RETUPD Archives | Page 21 of 21

Dec

2022

What Is an Equal-Weighted Index? How to Calculate It

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

An equal-weight index gives each constituent the same weight in the index, versus a market-cap-weighted or price-weighted index, where bigger companies (or those trading at higher prices) hold a larger share of the index.

Equal weighting strives to equalize the impact of each company’s performance on the overall index. Traditional market-cap weighting tends to give bigger companies more influence over outcomes.

Equal-weight investing is a smart beta strategy that may appeal to certain types of investors more than others. This article will delve deep into equal-weight investing, including:

• What Is an Equal Weighted Index?

• How to Calculate an Equal Weighted Index.

• Advantages of Using an Equally Weighted Index.

• Disadvantages of Using an Equally Weighted Index.

What Is an Equal-Weighted Index?

A stock market index tracks the performance of a specific group of stocks or a particular sector of the market. For example, the S&P 500 Composite Stock Price Index tracks the movements of 500 companies that are recognized as leaders within their respective industries.

Stock market indices are often price-weighted or capitalization-weighted.

• In a price-weighted index, the stocks that have the highest share price carry the most weight. In a capitalization-weighted index, the stocks with the highest market capitalization carry the most weight.

• Market capitalization represents the value of a company as measured by multiplying the current share price by the total number of outstanding shares.

While some investors may wish to invest in stocks, others may be interested in mutual funds or index funds, which are like a container holding many stocks.

How Equal Weighting Works

An equal-weighted index is a stock market index that gives equal value to all the stocks that are included in it. In other words, each stock in the index has the same importance when determining the index’s value, regardless of whether the company is large or small, or how much shares are trading for.

An equally weighted index essentially puts all of the stocks included in the index on a level playing field when determining the value of the index. With a price-weighted or capitalization-weighted index, on the other hand, higher-priced stocks and larger companies tend to dominate the index’s makeup — and thereby dictate or influence the overall performance of that index.

This in turn influences the performance of corresponding index funds, which track that particular index. Because index funds mirror a benchmark index, they are considered a form of passive investing.

Most exchange traded funds (ETFs) are passive funds that also track an index. Now there are a growing number of actively managed ETFs. While equal-weight ETFs are considered a smart beta strategy, they aren’t fully passive or active in the traditional sense. These funds do track an index, but some active management is required to rebalance the fund and keep the constituents equally weighted.

Examples of Equal-Weight Funds

Equal-weight exchange-traded funds (ETFs) have grown more common as an increasing number of investors show interest in equal-weight funds. Equal weight falls under the umbrella of smart-beta strategies, which refers to any non-market-capitalization strategy.

The term “smart beta” doesn’t mean a particular strategy is better or more effective than others.

Equal-weight funds, for example, are designed to shift the weight of an index and its corresponding funds away from big cap players, which can unduly influence the performance of the index/fund. And while an equal-weight strategy may have improved fund performance in some instances, the results are inconsistent.

Here is a list of the top five equal-weight ETFs by assets under management (AUM), according to ETF.com.

1. Invesco S&P 500 Equal Weight ETF (RSP )

2. SPDR S&P Biotech (XBI )

3. SPDR S&P Oil and Gas Exploration and Production (XOP )

4. SPDR S&P Global Natural Resources ETF (GNR )

5. First Trust Cloud Computing ETF (SKYY )

How to Calculate Equal-Weighted Index

To calculate equal weighted index, you need to know two things:

• The share price of each stock that’s included in the index

• Total number of stocks included in the index

If you’re calculating an equally weighted index value for an index that has five stocks in it, each one would be weighted 20%, regardless of its stock price or market capitalization. To find an equal-weighted index value, you would simply add the share price of each stock together, then multiply it by the weight.

So for example, say an index has five stocks priced at $100, $50, $75, $90 and $85. Each one would be weighted at 20%.

Following the formula, you would add each stock’s price together for a total of $400. You’d then multiply that by the 20% weighting to arrive at an equal-weighted value of 80.

As fund turnover occurs and new assets are exchanged for old ones, or as share prices fluctuate, the equally weighted index value must be recalculated.

The equally weighted index formula can be used to determine the value of a particular index. You may want to do this when determining which index ETF to invest in or whether it makes sense to keep a particular index mutual fund in your portfolio.

Advantages of Using an Equally Weighted Index

An index investing strategy might be preferable if you lean toward more conservative investments or you simply want exposure to a broad market index without concentrating on a handful of stocks. That’s something you’re less likely to get with mutual funds or ETFs that follow a price-weighted or capitalization-weighted index.

Here are some of the reasons to consider an equal-weighted index approach:

• An equal-weight strategy can increase diversification in your portfolio while potentially minimizing exposure to risk.

• It’s relatively easy to construct an equally weighted portfolio using index mutual funds and ETFs.

• It may appeal to value investors, since there’s less room for overpriced stocks to be overweighted and undervalued stocks to be underweighted.

• Equal-weighted indices may potentially generate better or more incremental returns over time compared to price-weighted or capitalization-weighted indices, but there are no guarantees.

Disadvantages of Using Equally Weighted Index

While there are some pros to using an equal weighted approach, it may not always be the best choice depending on your investment goals. In terms of potential drawbacks, there are two big considerations to keep in mind:

• Equal-weighted index funds or ETFs that have a higher turnover rate may carry higher expenses for investors.

There is typically a constant buying and selling of assets that goes on behind the scenes to keep an equal-weighted mutual fund or ETF in balance.

Higher turnover ratios, i.e. how often assets in the fund are swapped in and out, can lead to higher expense ratios if a fund requires more active management. The expense ratio is the price you pay to own a mutual fund or ETF annually, expressed as a percentage of the fund’s assets. The higher the expense ratio, the more of your returns you hand back each year to cover the cost of owning a particular fund.

• Equal-weighted indices can also be problematic in bear market environments, which are characterized by an overall 20% decline in stock prices. During a recession, cap-weighted funds may outperform equal-weighted funds if the fund is being carried by a few stable, larger companies.

◦ Conversely, an equal-weighted index or fund may miss out on some of the gains when markets are strong and bigger companies outperform.

Advantages	Disadvantages
Can increase diversification	Will typically have higher costs
Constructing an equal-weight portfolio is straightforward	May see outsize declines in bear markets
Equal-weight strategies may appeal to value investors	May not realize full market gains
Equal-weight strategies may perform better than traditional strategies, but there are no guarantees

The Takeaway

In an equal-weight index, each stock counts equally toward the index’s value, regardless of whether the company is large or small, or what shares are currently trading for. The same is true of any corresponding fund.

There are advantages to investing in an equal-weight index fund over a capitalization-weighted index or price-weighted index. For example, equal-weighted indices may generate better or more consistent returns. Investing in an equal-weight index may be appealing to investors who prefer a value investing strategy or who want to diversify their portfolio to minimize risk.

With a SoFi Invest online trading account, you can begin building your portfolio using SoFi’s streamlined, secure investing app. You can follow a DIY path by choosing which stocks or ETFs to invest in, in addition to many other options including fractional shares, IPO shares, and more. SoFi doesn’t charge any commission, and members have access to complimentary financial advice from professionals.

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

FAQ

How do equal-weight ETFs work?

Like an equal-weight index, an equal-weight ETF holds the same proportion of each of its constituents, which in theory may equalize the impact of different companies’ performance.

When should you buy equal-weighted ETFs?

If you’d like to invest in a certain sector, but you don’t want to be riding the coattails of the biggest companies in that sector because you see the value in other players, you may want to consider an equal-weight ETF.

What is the equally weighted index return?

The return of an equally weighted index would be captured by the performance of an investment in a corresponding index fund or ETF. So if you invest $100 in Equal Weight Fund A, which tracks an equal weight index, and the fund goes up or down by 5%, you would see a 5% gain or loss.

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.

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.
SOIN1022012

Nov

2022

What Is a Decentralized Exchange (DEX)?

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

A decentralized exchange (DEX) is a digital currency exchange that allows users to buy crypto through direct, peer-to-peer cryptocurrency transactions, all over a online platform without an intermediary. It differs from a traditional centralized exchange, where a typical transaction involves a third-party entity (e.g. bank, trading platform, government institution, etc.) that takes custody of user funds, and oversees the security and transfer of assets between two parties.

Decentralization is a fundamental philosophy of blockchain technology and the crypto space. It redistributes authority from a central power, and places it in the hands of users. And the concept of decentralization is reengineering how many conventional financial services operate.

Decentralized exchanges have also grown in popularity over the past couple of years, with spot trading volume slowly shifting away from centralized exchanges, up until early 2022, when “crypto winter” set in.

Spot Trading Volume Percentage, DEX vs. CEX
Timeframe	CEX	DEX
January 2020	98.93%	1.07%
June 2020	97.01%	2.99%
January 2021	93.22%	6.78%
June 2021	93.2%	6.8%
January 2022	77.08%	22.92%
June 2022	82.93%	17.07%

How a Decentralized Exchange (DEX) Works

Decentralized exchanges provide a decentralized platform that allows users to exchange assets without having to trust their funds with another entity.

With a decentralized exchange, a blockchain, or distributed ledger, takes the place of the third party. By moving critical operations onto a blockchain, the underlying technology may help to eliminate single points of failure, allowing users to have greater control of their assets, and support safer and more transparent trading.

DEXs use smart contracts to execute market transactions by allocating transactions’ operations to autonomous code, but there are multiple variations of order fulfillment with differing degrees of decentralization.

Like digital currencies, decentralized exchanges were created in response to flawed and archaic financial systems that passed along risks of a centralized system to its users. Those risks often include insufficient security, technical issues, and a lack of transparency.

💡 Recommended: Crypto Guide for Beginners

Different Types of Decentralized Exchanges

Full decentralization is more of a philosophy than a rule of thumb, as it’s not very practical based on first-layer blockchain scalability limits. As a result, most decentralized exchanges are actually semi-decentralized, using their own servers and off-chain order books to store data and external programs or entities for the exchange of user assets.

Due to this reliance on centralized components, semi-decentralized exchanges’ operations may be subject to government oversight. However, and perhaps most importantly, users still maintain control of the private keys to their funds.

Although DEXs continue to evolve and operate cross-chain with other DApps, DEXs typically operate a single blockchain. One thing all decentralized exchanges have in common is that they execute orders on chains with smart contracts, and at no point do they take custody of users’ funds.

The Different Types of DEXs
Type	Features
On-Chain Order Books	Processes transactions on a blockchain network, without the inclusion of a third-party
Off-Chain Order Books	Utilizes an off-chain, centralized entity to process transactions and govern the order book
Automated Market Makers	Uses algorithms to automatically price asset pairs in real-time
DEX Aggregators	Compile data from numerous DEXs to increase options and liquidity for traders

On-Chain Order Books

For some decentralized exchanges, transactions are processed on-chain, including modifying and canceling orders. Philosophically, this is the most decentralized and transparent process, because it circumvents the need to trust a third party to handle any orders at any time. However, this approach is not very practical in execution.

By placing all stages of an order onto the blockchain, DEXs go through a time-consuming process of asking every node on the network to permanently store the order via miners, as well as pay a fee.

Some criticize the decentralized crypto exchange model because its slow transaction times allow for front-running, which is when an investor watches the price of an asset closely, waiting at the last minute to buy or sell right before they anticipate the price rising or falling. (Note that this type of “front-running” is different from stock front-running, where an investor purchases a security based on insider information, such as a future event that will impact stock price.)

Others counter that since all orders are published on a public ledger, there is no exclusive opportunity for any select individual to front-run from a traditional perspective. However, it has been questioned whether a miner can front-run by noticing an order before it’s confirmed and force their own order to get added to the blockchain first.

Off-Chain Order Books

DEXs with off-chain order books are still decentralized to some degree, but are somewhat more centralized than their on-chain counterparts. As opposed to orders being stored on the blockchain, off-chain orders are posted elsewhere, such as a centralized entity that governs the order book. Such an entity could exploit access to the order books to front-run or misrepresent orders, however, users’ funds would still be protected from the DEXs non-custodial model.

Some ERC-20 tokens on the Ethereum blockchain provide a DEX that operates similarly. Though some degree of decentralization is sacrificed, a DEX can provide a framework for parties to manage off-chain order books through smart contracts. Hosts can then access a larger liquidity pool and relay orders between traders. Once the parties are matched, the trade can be executed on-chain.

These models can be more advantageous for users than relying on slower on-chain order books. With less congestion and quicker confirmation times caused by primitive blockchain iterations, off-chain order books can provide faster speeds.

Automated Market Makers (AMM)

An automated market maker (AMM) reinvents order books with pricing algorithms that automatically price any asset pairing in real-time (e.g. Bitcoin-U.S. dollar).

Unlike traditional market-making, whereby firms provide an accurate price and a tight spread on an order book, AMMs decentralize this process and allow users to create a market on a blockchain. No counterparty is needed to make a trade, as the AMM simply interacts with a blockchain to “create” a market. Instead of transacting directly with another person, exchange, or market-maker, users trade with smart contracts and provide liquidity. Unfortunately, there are no order types on an AMM because prices are algorithmically determined, resulting in a sort of market order.

As with other DEX models, an on-chain transaction must occur to settle any trade. As opposed to some DEXs, AMMs tend to be relatively user-friendly and integrate with popular cryptocurrency wallets.

DEX Aggregators

DEX aggregators are precisely what they sound like: aggregators that compile various trading pools. Their main advantage is that they can increase liquidity for traders, particularly for those who are looking to expand their options or trade smaller tokens.

How these aggregators work is similar to a search engine, in that they compile and accumulate information and data from different exchanges to give users more options.

Tips for Using Decentralized Exchanges

Using a DEX has its advantages and risks. While you’re likely using a DEX for its advantages, it’s important to keep those risks in mind. Perhaps most importantly, remember that decentralized exchanges are, for all intents and purposes, operating off the radar and outside of regulatory authorities.

Also remember that as the popularity of DeFi as a whole grows, so too will the use of DEXs, and their features and functions. These are changing platforms and technologies, so do some research to make sure you know what you’re doing, and that you’re keeping your keys, phrases, and assets safe.

Pros of Decentralized Exchanges

There are many reasons fans and followers of crypto have embraced decentralized exchanges. These are some of the pros of decentralized exchanges:

No KYC/AML or ID Verification

DEXs are trustless, meaning users’ funds, privacy, and limited personal data are well preserved. Decentralized exchange users can easily and securely access a DEX without needing to create an on-exchange account, undergo identity verification, or provide personal information.

No Counterparty Risk

Because users don’t have to transfer their assets to an exchange (or third party), decentralized exchanges can reduce risks of theft and loss of funds due to hacks. DEXs can also prevent price manipulation or fake trading volume, and allow users to maintain a degree of anonymity due to a lack of Know Your Customer (KYC) cryptocurrency rules and regulations.

All Tokens Can be Traded

With a DEX, users can trade new and obscure cryptocurrencies that may be difficult to exchange elsewhere. Typically, centralized exchanges only support a dozen or so projects, and most only support the most popular cryptocurrencies, making smaller and less popular tokens more difficult to trade, especially as those exchanges restrict users from other countries.

Reduced Security Risks

As mentioned, decentralized exchanges may be more secure than their centralized counterparts. That’s because no single entity is in charge of assets, and instead, smart contracts and decentralized applications (dApps) automate transactions. It’s all handled by users, in other words, making it very difficult for a hacker or bad actor to infiltrate a centralized pile of assets and steal them.

That said, a bad or poorly developed smart contract could cause issues, which is something to be aware of.

Utility in the Developing World

Many parts of the world lack basic financial services, nevermind access to the crypto markets. That’s another pro for DEXs, which can be used by individuals anywhere in the world regardless of financial infrastructure.

In fact, DEXs may be the most beneficial to users in the developing world, giving businesses a way to transact assets without the need for a third party, where those parties may not be available or willing to operate.

Cons of a Decentralized Exchange

While decentralized exchanges offer some groundbreaking benefits, they also come with a few drawbacks.

Specific Knowledge Is Required

There’s no getting around it: You’ll need to know what you’re doing, at least to a degree, to use a decentralized exchange. Centralized exchanges exist for a reason: They’re relatively easy to use, and handle most of the complicated stuff for users. But when using a DEX, it’s all on the user. There’s no hand-holding, and as such, you’ll want to be confident that you know the ropes before using a DEX.

Smart Contract Vulnerabilities

Another thing we previously mentioned is the fact that smart contracts may be poorly constructed, leading to problems on a DEX. A smart contract is only as smart as the person or entity that created it, and there’s no guarantee that it will work as hoped all of the time.

Smart contracts themselves are similar to bits of code or commands that automate a process, and if there’s an error in the smart contract, it could produce unanticipated results.

No Recovery Ability

Unlike centralized exchanges run by private companies with employees, DEXs fundamentally have no recovery ability for lost, stolen, or misplaced funds. Due to a lack of a KYC process or ability to cancel a transaction in the event of a compromised account or loss of private key, users are unable to recover data or be returned their assets.

As discussed, there is no support team or help hotline to notify of missing funds or a lost private key, as users themselves are in control of the process. Because all transactions are processed and stored in smart contracts on the blockchain without any owners or overseers, refunds are incompatible with the network’s model and users are generally unable to regain access to their assets.

Unvetted Token Listings

The crypto space is rife with scams and junk tokens, and given that there’s no central authority in a DEX, it’s relatively easy for some of those junk tokens or coins to find themselves in the listings. Put another way: There is little or no vetting process for what’s listed on a DEX (though it may differ from exchange to exchange). Making sure you’re not falling for a scam coin, then, is on the user.

Low Liquidity

Many traders prefer centralized services with a greater liquidity pool, choice of instruments, currency pairs, and order types. Decentralized exchanges usually have lower liquidity than centralized platforms because they are newer and smaller, with a smaller potential client base (since DEXs are more difficult to use than CEXs). Yet, paradoxically, they must also attract new users to generate more liquidity.

Limited Speed

Transactions take time to be checked and validated on a blockchain network, and the processing speed depends on the network’s miners or validators, not the exchange itself.

Limited Trading Functionality

Decentralized exchanges tend to focus on executing simple buy and sell orders. As such, users may find advanced trading functions such as stop losses, margin trading, and lending are unavailable on most DEXs.

Scalability Issues

DEXs have suffered from the same network congestion issues relating to scalability issues as their underlying blockchain networks like Ethereum. Ethereum’s first network iteration, like other blockchains, was built to function securely at a smaller scale before scaling solutions were later implemented. Though a transformative network upgrade designed with massive scalability solutions has been in development since 2018, DEXs remain subject to first-layer network transaction ceilings.

Challenges to DEX Adoption

With sophisticated technology, potentially fewer blockchain security risks, and the ability to self-custody funds, further adoption of decentralized exchanges seems likely. But DEXs, for the most part, remain out of the mainstream. Despite the launch and rise in popularity of numerous DEXs within the past few years, some factors may slow down adoption.

Many investors may lack awareness surrounding:

• The security risks of centralized exchanges

• Self-custody as a security option

• How to securely self-custody funds (managing private keys)

• The existence of decentralized exchanges

• The advantages of decentralized exchanges

DEXs also present a few technical barriers to entry:

• Not user-friendly enough

• Network congestion during periods of high volume

• Transactions on current network iterations take time to be validated on blockchains

• High transactions fees during periods of high volume

• Users will only join a DEX with high liquidity

• Cross-chain interoperability must exist for DeFi platforms to interact with each other

• The need for fiat on-ramps and less volatile token prices

The Takeaway

Decentralized exchanges are a trustless solution that allows users to buy and sell cryptocurrency without roping in a third party. Though full decentralization is not yet a reality, different types of DEXs provide varying levels of security, privacy, and efficiency from which crypto traders can choose.

As DEXs continue to develop, evolve, and become more practical for users, user adoption may become a focal point as DEXs look to offer greater liquidity. The good news is that DEXs present only one of numerous ways to get involved in the crypto space.

FAQ

How do DEX fees work?

A DEX facilitates peer-to-peer trading, and levies network fees in order to facilitate those transactions. While fees from DEX to DEX may vary, they differ from centralized exchanges, which may charge trading fees or commissions for executing transactions.

What’s the difference between a decentralized exchange (DEX) and a centralized exchange (CEX)?

A decentralized exchange allows individual users to connect and transact assets without a third party. A centralized exchange, conversely, acts as a third party and takes custody of funds or assets during the transaction. The key difference is that a CEX acts as a central authority.

Are decentralized exchanges legal?

Yes, DEXs are legal, though they do operate in something of a gray area (like most of the crypto space) in that they’re unregulated by a central government authority. Some exchanges may be illegal in certain jurisdictions, too. That may change in the future, though, as regulators outline plans and potential rules for the crypto space.

How can I create a decentralized exchange?

If you want to create your own DEX, you’ll need a lot of background knowledge involving blockchain architecture and more. You would need to know how to code, identify key features that your DEX would have, and much, much more. You’re likely better off using an existing DEX, rather than creating one from scratch.

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.

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

Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount		Bonus Payout
Low	High	Bonus Payout
$50	$99.99	$10
$100	$499.99	$15
$500	$4,999.99	$50
$5,000+		$100

SOIN0922061

Feb

2021

What is Binance (BNB) Crypto? BNB Price & How to Buy BNB

By SoFi Editors | Growing Wealth, invest, Investing | Comments Off

Binance (BNB) is a cryptocurrency token that was created to be used as a medium of exchange on Binance, one of the world’s largest cryptocurrency exchanges.

Traders who hold BNB tokens get discounts when using BNB to pay for trading fees on Binance. As of 2020, BNB users received a 6.25% rebate on trading fees. Binance Coin also serves as the native token for Binance’s decentralized exchange (DEX).

What Is Binance?

Binance is one of the world’s biggest cryptocurrency exchanges. Based in Malta, the exchange was founded in 2017 and follows all standard cryptocurrency regulations. Binance offers a variety of features, including:

•  Crypto-to-crypto trading of many different currency pairs (over 150)
•  Fiat-to-crypto trading
•  The ability to buy crypto with a credit card
•  Futures and leveraged trading for advanced traders
•  The option to choose between a basic interface for beginners or an advanced interface for experienced traders

Binance has one the highest liquidity of any crypto exchange in the world, according to data from CoinMarketCap. That means more crypto can trade hands on the exchange than anywhere else during a given period of time, making Binance a desirable place for day traders who thrive on liquid assets, which makes it easier and faster to execute trades. The exchange also has low fees, so users can make more trades for less cost.

Binance derives its name from a combination of the words “finance” and “binary.” The exchange claims to have high levels of security and is capable of processing about 1.4 million orders each second.

Eleven days before Binance went live, BNB was created through an initial coin offering. While the coin was first issued as an ERC-20 token running on the Ethereum network, these same coins were later swapped with BEP2 BNB coins in April 2019 when the Binance Chain mainnet launched (Binance’s own blockchain network). BNB can be used as “gas” payments–fees paid for computing power–to fuel transactions on the DEX.

Is Binance Coin Worth Buying?

This question might not have a single, objective answer. It depends on the individual. Someone who wants to use Binance’s decentralized exchange (DEX) might think BNB crypto is worth buying. The Binance DEX first went live in April 2019.

Traders who make a lot of trades on Binance on a regular basis might benefit from the discounts that BNB provides. They could wind up saving them a lot of money.

And finally, some cryptocurrency traders might speculate, as opposed to invest, that BNB has a promising future. These people might see BNB as a good coin to hold for some time, in hopes that the price will continue to rise. BNB crypto has risen over 34,000% since inception and over 41,000% since its all-time low.

What is Binance Coin Used For?

As far as different types of cryptocurrencies go, Binance Coin might be one of the most unique. As mentioned, BNB serves two main purposes:

• To provide discounts to traders who use BNB on Binance, and
• To function as “gas” for transactions on Binance’s decentralized exchange (DEX).

When someone places a trade on Binance, they are charged a 0.5% trading fee. This fee can either be paid in the form of the cryptocurrency being traded at the time or in the form of Binance Coin. When paid using BNB, a discount is applied.

Beyond that, altcoins like Binance Coin are also used for speculative purposes. Traders buy coins at a low price with the hopes of selling them later at a higher price to make a profit.

How to Buy BNB

Binance Coin can be purchased on the Binance crypto exchange. There are three primary trading pairs:

•  BNB/USDT (Binance-Tether stablecoin)
•  BNB/BTC (Binance-Bitcoin)
•  BNB/BUSD (Binance-U.S. dollar)

While BNB crypto was created by and for Binance, traders can buy BNB tokens on other exchanges as well. As of the time of writing, BNB can be traded on dozens of different exchanges.

Users who already hold some Bitcoin might find it easiest to deposit Bitcoin to an exchange that trades the BNB/BTC pair and then trade their bitcoin for BNB. Those who don’t hold Bitcoin could consider creating an account on Binance and funding it using either a stablecoin like Tether or U.S. dollars directly.

Binance Coin Price

At the time of writing, the BNB price was $40.39 or 0.001076 Bitcoin.

In July 2017, when the coin was first created, the price was closer to $0.10, with the all-time low being $0.096. The all-time high, as of January 2021, was $45.16, reached on Jan. 10, 2021.

BNB is currently ranked as the eleventh largest cryptocurrency, according to CoinMarketCap data, with a market cap of over $5.7 billion. The 24-hour trading volume on Jan. 14, 2021 was $548.3 million.

BNB crypto has a circulating supply of 142,406,561 BNB and a maximum supply of 174,152,673 coins.

Is Binance Better Than Coinbase?

Some users might compare Binance to other prominent exchanges, including Coinbase. The comparison is, however, largely subjective. For those new to crypto seeking ease-of-use and simplicity, Coinbase might be a good option. They allow for purchases and sales of many of the top cryptocurrencies.

Coinbase also has a cold storage, multi-signature feature called “vaults.” Vaults provide a more secure way to hold crypto for the long-term. To access funds held in a vault, a user must verify a withdrawal request from two different email addresses and wait through a 48-hour processing period.

On the other hand, for more active traders seeking a wider variety of tokens to choose from and higher liquidity, Binance could be preferable. At Binance, investors and traders also have the option to use a more advanced interface with detailed charts.

Is Crypto Safe On Binance?

The answer to this question depends on an individual’s definition of “safe” and how much money is in question.

Generally speaking, it might be safe to keep small amounts of crypto on a secure exchange like Binance for a short period of time. Binance boasts some of the strongest security in the industry. For larger balances to be held over longer time-frames, however, holding coins on any exchange is widely regarded as not being very secure.

Over the years, many exchanges have been hacked. This creates the most obvious security risk involved with “hot wallets,” or cryptocurrency wallets that are actively online at all times. Another risk that comes from exchanges is theft. Employees of the company could conspire to steal user funds and blame the event on outside malicious actors.

The Takeaway

Binance (BNB) coins were created to be used on the Binance cryptocurrency exchange. BNB users on BNB can get trading discounts. However, BNB has become more popular in recent years, experiencing a tremendous increase in price, and now, cryptocurrency traders and investors can find it on many other exchanges.

With SoFi Invest®, investors can buy cryptocurrencies like Bitcoin, Ethereum and Litecoin, while following the prices of others like XRP and BNB. They can also invest in stocks or exchange-traded funds (ETFs).

Get started today.

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.

SoFi Invest®

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

SOIN21017

Feb

2021

8 Steps to Build Credit Fast

By SoFi Editors | Credit, Financial Independence, money | Comments Off

Your credit score can affect many areas of your life.

A poor credit score can make it harder to buy a car, get a job, purchase a home, rent an apartment, have the utilities turned on, and even get a cell phone.

It can also cost you money, since credit card companies and lenders typically consider your credit score when determining your interest rate.

Fortunately, if your credit is less-than stellar–or you haven’t yet had a chance to establish much, or any, credit history–there are some simple steps you can take to build or boost your score quickly.

While you can’t typically establish exceptional credit overnight, you may be able to improve your credit score in a matter of months by putting a few good credit habits into practice, building a positive payment history, and avoiding credit-damaging mistakes.

Simple Steps to Build Your Credit Faster

Here are some strategies that can help you establish or improve your credit profile ASAP.

1. Understanding What Goes Into Your Score

One of the most commonly used credit scoring models is the FICO® Score .

FICO has five factors it considers when calculating its credit scores.

•  Payment history: 35% of this score is related to your history of payments on credit cards, student loans, mortgages, and other loans. The algorithm looks at the frequency and severity of missed and late payments.
•  Credit utilization: 30% of this score is based on how much of your available credit you are currently using.
•  Length of credit history: The amount of time you’ve had each credit account open makes up 15% of this credit score. That’s why it’s nearly impossible to have perfect credit when you’re new to credit.
•  New credit: 10% of this credit score has to do with opening new credit. (However, opening several new credit accounts at the same time isn’t typically a good way to bump up your score, because that can look like you’re in financial trouble).
•  Credit mix: The final 10% of this credit score is based on the different types of credit you have and how you’ve managed them.

2. Checking Your Credit Report and Disputing any Errors

Credit scores are calculated on the information in your credit reports.

That’s why it’s a good idea to get copies of your credit reports from the three major credit bureaus–Equifax , TransUnion and Experian –and to make sure all the information is accurate.

According to the Consumer Financial Protection Bureau (CFPB), one in five people have an error on at least one of their credit reports.

Everyone is entitled to see their credit reports for free once a year at the government-mandated AnnualCreditReport.com site.

When you get your reports, it’s a good idea to comb through them carefully and to look for any inaccuracies, such as payments marked late when you paid on time, wrong account numbers, incorrect loan balances, or accounts that aren’t yours.

If you find an error in one or all your credit reports, you can reach out to the credit bureaus directly to dispute the information.

If you see accounts in your name that you never opened, and believe you may be a victim of identity theft, you can report it to the Federal Trade Commission at IdentityTheft.gov or 877-438-4338.

A mistake on one of your credit reports could be pulling down your score. Fixing it can help you quickly repair your credit.

3. Paying Bills on Time Every Time

Payment history is the single most important factor that affects your credit scores.

Not only that, a past due payment can stay on your report for seven years.

Setting up autopay, either through each provider or company, or through your financial institution, can be a great way to ensure you never miss a bill.

If you do miss a payment by a few days, all is not necessarily lost, however.

There is generally a small window of time to make up a missed credit card payment before any damage to your credit happens.

That’s because late payments are typically not reported to credit bureaus until the payment is at least 30 days late.

The key is to get it in as soon as you can.

4. Becoming an Authorized User on a Credit Card

If you have no credit or a low credit score, you may be able to build it up by becoming an authorized user of a credit card that the cardholder uses responsibly.

An authorized user has permission to use an account, but does not have any liability for debts.

If a friend or family member adds you as an authorized user to their account, the card issuer will then typically report you as an authorized user to the credit reporting companies.

In this way, you gain a credit history from the credit usage of your friend or family member.

5. Opening a Secured Credit Card

Some credit card companies offer “secured” credit cards, which allow you to build credit history with little risk to the credit card company.

Here’s how it works: You pay a cash deposit up front that is equal to the limit of the card. For example, if you put down a $500 deposit, you would have a $500 limit on the card.

You can then use it like a regular credit card.

Using the secured card responsibly–being mindful of the amount you’ve charged in relation to the card’s limit–and paying your bills in full and on time will all be reported to the credit bureaus.

6. Using your credit card regularly

One way to build credit is to display a history of responsible borrowing.

For that reason, you may want to place monthly bills and other expenses on your credit card–being sure to pay the bill in full each month by the due date.

7. Keeping Credit Card Balances Low

This can help move the needle on credit utilization, or the amount of debt you have compared to the total amount of credit that is available to you, and is expressed as a percentage.

After payment history, this is typically the second most important factor that influences your score.

The rule of thumb is to use no more than 30% of your total credit at any time. This includes access to all credit lines, as well as the percentage on individual cards.

One way to do this is make multiple payments on your credit card throughout the month.

If you’re able to keep your utilization low, instead of letting it build toward a payment due date, it could quickly benefit your score.

8. Keeping Credit Cards Open

It might seem to make good financial sense to close credit cards you never or seldom use.

But from a credit score perspective, it may not be a wise move.

That’s because closing a credit card means you lose that card’s credit limit when your overall credit utilization is calculated, which can lower your credit score.

A better bet might be to keep the card open and to use it occasionally so the issuer won’t close it.

The Takeaway

A credit score in the good to excellent range could provide you access to the most competitive interest rates for loans and credit cards, and also make it easier to rent an apartment, get a cell phone, and land a new job.

Some ways to improve your score quickly include having active open accounts that you are consistently paying on time, keeping your loan balances low, and disputing any errors on your credit reports.

Building good credit is also a matter of establishing good financial habits, such as tracking your spending (so you don’t come up short at the end of the month), and make sure all of your bills are posted by their due dates.

One move that can help you stay on top of your finances is signing up for SoFi Checking and Savings®.

SoFi Checking and Savings is a checking and savings account that allows you to earn competitive interest, spend, and save–all in one account. And you’ll pay zero account fees to do it.

SoFi Checking and Savings also allows you to track your weekly spending right from the dashboard in the SoFi Checking and Savings app.

You can also use the app to set up all of your bill payments to help ensure that payments are never missed or late.

Check out everything a SoFi Checking and Savings checking and savings account has to offer today!

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC . SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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.

SOMN21007

What Is an Equal-Weighted Index? How to Calculate It

What Is an Equal-Weighted Index?

How Equal Weighting Works

Examples of Equal-Weight Funds

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

How to Calculate Equal-Weighted Index

Advantages of Using an Equally Weighted Index

Disadvantages of Using Equally Weighted Index

The Takeaway

FAQ

How do equal-weight ETFs work?

When should you buy equal-weighted ETFs?

What is the equally weighted index return?

What Is a Decentralized Exchange (DEX)?

How a Decentralized Exchange (DEX) Works

Different Types of Decentralized Exchanges

On-Chain Order Books

Off-Chain Order Books

Automated Market Makers (AMM)

DEX Aggregators

Tips for Using Decentralized Exchanges

Pros of Decentralized Exchanges

No KYC/AML or ID Verification

No Counterparty Risk

All Tokens Can be Traded

Reduced Security Risks

Utility in the Developing World

Cons of a Decentralized Exchange

Specific Knowledge Is Required

Smart Contract Vulnerabilities

No Recovery Ability

Unvetted Token Listings

Low Liquidity

Limited Speed

Limited Trading Functionality

Scalability Issues

Challenges to DEX Adoption

The Takeaway

FAQ

How do DEX fees work?

What’s the difference between a decentralized exchange (DEX) and a centralized exchange (CEX)?

Are decentralized exchanges legal?

How can I create a decentralized exchange?

What is Binance (BNB) Crypto? BNB Price & How to Buy BNB

What Is Binance?

Is Binance Coin Worth Buying?

What is Binance Coin Used For?

How to Buy BNB

Binance Coin Price

Is Binance Better Than Coinbase?

Is Crypto Safe On Binance?

The Takeaway

8 Steps to Build Credit Fast

Simple Steps to Build Your Credit Faster

1. Understanding What Goes Into Your Score

2. Checking Your Credit Report and Disputing any Errors

3. Paying Bills on Time Every Time

4. Becoming an Authorized User on a Credit Card

5. Opening a Secured Credit Card

6. Using your credit card regularly

7. Keeping Credit Card Balances Low

8. Keeping Credit Cards Open

The Takeaway

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