources about options offered.

Trade options with low fees through SoFi.

Photo credit: iStock/Prostock-Studio

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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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Mar
08
2022
What Does Bullish and Bearish Mean in Investing and Crypto?

What Does Bullish and Bearish Mean in Investing and Crypto?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Does Bullish and Bearish Mean in Investing and Crypto?

Markets are often described as being either bullish vs. bearish. These are common terms used to refer to how a market is performing over a short or longer period of time. Investors can also be bullish or bearish on a specific stock, a sector, an asset class such as cryptocurrency, or on the economy in general.

Read on to learn more about the definitions of bearish vs. bullish, where the terms bullish and bearish come from, and the bullish and bearish meaning for investors in stocks, cryptocurrency, or other markets.

What Does Bullish Mean?

Bullish refers to stock market sentiment that the direction of the overall market will go up. A market that is increasing in value over a long period of time is said to be in a bull market. A bullish trend means that there may be an upward trend in prices for an asset.

For investors, being bullish means they feel positive about a stock, index, or the overall stock market. For example, if an investor says she is bullish on Apple (AAPL) stock, the investor expects the market value of AAPL stock to increase in the long-term. That bullishness may even compel the investor to buy more shares of the company.

A bullish market is one where prices go up by 20% after a sustained 20% decline.

What Does Bearish Mean?

Bearish refers to a sentiment that the direction of securities or the overall market will move down in price. An investor characterized as a bear believes the stock market will decrease in value, even if current prices are going up. An investor investing in a bearish market may even sell shares of their portfolio if they believe the market will turn negative.

A bear market is one that has fallen 20% from recent highs and remains below that threshold for at least two months. Since investors are bearish during this period, there may be lower trading activity.

Where Do the Terms Bullish and Bearish Come From?

While there are several theories as to the origins of bullish vs. bearish. The consensus believes the difference between bullish and bearish reflects the way each animal responds when they attack. When a bull goes into attack mode, it races at its target with confidence. In a bull market, investors are confident that stock prices will rise and correspondingly, the value of the market will trend upward.

When bears attack, they swipe their paws in a downward motion and often in fear. That is why in a bear market, prices drop. When investors are bearish, they do not have confidence in stocks and usually end up selling off some of their investments.

Bullish vs Bearish in Cryptocurrency

The terms bullish and bearish have historically been used in the context of the stock market. But these terms can apply to any market, including the cryptocurrency market. The definitions of bullish and bearish are largely similar in the context of trading crypto.

When cryptocurrencies are rallying, this means crypto is in a bull market. During this period, there is strong demand and, in some cases, limited supply. Bullish crypto traders may talk about prices going “to the moon,” which refers to periods when prices might surge or suddenly spike (these price moves can also happen in times of extreme volatility).

A bearish trend in the crypto market reflects falling prices accompanied by selling. But sometimes, crypto traders may consider a bear market a great time to add to their crypto portfolio. These traders may be hoping to “HODL,” which stands for “hold on for dear life,” and refers to the goal of investors riding out volatility.

Recommended: Crypto 101: Learn the Basics of Cryptocurrency

Pump-and-Dump in Crypto

Sometimes bullish or bearish movements in cryptocurrency reflect more than market sentiment. A “pump and dump” scheme in the crypto market refers to a group of market participants buying up large amounts of a cheap cryptocurrency to artificially increase its price.

They then relay positive messages about the asset to get other investors to buy in. Once prices soar, they sell off their assets and pocket the profits while others lose value.

How Bullish Markets Can Impact Investors

In a bull market, demand is greater than supply. There are many investors who want to buy stocks while only a few are willing to sell. Bullish traders tend to have long positions in stocks or other assets.

How Bearish Markets Can Impact Investors

In a bear market, supply is greater than demand — and investors look to offload their shares when there is not a lot of demand for market participants to buy. As a result, share prices decrease. A bear market is challenging for investors because stock prices keep falling, and that means more losses in an investment portfolio.

Your first instinct may be to sell in a bear market, but to increase chances of securing a profit in the long-term, it may make more sense to remain invested. Bear markets do not last forever.

Still, some investors prefer to adjust their investments in a bear market, turning to defensive stocks like consumer staples, healthcare, or utilities. They also may consider going into safer investments like bonds that offer stable fixed-income.

Bear markets can also present a good buying opportunity for investors who use dollar-cost averaging. This involves investing a fixed amount of money consistently. This way, investors can purchase stocks at a more affordable price. Learn more about

Tips on Withstanding Bullish vs Bearish Markets

One of the best investing strategies during a bull or bear market is diversification. Diversifying your investment portfolio with different securities in a variety of different industries — along with various asset classes — will protect a portfolio by minimizing losses and maximizing gains over the long-term. Diversification means buying shares of companies in different sectors and companies of different sizes, rather than just investing in a select few of stocks.

Stock Market

Investors who are not sure how to pick individual stocks can purchase an exchange-traded fund (ETF) or index fund, which are pre-selected baskets of securities all in one investment vehicle. For example, investors who own a fund that follows the S&P 500 will see their investments perform in line with that index.

In an ETF, investors own hundreds of companies, which means they don’t need to painstakingly choose one or two companies, rather, they own the entire index. This is a great strategy to ensure portfolio growth in the long-term.

Cryptocurrency

Because cryptocurrency is a relatively new asset class that has only been around for about 12 years, it can be difficult to know when a bull or bear period is approaching and how long it may last. One of the main characteristics of cryptocurrencies is their volatility. Assets with more volatility are riskier for investors. A crypto bear market or bull market can last for a period of hours, days, weeks, or months.

Crypto investors can also diversify by purchasing different types of cryptocurrencies, and keeping their overall crypto assets to a certain percentage of their wider portfolio.

The Takeaway

A market doesn’t necessarily have to be either bearish or bullish. It can actually be neither. The stock market can be in a state that is flat. This may mean there are normal market fluctuations leading to either small gains or small losses. Even if markets experience a sharp decline or rise in the short-term, this still cannot be defined as bearish or bullish because bull and bear markets are maintained over a period of time.

Whether you believe we’re in a bullish or a bearish market, a good way to get started investing is by opening an online brokerage account on the SoFi Invest® investment platform. With SoFi Invest, users can easily buy and sell stocks and exchange-traded funds directly from their phone.

FAQ

Does being bearish mean that you want to sell your crypto or other assets?

A bearish market period means investors think an asset’s price is headed downward. In some cases, people are not even aware of a bear market until it’s over because it’s difficult to predict the direction of the markets. Investors who are invested for the long run do not pay attention to the peaks and troughs of the market and take a dollar-cost averaging approach by investing consistently over time in both bear and bull markets.

What do bullish and bearish mean in crypto?

A bullish market in crypto means the value of the cryptocurrency will increase, while a bearish market means the asset will go in the opposite direction. Bearish investors are pessimistic that the market will decline — but there is so much momentum in the crypto market that when there is a bearish period, it is often seen as a buying opportunity to get more crypto.

How can you tell if a market is bearish or bullish?

Predicting and timing the markets is a challenging task. However, if stock prices have fallen by more than 20% from their recent peaks, and remained there for more than two months, that’s typically considered a bear market. A sustained increase in prices is a bull market.

Photo credit: iStock/NoSystem images

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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

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Mar
08
2022
Short Position vs Long Position, Explained

Short Position vs Long Position, Explained

By | Growing Wealth, invest, Investing | Comments Off on Short Position vs Long Position, Explained

Though having a long or short position on a stock, option, or exchange-traded fund (ETF) may sound like it has to do with how long an investor has held the shares, in fact it has nothing to do with time and everything to do with whether they own or owe.

Going long is often considered a bullish strategy, while selling short is a bearish strategy. But there are always exceptions to those rules of thumb, and ultimately it can depend on the securities being traded.

Here’s a look at short positions, long positions, and the benefits and drawbacks of each.

What Is a Short Position?

An investor in a short position benefits from a decline in the price of an asset. When you go short, your goal is to sell high then buy back low. Executing a short stock strategy is more complicated than putting on a long trade.

Short Selling a Stock

Short selling a stock is done by borrowing shares from your stock broker, then selling them in the open market. In doing this, you owe interest on the amount borrowed and face potentially unlimited losses since the stock price could hypothetically rise to infinity. You also must continue to meet margin requirements when keeping short trades active.

You must close your short position in the future by repurchasing them in the market (hopefully at a lower price than that at which you sold them) and then return the shares to the broker. A short squeeze is a danger short sellers face since intense short-covering leads to a rapidly appreciating share price.

Short Selling Options

Short and long positions also exist in the world of options trading. You can sell short options by writing contracts. An options seller simply enters a sell-to-open order to initiate a short sale.

The goal is the same as when selling shares short — you want to see the option price drop. That could be a bearish or bullish strategy depending on the options used. Whether you short call vs. put options makes a difference: If you short call options, you are bearish on the underlying security. Shorting puts is considered a bullish strategy.

With options, you can short implied volatility and benefit from the passage of time. These are plays on the options Greeks: vega and theta. Entering a short position on calls and puts is done in the hope of seeing the option premium decline in value — that can come from changes in the underlying asset’s price, but it can also come from a decline in implied volatility and as expiration approaches.

Short Selling ETFs

You can also sell shares of an exchange-traded fund (ETF) short. This play works much like shorting shares of stock in that you are borrowing from your broker, selling shares in the market, then buying them back. But the process of selling an ETF short can also be like selling options in that it may be either a bullish or bearish strategy. If you short an inverse ETF, for example, that would be a bullish strategy.

What Is a Long Position?

A long position vs. short position is simple to grasp. When you go long an asset, you are bullish on its price. Your potential downside is limited to the purchase price and your upside is unlimited. That is a key difference in a long vs. short position, since short positions can feature an unlimited risk of loss with a capped upside potential.

Long Positions and Stocks

To take a long position on shares, you must execute a buy order on a stock in hopes of profiting as the stock price rises. This is basically the way a typical stock purchase works.

Long Position and Options

In options trading, going long means entering a buy-to-open order on either calls or puts. A long options position can be bullish or bearish depending on the type of option traded. For example, in a long call position, you hope that the underlying asset price will appreciate so that your call value increases. In a long put position, you want to see the underlying asset price drop since a put offers the holder the right but not the obligation to sell a security at a prespecified price within a specified time frame.

With options, you can also take a long position on volatility, meaning you hope a stock price becomes more erratic, thus making the options more valuable. A long straddle strategy is one of several strategies for options trading that bets on higher volatility.

Long Position and ETFs

With ETFs, you can go long with a leveraged fund that offers multiples of market exposure. You can also enter a long position on an inverse ETF, which is a bearish play since the fund price rises when the market falls. Be careful, though, market mechanics can make taking a long position with these specialty ETFs for an extended period risky.

Comparing Long Positions vs Short Positions

There are both similarities and differences in a long position vs. short.

Similarities

Both exposures require a market outlook or a prediction of where a single asset price will go. If you are bullish, you would go long a stock or buy call options. If you are bearish, you look to short shares or sell call options. Buying put options in which you take a long position is a bearish strategy, as is taking a short position on call options.

Differences

A short vs. long position has several differences, and the ease at which you execute the trade is among them. For example, typically when taking a long position you’ll be required to pay interest to a broker. Additionally, long positions have unlimited gains and capped losses, whereas short positions have unlimited losses and capped gains.

Similarities in a Long Position vs. Short Position

Differences in a Long Position vs. Short Position

You can go long or short an underlying stock via calls and puts Taking a long position on shares is bullish while going short is bearish
Both long and short positions offer exposure to the market or individual assets Short positions can have potential losses that are unlimited with capped upside — that is the opposite of some long positions
You can take a long or short position with shares of an ETF A long position does not require paying interest to a broker but a short position often does

Pros and Cons of Short Positions

When considering a short position, it can be helpful to look at both the pros and cons.

Pros of Short Positions

Cons of Short Positions

You benefit when the share price drops You owe interest on the amount borrowed
You can short shares and options There’s unlimited risk in selling shares short
Shorting can be a bearish or bullish play There are limited gains since the stock can only drop to zero

Pros and Cons of Long Positions

Likewise, when considering a short position, assessing the benefits and drawbacks can be helpful.

Pros of Long Positions

Cons of Long Positions

You own shares and benefit when the stock rises and can profit from puts when the underlying asset drops in value You face losses on a long stock position and on call options when the share price drops
You can take a long position on calls or puts Taking a long position on inverse ETFs for a long period is risky
There’s unlimited potential upside with calls and shares of stock A long options position is hurt from time decay

The Takeaway

Stock traders either go long or short when it comes to securities. Buying shares and selling short are two ways to profit from changes in an asset’s price. By going long, you purchase a security with the goal of seeing it rise in value. Selling short is a bearish strategy in which you borrow an asset, sell it out to other traders, then buy it back — hopefully at a lower price — so you can return it profitably to the broker.

If you’re ready to enter the options market, you might consider SoFi’s options trading platform. This intuitive and approachable platform lets you trade options from the web platform or mobile app. There’s also a stacked library of educational resources about options, so you can answer any questions that may arise.

Pay low fees when you start options trading with SoFi.

FAQ

Are short positions riskier than long positions?

Yes, short positions can be riskier than long positions. That goes for selling shares of a stock short and when you write options. Speculators often face more risk with their short positions while hedgers might have another position that offsets losses from the short sale.

What makes short positions risky?

You face unlimited potential losses when you are in a short position with stocks and call options. Selling shares short involves borrowing stock, selling it out to the market, then buying it back. There’s a chance that the price at which you buy it back will be much higher than what you initially sold it at.

How long can you hold a short position?

You can hold a short position indefinitely. The major variable to consider is how long the broker allows you to short the stock. The broker must be able to lend shares in order for you to short a stock. There are times when shares cannot be borrowed and when borrowing interest rates turn very high. As the trader, you must also continue to meet margin requirements when selling short.

Photo credit: iStock/Charday Penn

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