finance

Sports betting has grown into a multi-billion-dollar industry, and one of its most popular forms is betting against the spread. While casual bettors might focus on simply picking a winner, more experienced gamblers may pursue greater risk and greater opportunity by betting the spread. In this article, we’ll look at what that means and how it works.

Key Takeaways

• Covering the spread means a team wins by more than the point spread or loses by fewer points than the spread.
• Sportsbooks set the spread to balance betting and adjust it based on betting trends.
• A team can win a game but fail to cover the spread if they don’t win by enough points.
• A push happens if the outcome of the game is the same amount as the spread; in this case, bets are returned.
• Betting the spread differs from the money line, which is a straight bet on which team wins.

What Is the Spread?

The point spread is a margin set by oddsmakers to even the odds between two teams of different skill levels. Instead of simply choosing the winning team, bettors must decide whether a team will win or lose by a certain number of points.

For example, if one team is favored by 7 points, oddsmakers will assign them a point spread. In this case, it would be (-7). This means this team must win by more than 7 points for a bet on them to succeed. On the other hand, the underdog (+7) needs to either win outright or lose by fewer than 7 points for its bettors to win. The underdog may lose the match, but those who bet on the underdog can still win their bet if the underdog “covers the spread”.

In many ways, the spread is like a handicap. It does not influence the actual game, and no real points are awarded during the real match. However, it gives the underdog an advantage in the betting world by giving them a “head’s start”. In the example above, you could interpret the spread as the underdog starting the match with a 7-0 lead. For the rest of the match, the favorite must outscore the underdog by at least that much to “win” in the betting world.

How Does Covering the Spread Work?

Covering the spread means that the favored team wins by more than the assigned spread, or the underdog keeps the game closer than expected. In the example above, if a favorite is given a -7 spread and wins by more than 7 points, they have covered the spread. If they win by less than 6 points or outright lose, they fail to cover, meaning the underdog bet wins.

On the other hand, you can cover the spread even if the team loses. In this example we’ve been losing, the underdog could lose by only 6 points; in this case, they would have covered the spread.

What Happens If the Spread Is Not Covered?

There’s two things that happened if a team fails to cover the spread. The first is simply that team lost their part of the bet. If an underdog’s spread is +7 and they lose by 14, they failed to cover the spread. Any bettor that placed money on them to cover the spread has lost.

Another outcome is for there to be a “push”. A push occurs when the outcome is exactly that of the spread. In the example above, if the favorite wins by exactly 7, all bets are generally returns and nobody wins. For this reason, oddsmakers try to set spreads that can’t be achieved (i.e. in the example above, the spread would likely be 6.5 points or 7.5 points).

What Factors Influence the Spread?

Oddsmakers take into consideration a lot of factors when setting the spread. This includes everything from team performance, injuries, weather conditions, and even betting trends. Sometimes underappreciated aspects of a game such as team fatigue, home-field advantage, and even travel schedules influence how oddsmakers calculate the spread.

Public perception also matters in how the spread is set. If a large percentage of the betting public heavily favors one team, sportsbooks may adjust the spread to encourage balanced action on both sides. This ensures that the bookmaker minimizes risk while maintaining an even playing field for bettors.

Some sportsbooks offer opportunities for bettors to move the spread in either direction to get better or worse odds. For instance, in the example above, if you were confident the favorite would win by at least 10 points, you could “sell” points and move the margin that the team would have to cover. To be compensated for this risk, you would face a better payout. Alternatively, if you’re less confident, you can “buy down” the spread (say, to 4 points). However, you’d face worse payout amounts.

Once the spread is set, it can shift based on betting patterns. If heavy action comes in on one team, sportsbooks may adjust the spread to balance the risk. There may always be factors that emerge as the game gets closer, such as key players needing to sit or unexpected personnel illnesses.

Example of Covering the Spread

In Super Bowl LIX, the Philadelphia Eagles defeated the Kansas City Chiefs by 18 points. Though the spread would have varied across sportsbooks, one such example was the spread of Kansas City (-1.5) and Philadelphia (+1.5). This means that oddsmakers thought the game would have been much closer than it was, and this sportsbook thought Kansas City was the favorite.

The Philadelphia Eagles could have lost and still covered the spread. For example, if they lost by only 1 point, they would have still covered. However, by winning (regardless of how many points they won by), they covered the spread and rewarded all bettors who put money on them.

Note

If you have a gambling problem, call the National Problem Gambling Helpline at 1-800-522-4700, or visit ncpgambling.org/chat to chat with a specialist.

Covering the Spread vs. Money Line Bet

Covering the spread involves wagering on a team not just to win, but to either exceed a predetermined margin (if they are the favorite) or stay within that margin (if they are the underdog). Another popular betting option is a money line bet. This is a straightforward wager on which team will win, regardless of the final score or margin of victory.

Since spread bets account for performance beyond simply winning or losing, the odds are usually set around -110 for both teams, meaning bettors must wager $110 to win $100. Money line odds, however, reflect the perceived probability of a team winning outright. A heavy favorite might have odds of -250 or worse, requiring a bettor to risk $250 just to win $100. Conversely, betting on an underdog on the money line, such as at +200, could yield a $200 profit on a $100 bet if they pull off an upset.

The main takeaway here is, generally speaking, it’s more difficult to cover the spread as opposed to just picking the outright winner. However, oddsmakers know this, so they adjust payout amounts to reflect the extra amount of risk bettors take trying to cover the spread.

What Does It Mean to Cover the Spread?

Covering the spread means that a team has either won by more than the required point spread (if they are the favorite) or lost by fewer points than the spread (if they are the underdog).

How Is the Point Spread Determined?

They use statistical models and market analysis to establish a fair spread that attracts equal betting on both sides. If too much money is placed on one side, the sportsbook may adjust the spread to encourage balanced action. That statistical model analyzes everything including but not limited to team performance, history between the two teams, personnel available, injuries, and weather conditions.

What Happens If a Team Wins but Doesn’t Cover the Spread?

If a favorite wins the game but fails to win by a margin greater than the spread, they do not cover the spread, and bets on them lose. For example, if a team is favored by 7 points (-7) but wins by only 3 points, bets on the favorite lose while bets on the underdog win (even though the underdog lost the actual game).

In Which States Is Sports Betting Legal?

As of January 2025, sports betting is legal in 38 states plus Washington, D.C.

What Is a Push?

A push occurs when the final margin of victory matches the exact point spread, resulting in a tie for betting purposes. For example, if a team is favored by 6 points (-6) and wins by exactly 6, neither side wins, and all bets are refunded.

The Bottom Line

Understanding how to cover the spread is essential for anyone serious about sports betting. It adds complexity to wagering, making it more strategic than simply picking winners and losers. By analyzing trends, managing risk, and staying informed, bettors can improve their chances of long-term success.

Reviewed by Somer Anderson
Fact checked by Vikki Velasquez

Regardless of your financial status, keeping tabs on the ultrarich—whether with admiration, envy, or resentment—is probably more pleasurable and less demanding than researching a mortgage, shopping for online brokers, or studying finance and economics.

The appeal of wealthy families reflects a culture that idolizes wealth and fetishizes the rich. Those in the upper echelons of business are celebrities in many people’s eyes, and they are scrutinized for their ability (or failure) to maintain this elite status.

This list is limited to families who originally made their fortunes through business (even if some of the current heirs enjoy the family inheritance without ever having contributed to it.)

Key Takeaways

• At over $430 billion, the Walton family is the richest family in the world.
• The Hermès family—purveyors of scarves, neckties, perfumes, and handbags—is the fourth-richest family in the world at $170.6 billion.
• The royal families of Qatar, Abu Dhabi, and Saudi Arabia are near the top of the list, thanks to their countries’ abundant oil wealth.
• The fourth generation of the Mars family, with a fortune worth $133 billion, currently runs the eponymously named Mars candy company.
• By focusing solely on families, this list does not include the richest people in the world, including Jeff Bezos and Elon Musk.

Walton Family

Estimated Wealth: $432.4 billion

Company: Walmart

The Waltons are once again the richest family in the world, after being briefly eclipsed by the Al Nahyan family in 2023. At the top of the value chain, Jim, Rob, and Alice Walton are each worth around $75 billion and ranked No. 18, 19, and 21, respectively, on Forbes‘ billionaire list as of Dec. 24, 2023.

Walmart is a retail behemoth. Founded by Sam Walton in Arkansas in 1962, Walmart is the world’s largest company by revenues in fiscal year 2024, with $648 billion in revenues and over 2.1 million global associates.

Walmart operates over 10,600 retail stores worldwide and 5,206 stores in the U.S. as of Feb. 2025.

Best known for big-box stores in rural and suburban America, Walmart is celebrated for its low-priced products and criticized for its labor practices. The company failed to bring its big-box consumer lifestyle to New York City, unlike its competitor, Target.

Al Nahyan Family

• Estimated Wealth: $323.9 billion
• Company: Abu Dhabi Royal Family

The Al Nahyan family, also referred to as the “House of Nahyan,” is the second richest family in the world. The leader of the family, Sheikh Mohammed bin Zayed Al Nahyan, is the ruler of Abu Dhabi and the President of the United Arab Emirates (UAE). The economy of the UAE (and the finances of its rulers and royal families) has been transformed by the vast oil reserves in the country. Abu Dhabi is one of the richest emirates, and especially oil-rich.

Sheikh Mohamed became the ruler of Abu Dhabi and the President of the UAE in 2022. Before that, his brother, Sheikh Khalifa, was the country’s leader from 2004 to 2022. And before that, his father, Sheikh Zayed bin Sultan Al Nahyan, was the President of the country, from its founding in 1971 until 2004, when his son succeeded him.

The family’s fortune has been amassed via ownership of billions of barrels of oil reserves, in addition to extremely profitable wealth funds.

Al Thani Family

Estimated Wealth: $172.9 billion

Company: Royal Family of Qatar

The Al Thani family has ruled Qatar since the middle of the 19th century. The family’s reign has lasted through the founding of modern Qatar, wars, and two coup attempts.

Sheikh Hamad bin Khalifa Al Thani turned Qatar into a major world power during his 18 years in power. (He gained complete power of Qatar by deposing his father in a bloodless coup in 1995. This involved freezing all of his father’s assets to prevent any counter-coups.)

The country’s natural gas production skyrocketed as a result of mining offshore gas fields and the discovery of untapped oil fields. In 2010, the average income in the country was $86,440 a year per person.

In addition to his income made from oil and gas, Sheikh Hamad invested billions of dollars in businesses, including Volkswagen, Total, Sainsbury’s, and Barclays bank. In 2018, Sheikh Hamad abdicated the throne to his fourth son, Sheikh Tamin bin Hamad al Thani.

Hermès Family

• Estimated Wealth: $170.6 billion
• Company: Hermès

French fashion house and luxury purveyor Hermès has dazzled the world with its signature scarves, neckties, and perfumes, as well as its iconic Kelly and Birkin handbags. Back in the 19th century, Thierry Hermès fashioned riding apparel for the aristocracy.

Today, the company dresses basketball royalty such as LeBron James. Fusing old-school and new technology, Hermès Apple Watches sell for $1,249 and up. Axel Dumas currently serves as the company’s executive director, and Pierre-Alexis Dumas is the artistic executive vice president.

Koch Family

Estimated Wealth: $148.5 billion

Company: Koch Industries

Charles Koch owes his staggering fortune to an oil business founded by his father, but today, he is perhaps better known to the general public for his politics, digging into his deep pockets to place his stamp on it—financing candidates and libertarian think tanks, funding university professorships, and lobbying for policy positions, all aimed at furthering a conservative agenda.

Charles partnered with his brother David until the latter died in 2019. Charles is worth an estimated $58.5 billion, ranked No. 25 on the Forbes‘ billionaires list. David’s widow, Julia Koch, and family are in 23rd place with a net worth of $64.3 billion as of Feb. 15, 2025.

Al Saud Family

Estimated Wealth: $140 billion

Company: Saudi Royal Family

The House of Saud, the Saudi royal family, has a monarchical history extending back nearly a century. The family’s massive fortune, estimated at $140 billion, has grown thanks to decades of payments from the Royal Diwan, the king’s executive office.

Ties with Saudi Aramco, one of the world’s most profitable companies and a behemoth of the oil industry, ensure that the Saudi royal family continues to accumulate wealth. It’s difficult to accurately assess the wealth of the House of Saud, in part because the family contains as many as 15,000 extended members, many of whom have founded businesses, received government contracts, and more.

Mars Family

• Estimated Wealth: $133.8 billion
• Company: Mars Incorporated

Mars is the Walmart of candy—a multigenerational family business that is ubiquitous and wildly popular. Today, the company is better known for making M&Ms than for its eponymous Mars bar. In 2017, the world’s largest candy company diversified with the purchase of VCA, a pet care company, for $9.1 billion.

Siblings Jacqueline and John Mars, whose grandfather, Frank Mars, founded the company, each have a net worth of $38.5 billion and are tied for No. 35 on Forbes‘ list of billionaires as of Feb. 15, 2025. The company is now being run by some of their children, the fourth generation of Mars family members.

2,781

The world had 2,781 billionaires in 2024, the highest number ever.

Ambani Family

• Estimated Wealth: $99.6 billion
• Company: Reliance Industries

Indian industrial conglomerate Reliance Industries, the only Asian company on our list, might be the least well-known to average readers.

Nevertheless, CEO Mukesh Ambani, whose late father founded the company in 1957, is ninth on Forbes‘ billionaires list with a net worth of $90.3 billion as of Feb. 15, 2025, overseeing the company’s refining, petrochemicals, oil, gas, and textiles; his brother, Anil, manages telecommunications, asset management, entertainment, and power generation.

Wertheimer Family

• Estimated Wealth: $88 billion
• Company: Chanel

French high-fashion house Chanel is legendary for the timeless “little black dress,” the No.5 perfume, and the late high-profile designer Karl Lagerfeld, who died on Feb. 19, 2019.

Brothers Alain and Gerhard Wertheimer now co-own the company that their grandfather staked with founder Gabrielle Coco Chanel. The brothers are both ranked 40th on the Forbes billionaires list, with a net worth of $36.8 billion each as of Feb. 15, 2025.

Thomson Family

• Estimated Wealth: $87.1 billion
• Company: Thomson Reuters

The Thomson family garners its wealth from Thomson Reuters, the media company. The family got its start in the 1930s when Roy Thomson started a radio station in Ontario, Canada, and later moved into newspapers.

Roy Thomson’s grandson, David Thomson, is the chairman of Thomson Reuters. He ranks 22nd on Forbes‘ billionaires list with a net worth of $67.8 billion on Feb. 15, 2025.

What Is the Richest Family on Earth?

The Waltons are the richest family in the entire world with a combined net worth of over $432 billion.

Which 10 Families Are the Wealthiest?

The top 10 richest families in 2025 by estimated wealth are:

1. The Walton family with $432 billion
2. The Al Nahyan family with $323 billion
3. The Al Thani family of Qatar with $172 billion
4. The Hermès family with $170.6 billion
5. The Koch family with $148.5 billion
6. The Saudi royal family with $140 billion
7. The Mars family with $133.8 billion
8. The Ambani family with $99.6 billion
9. The Wertheimer family with $88 billion
10. The Thomson family with $87.1 billion

Who Are the Wealthiest People in the World?

The top three wealthiest people in the world as of Feb. 15, 2025, are Tesla CEO Elon Musk, Amazon founder Jeff Bezos, and Facebook founder Mark Zuckerberg.

How Rich Are the British Royal Family?

While the British royal family is a tremendous source of curiosity for many people, and the Windsor’s have accumulated many properties, jewels, and art over 100 years of rule, we may never know exactly how much wealth the family has accrued. Assessing the wealth of the British royal family is difficult because of the vast array of its holdings, the historical value of these holdings, and a tradition of secrecy about financial particulars.

The Bottom Line

This list of wealthy families focused on those who built their wealth by starting a family business. Some of these family businesses—like Walmart—are now publicly traded businesses. Others, like Mars Incorporated and Koch Industries, are still privately held family businesses.

This list may read as a naked celebration of wealth at a time of rising global inequality and a vanishing middle class. It may also be seen as condoning heedless consumption at a time when the future of wealth itself is in question. Moreover, the focus on families means the list doesn’t include the world’s three richest individuals.

Find the right mix of dividend-paying stocks with dividend growth potential.

Reviewed by Khadija Khartit
Fact checked by Pete Rathburn

The single greatest worry of anyone planning for retirement is probably the fear of outliving your savings. No matter how much money you sock away in your 401(k) or your IRAs, you worry that it might not be enough.

One possible solution is to focus your portfolio on dividend-paying stocks, mutual funds, and exchange traded funds (ETFs). Hang onto your principle. Create a regular cash flow that will supplement your other income, such as Social Security and a pension.

Key Takeaways

• Dividend-producing investments can get you a regular stream of dividend income while preserving your principal.
• Identifying the right mix of dividend-paying stocks with dividend growth potential is vital.
• ETFs can be used to build a diversified portfolio of dividend growth and high-dividend-yield stocks.

It’s All About Dividend Growth

Unlike the interest from bonds, stock dividends tend to grow over time, and dividend growth has historically outpaced inflation.

That’s a good reason for dividend-paying stocks to be a part of every investor’s portfolio.

For investors with a long timeline, this fact can be used to create a portfolio that is aimed at dividend-income living after retiring.

Reinvesting Dividends

A smart strategy for people who are still saving for retirement is to use the dividends to buy more shares of stock. That way, they will collect even more dividends and be able to buy even more shares until they need the income.

For example, assume you bought 1,000 shares of a stock that traded for $100, for a total investment of $100,000. The stock has a 3% dividend yield, so you received $3 per share over the past year, which is $3,000 in dividends. You then take the dividends and buy more stock, so your total investment is $103,000.

Assume the stock price doesn’t move much, but the company increases its dividend by 6% a year. In the second year, you will get a dividend yield of 3.18% on $103,000 for a dividend of about $3,275. However, that is a yield on cost of about 3.28%.

This dividend reinvestment strategy continues to increase the yield on cost over time. After ten years, this hypothetical portfolio will produce around $7,108 in dividends. After 20 years, you will receive more than $24,289 a year in dividends.

What If You Are Already Retired?

The compounding of dividend income is of great advantage for those who have a long time horizon, but what about if you are near retirement? For these investors, dividend growth plus a little higher yield could do the trick.

First, retired investors looking to live off their dividends may want to ratchet up their yield. High-yielding stocks and securities, such as master limited partnerships, REITs, and preferred shares, generally do not generate much in the way of distribution growth. On the other hand, investing in them increases your current portfolio yield.

That could go a long way toward helping to pay today’s bills without selling off securities.

Note

Dividends paid in a Roth IRA are not subject to income tax.

Retired investors shouldn’t shy away from classic dividend growth stocks like Procter & Gamble (PG). These stocks will increase dividend income at or above the inflation rate and help power income into the future.

By adding these types of stocks to a portfolio, investors sacrifice some current yield for a larger payout down the line.

While an investor with a small portfolio may have trouble living off dividends as a sole source of income, the rising and steady payments will reduce their principal withdrawals.

Dividend ETFs

It can be hard to find the right stocks for dividends. Furthermore, achieving sufficient diversification is even more challenging.

Fortunately, some ETFs deploy dividend strategies for you. Dividend growth ETFs focus on stocks that are likely to grow their dividends in the future. If you are looking for current income, high-dividend-yield ETFs are a better choice.

What Is Dividend Yield?

Dividend yield is the amount of money that an investor is paid for owning a share of a stock, expressed as a percentage of the stock’s current price. This is displayed on the stock’s quote page on any business site.

A stock’s forward dividend yield is the amount it expects to pay over the next period of time, usually annually.

For example, the forward dividend yield of Microsoft stock was $3.21, or 0.81%, as of Feb. 16, 2025.

Are Dividend Stocks Better Than Bonds?

Dividend-paying stocks tend to reward investors better than bonds over the long term. The yields on bonds fluctuate up and down with interest rates. They pay relatively poorly when interest rates are low. A company that issues stock dividends, on the other hand, is under pressure to keep its dividend steady or even raise it over time as a reward to its investors.

What’s the Difference Between Common Stock Dividends and Preferred Stock Dividends?

A preferred stock share comes with a guarantee of a specific dividend return. It’s a sort of mix of a stock and a bond.

Common stock shares do not come with a guarantee that a dividend will be paid. The decision is made by the company’s directors based on its latest financial performance.

Many common stocks pay no dividends and never have paid them.

The Bottom Line

Most portfolio withdrawal methods involve combining regular asset sales with interest income from bonds, but there is another way. By investing in quality dividend stocks with rising payouts, both young and old investors can benefit from the stocks’ compounding, and historically inflation-beating, distribution growth. All it takes is a little planning to augment your retirement income with a dividend payment stream.

College athletes now have more rights to their name, image, and likeness (NIL)

Fact checked by Vikki Velasquez
Reviewed by Andrew Schmidt

NIL is shorthand for name, image, and likeness, which refers to a person’s right to control how their identity is used for commercial purposes. For years, celebrities like actors, musicians, and professional athletes have enjoyed NIL rights and been able to monetize them through product endorsements and other activities. Until 2021, however, amateur athletes had no such opportunities.

Today, under new National Collegiate Athletic Association (NCAA) rules and a variety of state laws, that is changing. Here is a guide to the rules and laws as they stand now.

Key Takeaways

• College athletes can now make money from the commercial use of their name, image, and likeness (NIL) as a result of new NCAA rules introduced in 2021. Many states now have NIL-related laws as well.
• NCAA rules still forbid schools from paying their athletes. However, that may change as the result of a May 2024 court settlement that is expected to be finalized in spring 2025.
• Some state laws prohibit athletes from endorsing certain types of products and services.
• The NCAA, the states, and many individual schools have reporting and disclosure requirements for any NIL deals that athletes enter into.
• As yet, there is no federal NIL law; many groups, including the NCAA, have called for one.

History of NIL Restrictions by the NCAA

For many decades, the NCAA opposed extending NIL rights to college athletes, and its rules specifically barred them from making money off of their names, images, or likenesses. That restriction didn’t apply to the athletes’ schools, teams, or leagues, which were able to capitalize not only on the popularity of a particular team but also on that of individual athletes.

While proponents of this arrangement argued that it allowed athletes to maintain their unsullied amateur status and uphold the sanctity of their sport, athletes and their families couldn’t help but notice that everybody but them seemed to be getting rich off of their labor.

In 2021, the issue came before the U.S. Supreme Court in National Collegiate Athletic Association v. Alston et al. (Alston was Shawne Alston, a former running back for the West Virginia University Mountaineers football team.) On June 21, 2021, the court upheld a lower court’s determination that the NCAA’s rules on the compensation of athletes violated federal antitrust law.

Just over a week later, on June 30, 2021, the NCAA issued what it referred to as new “interim” rules covering college athletes’ NIL rights.

Note

USA Volleyball defines likeness as “your ‘semblance,'” and offers as examples the outline of Michael Jordan on the Jordan brand and Arnold Palmer’s signature on Arizona Iced Tea. It notes that EA Sports’ video games depicted former NCAA athletes’ likenesses “by using their height, body type, number, and playing style—but never their name or exact image.”

The NCAA’s Interim NIL Policy

In announcing its new policy, the NCAA offered “guidance to college athletes, recruits, their families, and member schools” in the form of four bullet points, reprinted here as they appeared in the association’s press release at the time:

• Individuals can engage in NIL activities that are consistent with the law of the state where the school is located. Colleges and universities may be a resource for state law questions.
• College athletes who attend a school in a state without an NIL law can engage in this type of activity without violating NCAA rules related to name, image and likeness.
• Individuals can use a professional services provider for NIL activities.
• Student-athletes should report NIL activities consistent with state law or school and conference requirements to their school.

Since that time, the NCAA has offered more detailed guidance on a number of NIL-related issues. In particular, it has attempted to clarify what schools are and aren’t allowed to do with respect to compensating their athletes or helping them obtain compensation for the use of their NIL.

For example, an October 2022 advisory noted that schools weren’t allowed to “engage in negotiations on behalf of an NIL entity or a student-athlete to secure specific NIL opportunities.”

But in April 2024, new guidance stated that “schools can identify NIL opportunities and facilitate deals between student-athletes and third parties.” Student athletes are under no obligation to accept a school’s assistance. As of August 1, however, “member schools will be permitted to increase NIL-related support only for student-athletes who disclose their NIL arrangements.”

The NCAA’s May 2024 Proposed Settlement

On May 23, 2024, the NCAA agreed to a court settlement that, if approved by the judge in the case on April 7, 2025, could further expand athletes’ rights to monetize their names, images, and likenesses. In particular it could end the prohibition against colleges directly compensating their athletes, including for the use of their NIL.

As part of the settlement, the NCAA also agreed to pay nearly $2.8 billion to current and former athletes who lost out on opportunities to capitalize on their NIL as a result of the old rules.

One of the many remaining questions is whether the settlement terms will align with Title IX protections. On January 16, 2025, the U.S. Department of Education’s Office for Civil Rights issued a memo stating that NIL payments to college athletes must be proportionate between a school’s male and female athletes to comply with Title IX. But later that month, after President Trump came into office, that guidance was rescinded. Also, it seems unlikely that athletes who participate in sports that earn less than football and basketball will get equal compensation.

State NIL Laws and NCAA Compliance

Even before the 2021 Supreme Court ruling, some states had been introducing their own laws extending NIL rights to college and high school athletes. California passed the first such law in 2019.

Currently, more than 30 states have NIL laws on the books. Because state laws differ from one another and from NCAA rules, the NCAA and other groups have called for a uniform federal law governing the practice. Several bills have been introduced in the U.S. House or Senate, but no federal law has passed to date.

Meanwhile, the NCAA has stated that “schools must adhere to NCAA legislation (or policy) when it conflicts with permissive state laws. In other words, if a state law permits certain institutional action and NCAA legislation prohibits the same action, institutions must follow NCAA legislation.”

Permissible NIL Activities for College Athletes

The new state laws and NCAA rules have made it possible for athletes to cash in on their celebrity in an assortment of ways. Among the potentially lucrative possibilities:

• Product endorsements
• Merchandise licensing, such as apparel with their name on it
• Personal appearances
• Autograph signings

However, certain activities remain off-limits. In South Carolina, for example, athletes can’t endorse “tobacco, alcohol, illegal substances or activities, banned athletic substances, or gambling.”

In addition, individual schools and the governing bodies of specific sports may have their own rules and prohibitions.

Quid Pro Quo Arrangements and NIL Deals

Current NCAA rules require that any NIL deal be a quid pro quo arrangement. This means that athletes must do something in return for the money they are paid. According to the NCAA, “Student-athlete NIL agreements should include the expected NIL deliverables by a student-athlete in exchange for the agreed upon compensation and student-athletes must be compensated only for work actually performed.”

The point is to prevent anyone from paying an athlete simply for playing their sport and disguising it as an NIL payment. “Pay-for-play,” as it’s often called, has long been forbidden under NCAA rules. That could change, however, if the May 2024 proposed court settlement goes into effect.

Compliance and Reporting Requirements

Athletes are required to comply with the relevant state, NCAA, and college-specific NIL rules and, in most cases, to report any NIL deals they enter into. According to the NCAA, 20 states currently have such disclosure requirements.

On the NCAA front, the disclosure rules are still evolving. In January 2024, NCAA Division I announced new rules that are scheduled to go into effect for member schools on Aug. 1, 2024. They will, for example, require athletes “to disclose to their schools information related to [any] NIL agreement exceeding $600 in value, no later than 30 days after entering or signing the NIL agreement.” In addition, “Prospective student-athletes will be required to disclose the same information within 30 days of enrollment.”

The rules don’t require individual athletes to report their NIL deals to the NCAA, but their schools are expected to provide “deidentified” data on them to the NCAA or its designee at least twice a year. The NCAA says it “will use that information to develop an aggregated database so student-athletes can better understand trends in NIL agreements and so the national office and member schools can make informed decisions about NIL-related policy.”

While athletes might be subject to criminal penalties for violating their state laws, or potential punishment by their schools, any penalties that the NCAA imposes appear most likely to fall on the schools.

In an early indication of what might lie ahead, the NCAA imposed sanctions on Florida State University in January 2024 for the actions of an assistant football coach who had allegedly violated the rules by introducing a prospective transfer student to a booster who offered him an NIL opportunity worth about $15,000 a month. After its investigation, the NCAA imposed a long list of penalties on Florida State, including a two-year probation, a fine of $5,000 plus 1% of the football budget, and an assortment of restrictions on its ability to recruit new athletes.

Future Outlook for NIL and the NCAA

The NCAA had good reason for characterizing its 2021 NIL rules as “interim.” They are likely to undergo numerous changes in the months and years ahead, driven by forces both inside and outside the NCAA.

In January 2024, the states of Tennessee and Virginia sued the NCAA, maintaining that its rules on using NIL payments in recruiting athletes were a violation of antitrust law. Florida, New York, and the District of Columbia joined the suit in May 2024, the same month that the NCAA proposed changing its rules.

Perhaps even more disruptive to the longtime status quo, the National Labor Relations Board issued an opinion in February 2024 that college athletes (in this case, basketball players) were employees of their university (in this case, Dartmouth) and entitled not only to compensation but also the right to unionize. On March 5, 2024, the Dartmouth men’s basketball team voted to unionize.

What Are the Key Provisions of the NCAA’s Interim NIL Policy?

The NCAA’s interim NIL policy allowed college athletes, for the first time, to personally benefit from the commercial use of their names, images, or likenesses. It did not change the association’s rule that schools are not allowed to pay their athletes, but that may also change as the result of a proposed court settlement in May 2024.

How Do State NIL Laws Impact College Athletes and NCAA Compliance?

Many states now have NIL laws. Athletes in those states who play for NCAA member schools must comply with those laws and NCAA rules. In some cases, state laws spell out more specifically what athletes are and aren’t allowed to do, especially regarding the endorsement of certain kinds of products and services.

What Are Some Examples of Permissible NIL Activities for College Athletes?

Athletes can now accept money for personal appearances, many kinds of product endorsements, and the licensing of apparel, such as caps or jerseys, among other commercial activities.

What Are the Consequences of Noncompliance with NCAA NIL Rules?

So far, the NCAA has been slow to crack down on violators of its NIL rules, although early indications are that it is more likely to go after schools and boosters than individual athletes.

What Are Potential Future Developments in NIL Regulations by the NCAA?

The NCAA’s NIL rules are currently in flux, as are state laws. In addition, pending court cases—and the proposed May 2024 settlement—could completely change the relationship between athletes and their schools. Ultimately, student athletes may be entitled to all the rights of employees, including collective bargaining.

The Bottom Line

After years of prohibiting athletes from making money from their names, images, and likenesses, the NCAA made a dramatic change to its rules in 2021 and proposed further changes in 2024. While the NCAA’s rules are still evolving, current and future athletes (and their families) should try to stay abreast of them, as well as any applicable state laws. Star athletes, in particular, may want to seek professional advice.

Reviewed by Thomas J. Catalano

When shorting equities, one often faces the challenge of distinguishing between a topping formation and a change in trend. Many successful short sellers will try to focus their efforts by looking at clues that are offered from the schools of technical analysis and fundamental analysis. Read on to find out how studying these different methods a trader can gain confidence in shorting the market.

Key Takeaways

• Short sellers profit by betting that a stock or other security will lose value in the future.
• Technical analysis examines historical price trends to determine if a particular asset is likely to gain or lose value.
• Fundamental analysis examines revenues, cash flows, and assets to determine the actual value of the company.
• Experienced short sellers use a combination of fundamental and technical analysis to identify candidates for short selling.

Technical Analysis

Since the equities markets are primarily dominated by long traders, short traders try to prey on the weak longs to trigger breaks and start downtrends. They try to put enough pressure on the market to create situations where the weaker long get out because of the fear of giving back gains. It is the job of the short seller to find tools, such as different chart patterns or indicators that are used specifically for predicting the start of a decline or a panic sell.

Trying to short a market using technical analysis usually means finding an overbought indicator and a trend indicator that is reliable enough to show the equity is a candidate for a down move. The overbought indicator is most likely either a relative strength index (RSI) or a stochastic oscillator. A trend indicator can be as simple as a short-term moving average (MA).

When using an oscillator, the trader is relying on it to show that the market has reached a level that indicates it may be running out of buyers. A trend indicator, on the other hand, is usually used to show that support has been broken because the market has become weak. When shorting an equity, it is very important that the trader knows that with an oscillator they are selling strength, but with a trend indicator, they are looking to short weakness.

Warning

Unlike long trades, the potential losses of a short trade are infinite.

Fundamental Analysis

Fundamentally, there are several ways to pinpoint short candidates, including bad earnings, lawsuits, changes in legislation, and news. The key to using the fundamentals or news to trade equity on the short side is making an informed decision about whether the event taking place is a short-term issue or a long-term event.

A negative news event is most likely to cause a spike down in a market and not necessarily set up good long-term decline. In this case, the spike has most likely been caused by stop-loss orders being triggered. A long-term decline can start with a spike down but is most likely triggered by a series of negative events that give traders confidence that a longer-term downtrend is developing.

An example of a spike down triggered by a news event is when a company’s earnings are reported lower than the consensus. Traders react by selling the stock. A series of negative earnings reports, however, is the type of fundamental that often attracts the short seller.

When an event is significant enough to crack the support of a market, volatility will often increase as nervous long traders begin to feel the pressure of the short sellers trying to drive the market lower. This is when a trader can use both types of analysis to determine the severity of the decline that is in store.

In general, a negative news announcement is often accompanied by heavy volume and wide ranges as short-selling pressure builds in an attempt to drive the stock to technical levels which will trigger more sell stops. The short seller, driven by the confidence of the negative fundamentals, continues to try to push the market through support points, which makes it painful to hold on to long positions.

Short Selling in Action

Heavy volume, wide ranges, and lower closes often catch the eye of short traders. Upon further investigation, the short trader will then decide that the news event or fundamental change is strong enough to trigger a liquidation of long positions. These conditions may encourage short sellers to initiate new short positions.

An interesting historical example took place in the S&P Financial SPDR Fund (AMEX:XLF) in early 2007. Figure 1 illustrates how short sellers identified a potential opportunity and used negative evidence from technical and fundamental analysis to take control of a falling market.

Figure 1 (Source: TradeStation)

Short sellers watched volume increase and eventually triggered a downside acceleration.

After a prolonged move up and a series of higher tops and higher bottoms, the RSI and stochastic indicators reached overbought levels. This was enough information to cause traders to think a top was being formed, but not enough to attract any selling pressure because, throughout the up move, the same oscillators had indicated possible tops.

The XLF offered the first clue of a top on Feb. 20, 2007, at 37.99, and began its break to 34.18 by March 14, 2007. This move was the largest down move in terms of price and time that the market had seen since 2004. Compared to previous breaks, this move was much more severe, which was a major clue that the XLF was topping seen in Figure 2.

Figure 2 (Source: TradeStation)

The severe break during February and March gave a clear indication that XLF was topping.

While technical factors may have identified a possible top, news stories helped traders gain confidence in the short side by supplying the market with negativity. On Feb. 26, 2007, former Federal Reserve Chair Alan Greenspan warned of a recession by the end of 2007. The next day, the Shanghai Composite Index fell 8.8%. European stocks also experienced large one-day declines, and the Dow Jones Industrial Average (DJIA) dropped sharply.

During the course of these broad market breaks, XLF also attracted short-selling pressure as bearish traders interpreted this as a sign a recession could possibly cut into future earnings of financial institutions.

The first move down was triggered by a combination of technical and fundamental factors. It offered clues to traders that the XLF was sensitive to the news which had a potential effect on futures earnings. It also identified price points in the market which may have been defended by long traders. During February and March, it was reported that several subprime businesses filed for bankruptcy. This news, along with Mr. Greenspan’s comments, most likely contributed to the decline in XLF from Feb. 20 to March 14.

As the market was forming its top in early spring, more fundamentally bearish data was released, which painted a grim picture when combined with the weakening technical setup. In early April, New Century Financial Corporation filed for Chapter 11 bankruptcy protection. While this news may not have immediately triggered a break in the market, when combined with the subprime bankruptcy filings in February and March, a bearish fundamental trend started to form.

XLF showed a downward price trend throughout the spring and summer. During this time period, short sellers likely gained confidence from the unfavorable fundamentals, news stories, and the visibly bearish chart patterns. Short sellers were likely encouraged by the negatively-toned news stories which spread pessimism among investors. Meanwhile, the technical patterns on the charts kept reaffirming the downtrend with a series of lower tops and lower bottoms seen in Figure 3.

Based on the combination of the technicals and fundamentals, it was clear that the short sellers were in control of XLF.

Figure 3 (Source: TradeStation)

The series of lower tops and lower bottoms indicate a clear downtrend throughout the spring and summer months.

What Is the 10% Rule for Short Selling?

Rule 201, informally known as the 10% rule, is a restriction on short trades for stocks that lose more than 10% of their share price in a single trading day. When Rule 201 is triggered, short sellers can only execute trades above the National Best Bid price.

Why Is Short-Selling Risky?

Short selling can be both riskier and more expensive than long trades. When you buy a stock, your potential losses are limited to the amount of money you put in. If you short a stock, the potential losses are infinite, since there is no limit to how much the share price can increase. Moreover, short sellers typically trade on margin, which magnifies their potential losses. There are also additional fees that short sellers must pay that can impact their bottom line.

Is Short Selling Beneficial for the Market?

While some have expressed negative views of short sellers, shorts serve an important function in assisting price discovery. Short sellers can introduce sell pressure to frothy or irrationally exuberant markets, thereby deflating bubbles and helping prices revert to normal levels.

The Bottom Line

In summary, to be a successful short seller, one must be aware of the clues on both the price charts and on the balance sheets. Technically, the short trader must be able to distinguish between a topping formation and a change in trend. They must learn the types of formations that indicate a short-term top or a long-term trend.

Fundamentally, the short-trader has to distinguish between a one-time news event and the start of a series of negative events. By learning how the technicals and fundamentals work together, a trader can gain confidence that can help them comfortably to go short in the market.

Fact checked by Suzanne Kvilhaug
Reviewed by Khadija Khartit

October has a special place in finance—called the October effect, it’s one of the most feared months in the financial calendar. The events that have given October a bad name span over 100 years.

Here’s a look at whether there’s any merit behind the fear of October.

Key Takeaways

• The October effect is the widespread belief that financial declines and stock market crashes are more likely to occur during October than any other month.
• The Bank Panic of 1907, the Stock Market Crash of 1929, and Black Monday 1987 all happened during the month of October.
• Historically, September has had more down markets than October.
• The effect that causes some traders to blame October for stock market declines may provide buying opportunities for contrarian investors.

The Bank Panic of 1907

In October 1907, a financial panic threatened to engulf Wall Street, mostly owing to threats of legislative action against trusts and shrinking credit. The panic stretched for six weeks.

During this time, there were multiple bank runs and heavy panic selling at the stock exchange. All that stood between the U.S. and a serious crash was a J.P. Morgan-led consortium that did the work of the Federal Reserve before it existed. The consortium provided the funds necessary to stabilize various banks and even the city of New York.

Stock Market Crash of 1929

The Crash of 1929, which began on Oct. 24, was a financial bloodletting on an unprecedented scale because so many people had money invested in the market. It left several “black” days in the history books, each with its own record-breaking market slide. This crash was one of several causes of the Great Depression.

Note

The Panic of 1907 led to the Federal Reserve Act of 1913, which established the Federal Reserve Board and the 12 Federal Reserve Banks as “lenders of last resort.”

Black Monday

Nothing says Monday like a financial meltdown and an unexpected stock market crash. On Oct. 19, 1987—the day that historians refer to as Black Monday—automatic stop-loss orders and financial contagion gave the market a thorough throttling as a domino effect echoed across the world. The Federal Reserve and other central banks intervened, and the Dow recovered from the 22% drop quite rapidly.

September Is Guilty Also

Oddly enough, September, not October, has more historical down markets. Notably, the catalysts that set off the 1907 panic and the 1929 crash happened in September or earlier, and the reaction was simply delayed.

In 1907, the panic nearly occurred in March and, with the tension building over the fate of trust companies, could have happened in almost any month. The 1929 crash arguably began when the Fed banned margin-trading loans in February and cranked up interest rates.

Taken as a whole, a very strong argument can be made for September being worse for the markets than October, as you can see below from the number of “Black Days” occurring in the month.

The Original “Black Day”

Most Americans associate Black Friday with the day after the Thanksgiving holiday when retailers offer huge discounts and consumers kick off their holiday shopping. But the original Black Friday on September 24, 1869, was anything but festive. Jay Gould and other speculators tried to corner the gold market, working with an insider at the Treasury. The price kept rising until the Treasury broke the corner by selling $4 million in government gold, dropping the price of gold by $27 in a single day, sparking a catastrophic crash, and ruining many speculators.

Black Wednesday

Black Wednesday occurred on September 16, 1992, when George Soros raided the British pound. This September event is considered infamous by people outside the forex community. However, within the forex community, it’s revered as one of the greatest trades ever made. Soros reportedly made a $1 billion profit on the deal, but the British government lost billions trying to shore up its currency, leading up to the eventual capitulation.

September 2001 and 2008

The single-day point declines in the Dow that occurred in September 2001 and 2008 were bigger than those of Black Monday 1987. The first resulted from the attacks on the World Trade Center. The second was tied to the subprime mortgage meltdown. The 2008 plunge involved far more than the U.S. economy, trimming $1.2 trillion from the global economy in one day.

An Angel in Disguise

Surprisingly, October has historically heralded the end of more bear markets than the beginning. The fact that it is viewed negatively may actually make it one of the better buying opportunities for contrarians.

Market slides in 1987, 1990, 2001, and 2002 turned around in October and began long-term rallies. In particular, Black Monday 1987 was one of the great buying opportunities of the last 50 years.

Peter Lynch, among others, took this opportunity to load up on solid companies that he’d missed on their way up. When the market recovered, many of these stocks shot up to their previous valuations and a select few went far beyond.

October Effect Unjustified

October gets a bad rap in finance, primarily because so many down days fall in this month. This is a psychological effect rather than anything special about October. The majority of investors have lived through more bad Septembers than Octobers, but the real point is that financial events don’t cluster at any given point.

The worst events of the 2008–2009 financial meltdown happened in the spring with the collapse of Lehman Brothers. Stocks tend to fall in November and December due to year-end rebalancing and tax optimization (e.g., tax-loss harvesting or charitable donations). Some financially damaging events haven’t been given black day status simply because the media didn’t choose to dust off that moniker at the time.

Although it’d be nice to have financial panics and stock market crashes restrict themselves to one particular month, October is no more prone to bad times than the other 11 months of the year.

Is the October Effect a Real Thing?

The October effect is a perspective taken by some investors and traders, but it has not been proven to be a market event that regularly occurs in October.

Is October a Good or Bad Month for Stocks?

Generally, October is not a bad month for the stock market, but some research claims it is during presidential election years.

What Causes the Santa Claus Rally?

The Santa Claus rally occurs during the last five trading days of December. During this period, the S&P 500 has gained an average of 1.3% and been positive 79% of the time.

The Bottom Line

While October has had its share of disastrous stock market days, in actuality, negative financial events aren’t limited to that month. As it turns out, October is no more of a magnet for market collapses and the onset of crises than any other time of the year. However, the psychological influence of the “October effect” can present investors with choice investment buying opportunities that can pay off later.

Fact checked by Vikki Velasquez
Reviewed by Charles Potters

Some of the most commonly used tools to gauge relative levels of stock market volatility are the Cboe Volatility Index (VIX), the average true range (ATR), and Bollinger Bands. While traders and analysts rely on various indicators to track volatility and determine optimal exit or entry points for trades, these stand out because of their wide use.

Key Takeaways

• The most commonly-used market volatility indicators are VIX, ATR, and Bollinger Bands.
• VIX measures the prices of SPX options with Friday expirations only and forecasts the S&P 500’s 30-day volatility.
• The average true range is a charting indicator that shows the breadth of a stock or commodity’s daily trading range over time. High readings reflect higher volatility.
• Bollinger Bands use a 20-day moving average to demonstrate quiet and explosive trading periods.

Cboe Volatility Index (VIX)

The Cboe Volatility Index (VIX) is one of the most widely used volatility gauges. It is updated in 15-second intervals throughout the trading day and is computed using an option-pricing model. It reflects the current implied or expected volatility that is priced into a strip of short-term S&P 500 Index options.

Because large institutions account for a significant portion of trading in S&P Index options, their volatility perceptions (as measured by VIX) are used by other traders to get a reading of likely market volatility in the days ahead.

The Cboe Volatility Index stays between 12 and 35 most of the time, but it has occasionally dropped into the single digits with rallies of more than 75. Generally, VIX values higher than 30 indicate increased volatility, while values in the low teens are indicative of low volatility.

Derivatives, such as futures and options, of VIX are actively traded. In addition, leveraged exchange-traded funds based on the volatility index—like the ProShares Ultra VIX Short-Term Futures ETF (UVXY) and its partner ProShares Short VIX Short-Term Futures ETF (SVXY)—exist as well.

Average True Range

The average true range indicator was developed by J. Welles Wilder Jr. It is a technical chart indicator that can be applied to any stock, exchange-traded fund, forex pair, commodity, or futures contract. ATR calculates what Wilder called a “true range” and then creates the ATR as a 14-day exponential moving average (EMA) of the true range. The true range is found by using the highest value generated by one of three equations:

• True range = Current day’s high minus the current day’s low
• True range = Current day’s high minus the previous day’s close
• True range = Previous day’s close minus the current day’s low

The ATR is then created as an exponential moving average (EMA) computed using the highest value found when the three equations are solved. A larger ATR indicates higher trading ranges and, thus, increased volatility. Low readings from the ATR are generally consistent with periods of quiet or uneventful trading.

Bollinger Bands

Bollinger Bands is another charter indicator and consists of two lines or bands, which are two standard deviations above and below the 20-day moving average. The moving average appears as a line between the upper and lower bands. A widening of the bands shows increased volatility and a narrowing of the bands shows decreased volatility. Like ATR, Bollinger Bands can be applied to any stock or commodities chart.

What Indicator Shows Volatility?

There are many volatility indicators besides ART, Bollinger Bands, and VIX. You can also use Keltner Channels, the Chaikin Volatility Indicator, or the Relative Volatility Indicator.

Is MACD a Volatility Indicator?

Moving average convergence divergence (MACD) is used to point out potential entry and exit points for trades a long term and short term exponential moving average.

How Do I Check Volatility of the Market?

There are many ways to check, but a quick way is to check a stock’s Beta, which compares its price movements to that of an index, such as the S&P 500.

The Bottom Line

Market volatility goes through cycles of highs and lows. Analysts watch the direction of market movement when there is a sharp increase in volatility as a possible indication of a future market trend. While VIX is useful in seeing overall levels of volatility of the S&P 500 Index, ATR and Bollinger Bands can be applied to stocks, commodities, forex, indexes, or futures using any number of charting applications.

Reviewed by Charles Potters

Widely known for their ability to incorporate volatility and capture price action, Bollinger Bands® have long been a favorite of forex traders. However, there are other technical options that traders in the currency markets can apply to capture profitable opportunities in swing action.

Lesser-known band indicators such as Donchian channels, Keltner channels, and STARC bands are all used to isolate such opportunities. Also used in the futures and options markets, these technical indicators have a lot to offer given the vast liquidity and technical nature of the FX forum.

Key Takeaways

• The Donchian channel uses a moving average to signal uptrends on upper band breaks and downtrends on a lower band breaks.
• The Keltner channel uses the average-true range or volatility; breaks above or below the top and bottom barriers signal a continuation.
• STARC bands help to determine the higher probability trades so that a break of the upper band signals a lower-risk sell and a higher-risk buy.
• When price declines to the STARC lower band, it’s a lower-risk buy opportunity and a high-risk sell situation.

Differing in underlying calculations and interpretations, each study is unique because it highlights different components of the price action. Here we explain how Donchian channels, Keltner channels, and STARC bands work and how traders can use them to their advantage in the FX market.

Donchian Channels

Donchian channels are price channel studies that are available on most charting packages and can be profitably applied by both novice and expert traders. Although the application was intended mostly for the commodity futures market, these channels can also be widely used in the FX market to capture short-term bursts or longer-term trends.

Created by Richard Donchian, considered to be the father of successful trend-following, the study contains the underlying currency fluctuations and aims to place profitable entries upon the start of a new trend through penetration of either the lower or upper band. Based on a 20-period moving average (and thus sometimes referred to as a moving average indicator), the application additionally establishes bands that plot the highest high and lowest low. As a result, the following signals are produced:

• A buy, or long, signal is created when the price action breaks through and closes above the upper band.
• A sell or short, signal is created when the price action breaks through and closes below the lower band.

The theory behind the signals may seem a little confusing at first, as most traders assume that a break of the upper or lower boundary signals a reversal, but it is actually quite simple. If the current price action is able to surpass the range’s high (provided enough momentum exists), then a new high will be established because an uptrend is ensuing. Conversely, if the price action can crash through the range’s low, a new downtrend may be in the works. Let’s look at a prime example of how this theory works in the FX markets.

In Figure 1, we see the short, one-hour time-framed euro/U.S. dollar currency pair (EUR/USD) chart. We can see that, prior to December 8, the price action is contained in tight consolidation within the parameters of the bands. Then, at 2 a.m. on December 8, the price of the euro makes a run on the session and closes above the band at Point A. This is a signal for the trader to enter a long position and liquidate short positions in the market. If entered correctly, the trader will gain almost 100 pips in the short intraday burst.

Keltner Channels

Another great channel study that is used in multiple markets by all types of traders is the Keltner channel. The application was introduced by Chester W. Keltner (in his 1960 book How To Make Money In Commodities) and later modified by famed futures trader Linda B. Raschke. Raschke altered the application to take into account the average true range (ATR) calculation over 10 periods. The ATR measures volatility or how extensive the price moves are for a commodity or currency over a set period.

As a result, the volatility-based technical indicator bears many similarities to Bollinger Bands®. The difference between the two studies is that Keltner’s channels represent volatility using the high and low prices, while Bollinger’s studies rely on the standard deviation. Nonetheless, the two studies share similar interpretations and tradable signals in the currency markets.

Like Bollinger Bands®, Keltner channel signals are produced when the price action breaks above or below the channel bands. Here, however, as the price action breaks above or below the top and bottom barriers, a continuation is favored over a retracement back to the median or opposite barrier.

• If the price action breaks above the band, the trader should consider initiating long positions while liquidating short positions.
• If the price action breaks below the band, the trader should consider initiating short positions while exiting long or buy positions.

Let’s dive further into the application by looking at the example below.

By applying the Keltner study to a daily charted British pound/Japanese yen currency cross pair (GBP/JPY), we can see that the price action breaks above the upper barrier, signaling for the trader to initiate long positions. Placing effective entries, the FX trader will have the opportunity to effectively capture profitable swings higher and at the same time, exit efficiently, maximizing profits.

No other example is more visually stunning than the initial break above the upper barrier.

• The trader can initiate a trade above the close of the initial session burst above at Point A on July 17.
• After the initial entry is placed above the close of the session, the trader can capture nearly 300 pips before GBP/JPY retraces and retests support.
• Another position can be initiated at Point B, where momentum once again takes the position approximately 350 pips higher.

STARC Bands

Also similar to the Bollinger Band® technical indicator, STARC (or Stoller Average Range Channels) bands are calculated to incorporate market volatility. Developed by Manning Stoller in the 1980s, the bands will contract and expand depending on the fluctuations in the average true range component. The main difference between the two interpretations is that STARC bands help to determine the higher probability trade rather than standard deviations containing the price action. Simply put, the bands will allow the trader to consider higher or lower risk opportunities rather than a return to a median.

• Price action that rises to the upper band offers a lower risk sell opportunity and a high-risk buy situation.
• Price action that declines to the lower band offers a lower risk buy opportunity and a high-risk sell situation.

This is not to say that the price action won’t go against the newly initiated position. However, STARC bands do act in the trader’s favor by displaying the best opportunities. If this indicator is coupled with disciplined money management, the FX enthusiast will be able to profit by taking on lower-risk initiatives and minimizing losses. Let’s take a look at an opportunity in the New Zealand dollar/U.S. dollar (NZD/USD) currency pair.

Looking at the New Zealand dollar/U.S. dollar currency pair presented in Figure 3, we see that the price action has been mounting a bullish rise over the course of November, and the currency pair looks ripe for a retracement of sorts. Here, the trader can apply the STARC indicator as well as a price oscillator (Stochastic, in this case) to confirm the trade.

After overlaying the STARC bands, the trader can see a low-risk sell opportunity as we approach the upper band at Point A. Waiting for the second candle in the textbook evening star formation to close, the individual can take advantage by placing an entry below the close of the session.

Confirming with the downside cross in the Stochastic oscillator, Point X, the trader will be able to profit almost 150 pips in the day’s session as the currency plummets from 0.7150 to an even 0.7000. Notice that the price action touches the lower band at that point, signaling a low-risk buy opportunity or a potential reversal in the short-term trend.

Putting It All Together

Now that we’ve examined trading opportunities using channel-based technical indicators, it’s time to take a detailed look at two more examples and to explain how to capture such profit windfalls.

Donchian Channel Opportunity

In Figure 4, we see a great short-term opportunity in the British pound/Swiss franc (GBP/CHF) currency cross pair. We’ll put the Donchian technical indicator to work and go through the process step by step.

These are the steps to follow:

1. Apply the Donchian channel study on the price action. Once the indicator is applied, the opportunities should be clearly visible, as you are looking to isolate periods where the price action breaks above or below the study’s bands.

2. Wait for the close of the session that is potentially above or below the band. A close is needed for the setup as the pending action could very well revert back within the band’s parameters, ultimately nullifying the trade.

3. Place the entry at slightly above or below the close. Once momentum has taken over, the directional bias should push the price past the close.

4. Always use stop management. Once the entry has been executed, a stop-loss order should always be considered since it can cap losses to a predetermined amount.

Applying the Donchian study in Figure 4, we find that there have been several profitable opportunities in the short time span.

• Point A is a prime example: here, the session closes below the bottom channel, lending to a downside trend.
• As a result, the entry is placed at the low of the session after the close, at 2.2777.
• The stop-loss order will be placed slightly above the high of the session, at 2.2847.

Once you are in the market, you can either liquidate your short position on the first leg down or hold on to the sell. Ideally, the position would be held in retaining a legitimate risk to reward ratio. However, in the event the position is closed, you may consider a re-initiation at Point B. Ultimately, the trade will profit over 120 pips, justifying the high stop.

Keltner Channel Opportunity

It’s not just Donchians that are used to capture profitable opportunities–Keltner applications can be used as well. Taking the step-by-step approach, let’s define a Keltner opportunity:

1. Overlay the Keltner channel indicator onto the price action. As with the Donchian example, the opportunities should be clearly visible, as you are looking for penetration of the upper or lower bands.

2. Establish a session close of the candle that is the closest or within the channel’s parameters.

3. Place the entry four to five points outside the high or low of the session’s candle.

4. Money management is applied by placing a stop slightly below the session’s low or above the session’s high price.

Let’s apply these steps to the British pound/U.S. dollar example below.

In Figure 5, we see a very profitable opportunity in the British pound/U.S. dollar (GBP/USD) major currency pair on the daily time frame. Already testing the upper barrier twice in recent weeks, the trader can see a third attempt as the price action rises on July 27 at Point A. What needs to be obtained at this point is a definitive close above the barrier, constituting a break above and signaling the initiation of a long position.

Once the chartist receives the clear break and closes above the barrier, the entry will be placed five points above the high of the closed session (entry). This will ensure that momentum is on the side of the trade and the advance will continue.

• The entry will be placed at precisely at 1.8671.
• The stop will be placed below the low price by one to two points, or in this case at 1.8535.
• The trade pays off as the price action moves higher in the following weeks with our profits maximized at the move’s high of 1.9128.
• As a result, a profit of over 400 pips is realized in less than a month; the risk-reward is maximized at more than a 3:1 ratio.

How Do You Identify Support and Resistance Levels?

In technical analysis, support levels are the price points where demand is strong enough to prevent prices from falling any further, and resistance levels are the price points where sell pressure prevents the price from rising. Traders can identify resistance and support by looking for highs and lows in recent historical data: If the price consistently falls to a certain level before bouncing back, traders may identify that as a short-term resistance level. Experienced traders may also examine moving averages, chart patterns, and volume trends in identifying support and resistance levels.

How Does Technical Analysis Work?

Technical analysis uses group psychology to anticipate the actions of a large number of buyers and sellers. Since all traders have access to the same price information, and they tend to have the same biases and expectations, a skilled analyst can use price and volume data to forecast upcoming trends in buying and selling activity. If a large number of traders use the same technical analysis tools, these predictions can become self-fulfilling.

How Do You Use Keltner Channels?

The Keltner Channel is a volatility-based metric that identifies an upper and lower boundary for price movements, based on recent chart data. If the price of an asset moves to the upper bound of the channel, traders can sell the asset knowing that the price is likely to revert to the mean. If the price moves towards the lower bound, traders may buy it, knowing that the price is likely to increase again. As with other technical analysis tools, it is important to check other indicators for confirmation before making trade decisions.

The Bottom Line

Although Bollinger Bands® are more widely known, Donchian channels, Keltner channels, and STARC bands have proved to offer comparably profitable opportunities. By diversifying your knowledge and experience in different band-based indicators, you’ll be able to seek a multitude of other opportunities in the FX market. These lesser-known bands can add to the repertoire of both the novice and the seasoned trader.

Reviewed by Somer Anderson

A 15-year mortgage is a loan for buying a home whereby the interest rate and monthly payment are fixed throughout the life of the loan, which is 15 years. Some borrowers opt for the 15-year vs. a 30-year mortgage (a more conventional choice) since it can save them a significant amount of money in the long term.

The 15-year mortgage has some advantages when compared to the 30-year, such as less overall interest paid, a lower interest rate, lower fees, and forced savings. There are, however, some disadvantages, such as higher monthly payments, less affordability, and less money going toward savings. Below, we take a look at all of these advantages and disadvantages.

Key Takeaways

• A 15-year mortgage, like a 30-year mortgage, is a home loan where the interest rate and monthly payment do not change over the life of the mortgage.
• Deciding between a fixed 15-year or 30-year mortgage depends on your financial situation and goals.
• A 15-year mortgage can save a home buyer significant money over the length of the loan because the interest paid is less than on a 30-year mortgage.
• If you are halfway done on a 30-year mortgage, refinancing into a 15-year mortgage may lower your interest payments while still paying off the loan in the expected amount of time.
• Because payments are significantly higher on a 15-year loan, buyers risk defaulting on the loan if they cannot keep up with the payments.

Advantages of a 15-Year Mortgage

Below are the advantages of a 15-year mortgage vs. a 30-year. Both have fixed rates and fixed payments over their terms.

Less in Total Interest

A 15-year mortgage costs less in the long run since the total interest payments are less than a 30-year mortgage. The cost of a mortgage is calculated based on an annual interest rate, and since you’re borrowing the money for half as long, the total interest paid will likely be half of what you’d pay over 30 years. A mortgage calculator can show you the impact of different rates on your monthly payment, as well as the difference between a 15- and a 30-year mortgage.

Lower Interest Rate

Since short-term loans are less risky and cheaper for banks to fund than long-term loans, a 15-year mortgage typically comes with a lower interest rate. The rate can be anywhere between a quarter-point to a whole point less than the 30-year mortgage.

Lower Fees

If your mortgage is purchased by one of the government-sponsored companies, like Fannie Mae, you will likely end up paying less in fees for a 15-year loan. Fannie Mae and the other government-backed enterprises charge what they call loan-level price adjustments that often apply only to, or are higher for, 30-year mortgages.

These fees typically apply to borrowers with lower credit scores who make smaller down payments. The Federal Housing Administration (FHA) charges lower mortgage insurance premiums to 15-year borrowers. Private mortgage insurance, or PMI, is required by lenders when you put a down payment that’s smaller than 20% of the home’s value.

Charging PMI protects the lender in case you can’t make the payments. It is a monthly fee added to the mortgage payment, but it’s temporary, meaning it ceases to exist once you pay off 20% of your mortgage.

Forced Savings

Since the monthly payment is higher for a 15-year mortgage, financial planners consider it a type of forced savings. In other words, instead of taking the monthly savings from a 30-year mortgage and investing the funds in a money market account or the stock market, you’d be investing it in your house, which over the long run is also likely to appreciate.

Disadvantages of a 15-Year Mortgage

Despite the interest saved with a 15-year mortgage, borrowers should think about a few considerations and disadvantages before deciding on the term of their loan.

Higher Monthly Payments

A 15-year mortgage has a higher monthly payment than a 30-year one since the loan needs to be paid off in half the time. For example, a 15-year loan for $250,000 at 4% interest has a monthly payment of $1,849 versus $1,194 for the 30-year. In other words, the 15-year monthly payment is 55% higher than the 30-year for the same amount at the same rate.

Important

While most borrowers will have lower upfront fees with government-sponsored products, they’ll likely pay these costs as part of a higher interest rate.

Less Affordability

The higher payment might limit the buyer to a more modest house than they would be able to buy with a 30-year loan. Using our example above, let’s say the mortgage lender will only approve a maximum of $1,500 per month. The borrower would need to buy a cheaper house—a $200,000 mortgage at 4%, for 15 years, results in a $1,479 payment.

On the other hand, a 30-year loan (for $250,000) would result in a $1,194 monthly payment—well under the $1,500 maximum. Or the 30-year loan might let the borrower buy a bigger home or take on a larger mortgage. For example, a 30-year mortgage for a $300,000 home would cost $1,432 per month. The 30-year loan brings the payment under the $1,500 maximum and allows the borrower to take on a larger loan—presumably getting a bigger home or a better location.

Less Money Going to Savings

The higher payment requires higher cash reserves—as much as one year’s worth of income in liquid savings. Also, the higher monthly payment means a borrower may forgo the opportunity to build up savings or save for goals such as college tuition for a child or retirement.

Both college savings and retirement accounts are tax-deferred, while 401(k) retirement accounts have an employer contribution. A savvy and disciplined investor would also lose the opportunity to invest the difference between the 15-year and 30-year payments in higher-yielding securities.

Pros

• Less total interest cost

• More favorable interest rate

• Forced savings, since the extra money paid is invested in the home instead of spent

Cons

• Higher monthly payments

• Less affordability

• Less money going to savings or retirement

• Risk of financial hardship if the borrower can’t make the higher payments

Example of a 15-Year Mortgage

A mortgage amount of $250,000 over 30 years at a rate of 4% would cost $429,674 in principal and interest payments by the end of the loan, and the total interest would be $179,674.

The same loan amount and interest rate over 15 years would cost $332,860 by the end of the term. The total interest would be $82,860 for borrowing for 15 years. At 4%, you’d pay only about 46% of the total interest for a 15-year than you’d pay for a 30-year loan. The higher the interest rate, the more significant the gap between the two mortgages.

Why Should I Get a 15-Year Fixed-Rate Mortgage Instead of a 30-Year?

If you can afford the larger monthly payment that comes with a 15-year fixed mortgage, it can help you pay off your home, freeing up funds for retirement. You will spend less in interest over the life of the loan compared to a 30-year mortgage, and usually, a 15-year fixed mortgage means a better interest rate.

What Are the Differences Between 15-Year and 30-Year Mortgages?

A 15-year mortgage’s monthly payments are higher than a 30-year mortgage’s—often significantly higher. A 30-year mortgage allows a borrower to stretch out payments over a long time and keep more of their monthly earnings. A 30-year mortgage has a higher interest rate than a 15-year mortgage, and you will pay more in interest rather than principal payments on a 30-year mortgage.

How Do I Pay Off a 30-Year Mortgage in 15 Years?

There are a few ways to pay down a 30-year mortgage in 15 years. First, you could consider refinancing your current mortgage into a 15-year fixed mortgage. Another way is to make extra payments towards the principal amount or make biweekly payments equal to one additional mortgage payment per year. This might not get you to the 15-year mark, but the amount of principal would most certainly go down.

The Bottom Line

A 15-year mortgage can undoubtedly save you a lot of money in the long run; however, it’s essential to consult a financial planner to discuss what monthly payments you can handle. Although the 15-year can pay off a mortgage sooner if you lose your job or your income changes, that higher monthly payment versus the 30-year loan could cause you to go into financial hardship.

How to weigh buying a home with cash instead of a mortgage

Reviewed by Samantha Silberstein

Cash Vs. Mortgage: An Overview

Paying cash for a home has the major advantage of avoiding additional debt. But, even if you have the cash to pay for a home, there are advantages to taking out a mortgage as well. For example, you may be able to invest the money you save from paying cash in a way that earns you more than you would have paid in interest on the mortgage.

Here are some of the major differences between using cash to buy a home versus taking out a mortgage, including the pros and cons of each payment method.

Key Takeaways

• Paying cash for a home means you won’t have to pay interest on a loan.
• You will also save money on closing costs by using cash instead of taking out a mortgage.
• Using cash to pay for a home often gives the buyer an advantage in getting the home, in part because the seller does not need to depend on financing approval.
• Using cash to buy a home typically makes the buying process faster because there are no loan approvals and lender requirements.
• Having a mortgage can allow you to use your cash for other purposes, such as investing.
• In the long-term, investing has the potential to earn more profits than you would have saved in interest in closing costs.

Benefits of Using Cash to Pay for a Home

Paying cash for a home eliminates the cost of interest on the loan and any closing costs, which can total tens of thousands of dollars. “There are no mortgage origination fees, appraisal fees, or other fees charged by lenders to assess buyers,” says Robert Semrad, JD, senior partner and founder of DebtStoppers Bankruptcy Law Firm in Chicago.

Paying with cash is usually more attractive to sellers, too. “In a competitive market, a seller is likely to take a cash offer over other offers because they don’t have to worry about a buyer backing out due to financing being denied,” says Peter Grabel, managing director, MLO Luxury Mortgage Corp. in Stamford, Conn.

A cash home purchase also has the flexibility of closing faster than one involving loans, which could be attractive to a seller. A cash buyer might be able to get the property for a lower price and receive a ‘cash discount’ of sorts, Grabel says.

A cash buyer could also purchase a home for cash and then still do a cash-out refinance after they have already closed on the home purchase. This provides:

• Easier home-buying process in a hot housing market with multiple competing offers
• Long-term financial benefits of taking out a low-interest mortgage while investing their money

Important

A cash buyer’s home is not leveraged, which allows a homeowner to sell the house more easily—even at a loss—regardless of market conditions.

Is a Mortgage Better Than Paying Cash for a Home?

Financing a home also has significant benefits. Even if you can pay cash for a home, it might make sense to keep your cash instead of using it to buy real estate.

If the home turns out to need major repairs or renovations, it may be tough to obtain a home equity loan or mortgage. You don’t know what your credit score will look like in the future, how much the home will then be worth, or other factors that determine approval for financing. Still, getting a home equity loan or home equity line of credit (HELOC) is easier the more equity you have in your home.

Paying cash could also cause a problem if the owners want to buy a new home but have used their cash to buy their current home. “If cash buyers decide it’s time to sell, they need to make sure they will have sufficient cash reserves to put down as a deposit on the new home,” says Grabel.

In short, cash buyers need to be sure they have enough liquidity to meet their other financial needs. By opting to go with a mortgage, you can give yourself more financial flexibility. 

You can use a mortgage calculator to budget some of the potential costs.

Paying a mortgage can also provide tax benefits for homeowners who itemize deductions because mortgage interest payments are tax deductible.

Investing Vs. a Mortgage

Of course, with a mortgage, you end up paying more overall, since it comes with interest payments that add up over time. But, depending on the state of the stock market, you could be saving less than that money might have earned had you taken out a mortgage and invested the cash.

Investing long-term in an ETF that tracks the S&P 500 can lead to returns that outpace what you would have paid in interest on a mortgage. Of course, each year the return can be significantly higher or lower. But in the long run, a long-term investment in a low-fee index fund might be the best option.

You may also possibly save even more on your taxes than you would save with a mortgage interest deduction. If you use your extra cash to invest in the stock market directly or to live on while investing in a tax-advantaged account like a traditional IRA, Health Savings Account (HSA), 401(k), or other workplace plan, you will potentially save more in taxes than you would have by itemizing your mortgage interest.

Special Considerations

In some instances, having a mortgage can protect you from certain creditors. Most states grant consumers a certain level of protection from creditors regarding their home. Some states, such as Florida, completely exempt the house from the reach of certain creditors.

Other states set limits ranging from as little as $5,000 to up to $550,000. “That means, regardless of the value of the house, creditors cannot force its sale to satisfy their claims,” says Semrad. This is known as a homestead exemption, but keep in mind it does not prevent or stop a bank foreclosure if the homeowner defaults on their mortgage.

How Homestead Exemption Works

If your home, for example, is worth $500,000 and the home’s mortgage is $400,000, your homestead exemption could prevent the forced sale of your home in order to pay creditors the $100,000 of equity in your home, as long as your state’s homestead exemption is at least $100,000.

If your state’s exemption is less than $100,000, a bankruptcy trustee could still force the sale of your home to pay creditors with the home’s equity in excess of the exemption. 

Can You Be Foreclosed on Without a Mortgage?

Paying off your mortgage doesn’t mean your house can never be foreclosed on. You can still go into foreclosure through a tax lien. For example, if you fail to pay your property, state, or federal taxes, you could lose your home through a tax lien.

Is It Easier To Buy a House With Cash?

Buying a house is much easier with cash. You don’t have to wait for an inspection, appraisal, or underwriting. Home sellers will also usually favor cash buyers so they don’t have to deal with lending timelines, which means your cash offer is more likely to be accepted. Even though an inspection isn’t required when you buy a home with cash, it is still a good idea to get one to make sure your new home won’t come with any expensive surprise repairs.

If You Have Bad Credit, Do You Have To Buy in Cash?

Cash isn’t your only option for buying a home if you have bad credit. You can still be approved for a mortgage through a Federal Housing Administration Loan with 10% down if your credit score is at least 500.

The Bottom Line

On the one hand, you could have a higher net worth at the end of 30 years if you invest extra money instead of using cash for a house. However, not having a mortgage gives you freedom from mortgage debt. Weight the pros and cons of paying cash versus using a mortgage with your situation, and consider consulting a financial advisor for more guidance.