What Investors Should Know About Spread

coffee and phone on pastel mobile

When trading stocks, there are several market terms that are helpful to understand, such as portfolio, dividend, and volatility. Another key term to know is spread.

In simple terms, a spread represents the difference between any two financial metrics. The type of spread depends on the type of security that’s being traded. For example, when trading bonds, the spread can refer to a difference in yields between bonds of varying maturity lengths or quality.

But there are many differences between bonds vs. stocks—and spread is one of them. With stocks, spread refers to differences in price. Specifically, it measures the gap between the bid price and the ask price. Understanding what is spread and how it works can help you more effectively shape your investment strategy.

What Is Spread?

buying a home. As a home buyer, you may have a set price that you’re willing to pay for a property, based on what you can afford and what you’ve been pre-approved for by your mortgage lender.

You search for homes and eventually find one that has everything on your wishlist. When you check the listing price, you see that the seller has it priced $10,000 above your budget. In terms of spread, the maximum amount you’re willing to offer for the home represents the bid price, while the seller’s listing price represents the ask.

What Does Spread Mean?

Aside from stock spread, spread can have a variety of applications and meanings in the financial world.

As mentioned earlier, bond spread typically refers to differences in yield. But if you’re trading futures, the spread can measure the gap between buy and sell positions for a particular commodity. With options trading, it can refer to differences in strike prices when placing call or put options.

Spread can also be used in foreign currency markets or forex (foreign exchange market) trades to represent the difference between the costs for traders and the profits realized by dealers.

With lending, spread is tied to a difference in interest rates. Specifically, it means the difference between a benchmark rate, such as the prime rate, and the rate that’s actually charged to a borrower. So for example, if you’re getting a mortgage there might be a 2% spread, meaning your rate is 2% higher than the benchmark rate.

Bid-Ask Price and Stocks Spread

If you trade stocks online, it’s important to understand how the bid-ask price spread works and how it can affect your investment outcomes. Since spread can help gauge supply and demand for a particular stock, investors can use that information to make informed decisions about trades and increase the odds of getting the best possible price.

Limit orders. This is an order to buy or sell a security at a certain price or better.
•  Stop orders. A stop order, also called a stop-loss order, is an order to buy or sell a security once it hits a certain price. This is called the stop price and once that price is reached, the order is executed.
•  Buy stop orders. Buy stop orders are used to execute buy orders only when the market reaches a certain stop price.
•  Sell stop orders. A sell stop order is the opposite of a buy stop order. Sell stop orders are executed when the stop price falls below the current market price of a security.

Stop orders can help with limiting losses in your investment portfolio if you’re trading based on bid-ask price spreads. Knowing how to coordinate various types of orders together with stock spreads can help with getting the best possible price as you make trades.

The Takeaway

The more investing terms an investor is familiar with, the better able they’ll be to invest with confidence. Spread is a term that means different things in different situations, but when it comes to stocks, spread is the difference between the bid price and ask price of a given stock. Being able to assess what a spread might mean can help inform individual trading decisions.

As you learn more about stocks, including what is spread and how it works, you can use that knowledge to create a portfolio that reflects your financial needs and goals.

SoFi Invest® makes it easy to get started with stock trading and investing. Members can choose which stocks to buy or sell, based on their investment objectives and risk tolerance, and purchase shares in some of the market’s biggest companies through fractional share investing with Stock Bits.

Find out how SoFi Invest can help you reach your financial goals.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.

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

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Should You Obtain Building Permits When Flipping Houses?

I have done many rehabs in my career as a house flipper, landlord, and even overseeing rehabs for banks as an REO agent. We have worked with many cities and counties pulling permits for remodeling jobs, but when is a permit needed? Depending on the quantity and type of work you do, you may or … Read more

Source: investfourmore.com

Understanding The Different Types of Cryptocurrency

bitcoins on yellow background

Cryptocurrencies can act like real money—in a sense, they are real money—but they take a digital monetary form and are not managed or governed by any central authority. A true product of the digital age, cryptocurrencies operate without the involvement of banks, governments, or any middleman.

Statista —with Bitcoin boasting more than 7 million active users.

Insiders call it “crypto,” so that’s what we’ll be calling it going forward.

Crypto Tokens vs. Coins

Encrypted coins and tokens can fall under the heading of crypto. And, generally, they can be listed into two sorts of cryptocurrency: alternative cryptocurrency coins (Altcoins) or tokens.

Alternative Cryptocurrency Coins (Altcoins)

Altcoins usually refer to any coins that are not Bitcoins. Bitcoin is a popular digital currency that’s produced by computational solutions to complicated math problems. It works separately from a central bank or state entity (i.e., government-backed Treasury).

Some altcoins include:

•  Peercoin
•  Litecoin
•  Dogecoin
•  Auroracoin
•  Namecoin

In fact, the name “altcoin” actually means “alternative to Bitcoin.” Namecoin is considered the very first altcoin, created in 2011.

Like Bitcoin, most cryptocurrencies listed here have a limited supply of coins—to keep the balance in check and to reinforce its perceived value. There is a fixed number of Bitcoins that can exist—21 million, as decided by the creator/s of Bitcoin, though some remain to be mined. Once all 21 million are tapped (the number changes when new blocks are mined), that’s it. The only way to bring in more is for Bitcoin’s protocol to allow for it.

Though most altcoins are built upon the same basic framework as Bitcoin, many claim to be better versions of Bitcoin.
Each system can differ from the next, as they’re created to serve various purposes and applications, and identified in different ways.

Some coins don’t work with the same open-source protocol that Bitcoin does, however. For example, the following list of cryptocurrencies have created their own separate systems and protocols:

•  Ethereum
•  Ripple
•  Omni
•  Nxt
•  Waves
•  Counterparty

They’re each self-supporting, too.

Tokens

Unlike altcoins, tokens are created and given out through an Initial Coin Offering, or ICO, very much like a stock offering. They can be represented as:

•  Value tokens (Bitcoins)
•  Security tokens (to protect your account)
•  Utility tokens (designated for specific uses)

They are not so much meant to be used as money as they are used to describe a function. Like American dollars, they represent value but they are not in themselves of value. Tokens are a type of encryption, specifically referring to the long lines of numbers and letters representing the crypto used in a transaction, such as a money transfer or bill payment. In short, tokens cover a number of meanings.

For instance, both Bitcoin and Ether (from Ethereum) are considered crypto tokens.

Ready to add crypto
to your portfolio?


The Most Common Types of Cryptocurrency

Here’s a list of cryptocurrency types—representing the most popular industry crypto projects (at present):

1. Bitcoin

Possibly the “Kleenex” or “Coca Cola” of all crypto, in that its name is the most recognizable and the most closely associated with the cryptocurrency system.

There are currently more than 18.5 million Bitcoin tokens in circulation, against a present capped limit of 21 million.

2. Bitcoin Cash

Introduced in 2017, Bitcoin Cash is one of the most popular types of cryptocurrency on the market. Its main difference with the original Bitcoin is its block size: 8MB. Compare that to the original Bitcoin’s block size of just 1MB. What that means for users—faster processing speeds.

3. Litecoin

Litecoin is increasingly used in the same breath as Bitcoin, and it functions practically the same way. It was created in 2011 by Charlie Lee, a former employee of Google. He designed it to improve on Bitcoin technology, with shorter transaction times, lower fees, more concentrated miners.

4. Ethereum

Unlike Bitcoin, Ethereum focuses not as much on digital currency as it does on decentralized applications (phone apps). You could think of Ethereum as an app store.

The platform is looking to return control of apps to its original creators, and take away that control from middlemen (like Apple, for instance). The only person who can make changes to the app would be the original creator. The token used here is called Ether, which is used as currency by app developers and users.

5. Ripple

Ripple is one type of cryptocurrency on the list, but it’s not Blockchain-based . It’s not meant so much for individual users as it is for larger companies and corporations, moving larger amounts of money (its coinage is known as XRP) across the globe.

It’s more well-known for its digital payment protocol more than for its XRP crypto. That’s because the system allows for transfer of monies in any form, be it dollars or even Bitcoin (or others). It claims to be able to handle 1,500 transactions per second (tps). Compare this with Bitcoin, which can handle 3-6 tps (not including scaling layers). Ethereum can handle 15 tps.

6. Stellar

Stellar focuses on money transfers, and its network is designed to make them faster and more efficient, even across national borders. It was designed by Ripple co-founder Jed McCaleb in 2014 and is operated by a non-profit organization called Stellar.org .

Its goal is to assist developing economies that may not have access to traditional banks and investment opportunities. It doesn’t charge users or institutions for using its Stellar network, and covers operating costs by accepting tax-deductible public donations.

7. NEO

Formerly called Antshares and developed in China, NEO is very aggressively looking to become a major global crypto player. Its focus is smart contracts (digital contracts) that allow users to create and execute agreements without the use of an intermediary.

It’s going after its main competition, Ethereum, but NEO lead developer Erik Zhang mentioned on a Reddit AMA that NEO has three distinct advantages—better architecture, more developer-friendly smart contracts, and digital identity and digital assets for easier integration into the real world.

Ethereum, on the other hand, uses its own programming languages that developers must first learn before creating smart contracts on its platform.

8. Cardano

Cardano aka ADA is used to send and receive digital funds. It claims to be a more balanced and sustainable ecosystem for cryptocurrencies, and the only coin with a “scientific philosophy and research-driven approach.”

That means that it undergoes especially rigorous reviews by scientists and programmers. It was founded by Charles Hoskinson, who is also the co-founder of Ethereum.

9. IOTA

Launched in 2016, IOTA stands for Internet of Things Application. Unlike most other Blockchain technologies, it doesn’t actually work with a block and chain; it works with smart devices on the Internet of Things (IoT).

All you need to do to use it is to verify two other previous transactions on the IOTA ledger, which is called the Directed Acyclic Graph (DAG), but IOTA creators call it The Tangle.

According to Coin Central , this means the devices need to be able to purchase more electricity, bandwidth, storage, or data when they need them, and sell those resources when they don’t need them.

The Role of Miners In Cryptocurrency

How exactly do you get your virtual hands on different types of cryptocurrency? You can buy it the old-fashioned way. Or, you can trade it on an exchange using other crypto (for example, using Bitcoin to buy NEO). Some blogs and media platforms pay its content providers in crypto.

Then, there are the miners . Miners usually don’t pay directly for their crypto; they earn it with their smarts. These tech savvy investors can be compared to the prospectors of the Old West, panning for gold in 1848.

The value is built in because the supply is limited—it’s just up to the complex computers to dig it up by cracking codes and solving complicated puzzles. A lot of it is guesswork, but once the “block” (of the blockchain) is solved, the other miners drop what they’re doing and go on to the next block. No parting gifts—the contestants just turn their attention to the next game round.

If the puzzle is solved, the reward is a certain amount of crypto, and sometimes even voting power on the platform. As of October 2020, the value of one bitcoin had well exceeded $13,000 .

Sounds sweet, but mining isn’t cheap. It requires powerful, expensive hardware and lots of electricity. Also, the number of awarded crypto will be going down, usually by halves every four years or so. Unfortunately, that might not do your utility bill any favors.

Forks, Hard Forks, and Soft Forks

Sometimes, a cryptocurrency—whether Bitcoin or an altcoin—forks. This typically happens when systems need an upgrade or update, or occasional steering (ie a large enough group of miners decide to make new rules for the network.

You could think of a fork like an actual fork, the kind you eat with. Each prong represents a different open-source code modification, but the prongs are designed to work together to assist in the main function.

Sometimes, forks happen by accident when nodes start making copies or if they do not recognize conflicting or unfamiliar information or characteristics. This is what leads to the difference between hard forks and soft forks.

Hard Forks

If a protocol is changed so that the old protocol version is no longer valid, call that a hard fork. This could be problematic, because if the older, now-invalid protocol is still running, it could lead you to scratch your head and say, “what the fork?” It could cause confusion and even possibly a loss of funds, because the old and new protocols running together are butting heads and making mysteries.

An example of a hard-fork problem—with Bitcoin, for instance, a hard fork is a must when making changes and protocol updates to the Blockchain. The new protocol is cool with the changes, but the old protocol becomes a hot mess, not understanding the new activity going on.

Since the old protocol rejects the new changes because it doesn’t recognize them, that causes a traffic jam or worse. The old protocol will claim that the changes and updates are not valid, even if they are. What you then get are two blockchains, one old and one new. As these chains grow, so can your problems.

The hard-fork challenge, then, is to get all the nodes on the old protocol to switch to the new protocol all at once, and at the same time. This sounds easy, but technically it’s easier said than done.

Soft Forks

Unlike a hard fork, a soft fork is totally cool with the new changes and keeps working. The old version accepts the newer version. Harmony! The newer, updated blocks become longer, and it becomes obvious that the older (shorter) blocks are obsolete and unusable. This recognition eliminates confusion over which protocol is now the real deal (it’s the newer, valid one.)

When a soft fork is implemented, there has to be a “majority vote” on whether to accept it into the established fold. If not, the new soft fork fails, and the rest of the chain simply goes on it with its life with no interruption.
Hard-and-soft forking can cause all kinds of unintended consequences. When members of the Ethereum community rejected a hard-fork change and decided to keep going with the non-forked version of Ethereum, that old-school system was renamed Ethereum Classic.

When Bitcoin hard-forked in order to add more functionality, a portion of the Bitcoin Cash community was left behind and was cut off from the rest of the network.

The Current View of Crypto

Bloomberg report stated that Bitcoin approached its highest valuation since 2017.

Dead Coins lists 1,050 digital currencies and initial coin offerings (ICO) as either “deceased.” Coinopsy catalogues cryptocurrency lists of more than 1,700 coins as nearly worthless.

It’s possible that a good number of those failed cryptos were scams, and the authentic, true-quality systems remain in place.

Furthermore, from a perception perspective, Bitcoin and other crypto have recently come under fire for their ability to be involved in illegal transactions, thefts, and scams. That’s just one of the reasons that investing in the list of cryptocurrencies out there still carries significant risk. Crypto has also been suspected as being a part of an economic bubble that may still pop.

The Takeaway

While Bitcoin launched a new asset class little more than a decade ago, today there are many different cryptocurrencies for investors to learn about and invest in.

If your curiosity about cryptocurrency is fueled by a desire to start investing, SoFi Invest® can be a great place to start. SoFi members can manage crypto investments in the SoFi app, with the peace of mind of knowing their crypto is in a secure platform.

Find out how SoFi Invest can help you with your investment goals.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

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.
Third Party Brand Mentions: No brands or products 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.
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How I Got Started Flipping Houses

Earlier this year I sold my 200th house flip. These are not wholesale deals that I never technically buy or fix up, these are house flips that we buy, renovate and sell. It has been by no means easy to do this many flips and I have had my fair share of problems along the … Read more

Source: investfourmore.com