Remember ~6 months ago, when RH had that little "glitch" that let traders access essentially unlimited leverage? Stuff like that is why RH is a meme, and options trading has become wallstreetbets favorite game. Its not like RH even makes it particularly easy to setup these kinds of trades, or has any useful tools that make it a better platform. If you want to setup a put spread, or an iron condor, or any other fancy options trading strategy on e-trade its a few clicks away. On RH? Not a chance, you're going to have to build those strategies yourself, one leg at a time.
I still love gambling on RH, but you have to know its gambling before you start. I feel bad for this kid, getting caught up in the hype and throwing away his life over a few dollars that really never existed anyway.
I suppose it might be worth reexamining. Last time I used etrade it was a flat 10 dollar txn fee, which was absolutely ridiculous for people like me who just play around with funmoney. Robinhood was perfect for my needs.
Depends what you consider value. Better customer support? Trust? Price improvement. A suite of more products. Being able to call and get any issue resolved immediately, with strikingly intelligent answers for customer service, and a customer first attitude, is priceless.
I never understand why people are _so_ desperate to save a few bucks when risking their life savings versus using a professional tool if they desire to trade options (say, interactive brokers).
You save fees and then get screwed when Robinhood is down on expiration day.
I was speaking less about options trading and more about general adoption. I've never done options trading, just small-ish buys and sells. My experience with e-trade was a flat 10 dollar txn fee, which was totally unreasonable for the amount of money I was investing.
If you're trading in small amounts, the comissions add up pretty quickly, a $10 comission on a $1000 purchase of stock ends up being 2% of the price, considering you have to pay to buy and to sell. That's way better than a $30 comission from the before times, but it's still big.
That said, we can all thank RobinHood for driving comissions down to zero, and then do business at brokerages that work. I personally wouldn't trade at IB, because I only do a tiny amount of trading, and don't want to go into the rabbit hole of individually routing my orders; it's great that it's available, but I don't need that, nor do I want an API or stuff.
For someone like me who's only tossing $2,000 into stocks to play around with, having zero fees is the #1 selling point, otherwise, the fees add up to a significant fraction.
When you are trading options on some of the more popular underlying, e.g. weekly expirys, there are strategies such as iron condor, credit spreads, strangles, straddles, etc. This doesn't seem to appear on the web application and only the mobile.
It's weird how much functionality is missing from the web client. I could not even find my account and routing number, I had to use the mobile application.
Lots of companies are moving away from full featured web clients. I think Venmo recently removed the ability to send money -- you know, the entire purpose of Venmo -- from the web client.
This is really tragic. For one, he never ended up that much in the hole and two, even if one finds themselves bankrupt at 20, it's not the end of the world, you simply file bankruptcy and it's difficult to borrow money for the better part of a decade...but other than that your life goes on as normal. I opened a business at a young age and was bankrupt by the time I was 24. It was sad and painful, but it is far from tragedy or hopelessness.
The last straw even if they knew the loss was how much they put in too? For now, we don’t know if the person knew they weren’t that much in the hole or relatively speaking, how benign a huge debt would be at a young age without dependents.
Is it that difficult even after 5 years if you’re making a solid income etc? I’ve heard differing tales. On one hand it sucks for close to or about 7 years. On the other, you can start to get back to being normal after close to 5 years or so. My memory remembers something like it’s not the same, but likely better than someone with a 5XX credit score.
Generally you can start getting credit pretty quickly in the form of secured credit cards. You’re going to pay a pretty high interest rate on things like cars but after a few years, the fact that you can’t file for bankruptcy again for seven years overrides the fact that you filed for bankruptcy.
while I do think robinhood should have better interface / logic, I see this as an issue with the person who committed suicide.
Everything you said + the fact they thought it was a better option to kill themselves instead of contacting robinhood? finding out what their options were? (not trying to pun)
> "His final note, filled with anger toward Robinhood, says that he had “no clue” what he was doing."
yeah, that's true on so many levels. people will try to use stories like this to take freedoms away from everyone else to 'only let the experts deal with it'. at the very least though, I suspect robinhood will fix that particular interface issue.
Kearns may not have realized that his negative cash balance displaying on his Robinhood homescreen was only temporary and would be corrected once the underlying stock was credited to his account. Indeed it’s not uncommon for cash and buying power to display negative after the first half of options are processed but before the second options are exercised—even if the portfolio remains positive.
“Tragically, I don’t even think he made that big of a mistake. This is an interface issue, they have slick interfaces. Confetti popping everywhere,” says Brewster referring to the shower of colorful confetti Robinhood routinely deploys after customers make trades. “They try to gamify trading and couch it as investment.”
Am I reading this correctly and he really wasn't in the hole badly, but a crappy presentation of information broke him?
Firstly, if someone reading this is in the same situation, take a breath and know this is not Student Loans, you are young and bankruptcy is about as bad as its going to get.
If you are the interface designer, well, I don't know what to say to you other that sort your damn self out. Its your job not only to convey the truth, but show what the final result is approximately going to be. Conveying just the current facts is as misleading as outright lying.
Yes, he could only lose as much as he bought for the contract price. I don't see how someone's cash balance should ever be affected by the strike price of an unexecuted contract.
It's just a weird thing that some online brokers seem to do. I once had exercised contracts for 200 shares put me "in debt" for $4mm. Then the shares settled, and everything in my account went back to normal.
He had a spread. The short leg was assigned, the long leg cancels it out but it doesn't happen instantaneously. So he temporarily was on the hook for -300 $AMZN shares or whatever, which made his buying power massively negative. Then the long leg gets executed and it all evens out in the end for a relatively small profit or loss (the delta of the strikes), but that can be a nerve-wracking weekend if you don't understand the process.
Robinhood's UI is not particularly informative in this process either.
You don't need margin, you only need enough cash to cover the maximum loss, which is can be very small. e.g. right now if I wanted 3 put spreads on AMZN at 2640/2635 expiring this Friday, it would give me a net credit of about $2 per contract, or $600 credited to my account. My maximum loss would be 3 * 100 * (2640-2635) = $1500 minus the credit ($600) received, or $900. As long as I had a mere $900 in my account, this trade would be allowed.
If I held through expiration and the short leg (AMZN $2640) was assigned, I would be contractually obligated to buy 300 shares of Amazon at $2640 a piece. This would briefly reduce my buying power by -$792,000. But as I also hold a contract to sell 300 shares of Amazon at $2635 ($790,500), it would have a net cost of only $1,500. And since I already received $600 up front, it would be just $900 additional out of pocket. But for a period of time, my account balance would have displayed -$792k.
It happen when you use spreads. I have personally had this happen and it's jolting at first but is usually back to normal within hours. Here's how it works:
1. You sell a call credit spread. This is where you sell a call at say $100 and collect premium (let's use $2 for this example), then buy a call at $105 to cap your possible losses.
2. The options expire and the price of the stock is $110. I have lost the maximum amount. I sold a call and collected premium of $2, and bought a call at $105, so my total maximum loss was the difference ($3).
3. Robinhood will settle these assignment after hours, and will for whatever reason show the balance as if you hadn't bought the $105 call protection. So my balance may show a massive loss until the reconcile both the short and the long end of the calls.
I have seen my balance go to -200k before when it was way in the positive before the day ended. This happened to be a Friday and it wasn't resolved until the markets opened the following Monday.
Luckily, I realized what was going on, but many novice investors may not.
Could it happen that, due to some unusual circumstances, the call at $105 doesn't work, increasing your loss above the supposed maximum amount? For instance, what if the one who sold the call at $105 does not deliver the stock for some reason?
I think the risk of that instance is low, since options are a legally enforceable contract. I think the brokerage has some liability to pay the contract then get the money from their client, but I don’t have my Series 7 so take me with a grain of salt.
There is so-called "pin risk," that could cause a larger loss than the "maximum". In this example, say the underlying closes at $102. The call you sold is ITM and is exercised, leaving you on the hook for 100 shares. However, the call you bought was OTM, so your broker won't exercise it for you, and you'd need to buy the shares at market to cover. However, you can't do that until the market opens on Monday. So if something happens that causes the stock to open substantially higher on Monday, you will be out whatever that difference is.
Many traders will close their positions before market close, leaving a relatively tiny amount on the table to avoid the risk.
That's a really good point. I'm pretty sure Robinhood exercises behind the scenes for you on the day of expiration 30-60 mins prior to close to avoid this.
What I just described doesn't require margin. Spreads are "defined risk" trades so as long as you have enough in your account to cover your max potential loss, you are fine to make the trades.
The "move fast and break things" ethos in the tech industry is a recipe for disaster in certain contexts. I am sure I have designed some poor or confusing interfaces in my day, but it has never been in a context in which poor communication can literally lead to someone killing themselves. That would make it tough to sleep at night.
This is the way options market works. Each leg of an options spread can be executed on different days (since one is in response to the other). A different UI total would actually be misrepresenting the current state.
Why would it be zero? Seems like he sold a credit spread. One leg can be exercised which means it gets converted into a large equity position, which will then be offset by the other leg being exercised by the broker when they get around to it.
Since it's a defined risk trade, you can easily sell a large number of contracts which can result in very large stock positions when exercised. It's not an issue, the math works out, but it's something you need to understand before making the trade.
Even if it was worth near zero (market price between strikes, very close to expiry), Robinhood holds collateral for the difference. ie, if I sell a $50P and buy a $45P, Robinhood holds $500 cash collateral to cover the difference. The maximum you can lose, once thing are settled, is the difference between the strikes less the premium collected.
With a put spread, if I sell $50P and buy $45P, the holder of the $50P I sold can exercise at any point, and I have to buy his 100 shares at $50/ea. Let's say I got a $2.50 premium ($250 total) on that spread. At that point, my account is -$4750, +1 $45P. Perhaps the premium on the $45P is $0.50, so my account's nominal value is -$4700, +100 shares at this point.
However, my $45P expires in 3 days, so maybe I want to hold on and see if the shares I had to buy at $50 will increase to $55, my $45P expires worthless, and I can then sell them for $5500 total, leaving my account +$800. Or, worst case in the other direction, the price drops below $45, and I exercise my $45P to sell them for $4500, leaving my account -$250. But until expiry or assignment, my account's nominal value is in the red.
The current state is what probably sent this person over the edge. The eventual state is the truth an amateur, which is what Robinhood is targeting, would understand. Only showing the current state truthfully is fine for experts, but not fine for amateurs because it obviously caused a horrid reaction.
That's the problem, an amateur who doesn't understand the trades they're making and how to read their positions should not be trading.
People already sign disclaimers stating they understand how to trade and potential risks. Perhaps a more intensive testing process can help to enforce that, but they're still adults making their own decisions and I don't want to add even more regulations for market access.
Robinhood's goal is seemingly to make more complex investment vehicles available to a wider variety of people. It is therefore inappropriate for them to present this information in the exact same context that is used to communicate this information to more educated investors.
It is like giving a loaded assault rifle to a trained member of the military compared to an average civilian. You can't just assume each will have the same level of knowledge. You need to provide that civilian more detailed instructions in order to make sure they don't cause accidental and unnecessary damage with it.
There's only one context, you can't misrepresent the market.
You also sign a lot of paperwork stating that you understand the mechanics and risks of trading. There are several levels between buying stock and selling options that you need to ask approval for.
You also have to agree to a EULA to create an account on the App Store to download Robinhood. How many people read that EULA? How many people read whatever paperwork Robinhood asks you to read?
The truth is that Robinhood targets a less educated segment of the market. They have a moral responsibility to either educate those users or put protections in place so it is harder for those users to harm themselves due to the lack of an education that can be assumed standard in other investment contexts.
This is not an EULA. It's a serious contract with real signatures and legal repercussions. You cannot claim that you didn't read it and just deny any consequences.
I already stated elsewhere that there should be more verification and testing of credentials and knowledge but at some point, the adult making the decision still has the final responsibility.
I didn't say it was a EULA, I was comparing it to the EULAs that users are accustomed to agreeing with. I don't know Robinhood's specific process, but do they make it clear that what the user is agreeing to is something distinctly different than a EULA? Do they accurately communicate what is being agreed to or do they just assume the user read and understood the paperwork?
>I already stated elsewhere that there should be more verification and testing of credentials and knowledge but at some point, the adult making the decision still has the final responsibility.
And in the absence of this verification and confirmation of credentials, Robinhood should be expected to communicate these details in a way that even someone without those credentials can easily understand.
Reading and understanding the paperwork is your responsibility, and you attest to it in those same documents.
Saying you didn’t know what you were signing isn’t an excuse and doesn’t relieve you of your contract. While more verification is necessary, lying about your credentials is still your fault, if not outright criminal.
But how do you know where that line is? In the right circumstances, almost anything could set someone off. It's hard to anticipate a 20 year old being so upset at the idea of bankruptcy, or being aware of the details of stock trading while being unaware of bankruptcy. And while the same error could happen to someone significantly older, the odds are very strong they would be more skeptical and less impulsive.
> Am I reading this correctly and he really wasn't in the hole badly, but a crappy presentation of information broke him?
Yes, but I think it's important to note that every other broker I've used presents the information in the same way and the way they are displaying the info is an accurate representation of the state of the account at that moment.
Blaming bad UI is the easy way out here. Robinhood should take the blame for this, but not because of bad UI. Robinhood should be at fault because the knowingly allow tons of "investors" to have options trading access with little or no screening and verification.
Blaming the UI here would be like blaming a single specific gun maker for a mass shooting, when the real question you should be asking is how did this person get a gun at all?
UI-wise, I'm not recommending we should go back, but that was one advantage of having a licensed broker on the phone when making trades, they could explain account statements to you.
In the EU, before opening a trading account you are forced by law to compile a standard questionnaire to assess your financial knowledge and risk tolerance. Depending on the results, you might not be able to trade certain instruments.
My broker (Scottrade and now TD Ameritrade) called me, asking for a verbal agreement that I knew that options were high risk and yadda-yadda that can lose more value than they are worth after I signed some forms.
These instruments are very high risk and not really meant for average investors. Their primary goal is for hedging and leverage.
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One of the reasons for the "Black Friday" (kicking off the Great Depression) was the proliferation of leverage among people who didn't really understand it. That's why most other companies make you sign forms and ask for verbal agreements before allowing you to have access to things this dangerous.
>"Black Friday" (kicking off the Great Depression)
Black Thursday. Black Friday is the name of the crash in the federal gold market half a century earlier - or more commonly, the yearly American mega-sale event that follows Thanksgiving.
Options are already broken into levels 1-4 (this is an industry thing, not just RH). Levels 1 and 2 don't run the risk of this happening since you can only sell to close. On other platforms that I've used, going from levels 2 to 3 took a while and required some verification steps to try to confirm that I knew what I was doing.
Robinhood already asks for information about your net-worth, income, etc. The problem is that they verify nothing (at least in my experience). I read /r/wallstreetbets all the time, and plenty of 18 year olds say they are making 100k+ and RH just approves them. They need to improve that process.
Just checked and you don't even need to say you're making 100k+.
I marked that my liquid assets are under 25k, net worth is under 25k, and yearly income is under 25k (all the lowest you can select) and they approved me for option trading instantly.
Looking at GOOG the UI shows me put where the max loss is $8.5k. Seems reckless if they really use the information I gave them to determine what level of risk is appropriate.
Yes, but I think it's important to note that every other broker I've used presents the information in the same way and the way they are displaying the info is an accurate representation of the state of the account at that moment.
There is a rather large difference between how you do interfaces for people with training who are experts and the amateurs that Robinhood is targeting. It is the difference between a full cockpit and the interface you put on something like Garmin's autolanding system[1].
So, yeah, I'm blaming the interface people at Robinhood because they are targeting a non-broker segment of the population and need to find a way to put that information a broker would give you into the interface. This information includes things like "you do not own this much money" at a minimum. Facts are amazing things, but eventual truth might of save this person.
If you target a group of people, its your responsibility as a UI designer to make sure your interface is actually safe for that group of people.
> There is a rather large difference between how you do interfaces for people with training who are experts and the amateurs that Robinhood is targeting.
But regulation requires that you do self-certify as (to a certain extent) an expert who understands the more sophisticated product in order to trade it.
I suppose I don't disagree that they're targeting people who in many cases probably shouldn't be passing that screen, but I suppose I think that's the problem, rather than it not being dumbed down enough.
Sure, but I would not necessarily blame the UI designer since the breakdown could have come from a number of places: requirement changes, implementation differences, miscommunication, etc. I mean who knows unless you're behind the scenes? Just blame the company.
I agree with what you're saying, but I'd like to note, I'm not a professional trader or anything. All the other platforms that I'm using mentioned (Tastyworks, Schwab) are available to retail investors and are targeting the same non-broker segment.
Could the UI be better? Probably. My point isn't to absolve them here, it's just to point out that this same issue exists across most of the platforms. That leads me to believe that, while the UI may have contributed, it's not the root cause of the issue.
You have to actually go through a short process to be "approved" to trade options, including checking off a box saying "I know how to trade options". Maybe there should be additional warning signs, but RH does make it pretty clear that there are many options trades where you can lose much much much more money than you put in. Just take a look at what happened with oil and USO recently for an example of how stupid this can get.
Like I said elsewhere, its horrible this kid killed himself over something as transient as this, and RH's interface is pretty dumb, but if you're selling uncovered put spreads, and covering them with call spreads and you're doing all of this in RH....well you're either much better at RH than I am, or much worse.
When I applied for options trading approval, I got a phone call from Schwab with a quiz on some hypothetical trading scenarios, like "if you did X what would your maximum exposure be"?
Curtailing the freedoms of people to prevent them from making bad decisions is de rigueur. That ship has sailed. the only question under debate is “how much?”
yup. robinhood SUCKS at handling short term options spreads. if a leg gets exercised and you all of a sudden own or have to sell a ton of stock, they don't tell you the other leg will get exercised to cover. they just let you stew with the weird after effects in your account. the founders and insiders are all going to be extraordinarily wealthy while things like this happen and some lives are outright ruined or kinda ruined.
All brokers do this because the each option leg is a separate trade and one executes in response to the other, and can happen on different days. It's the same as owning stock and having ITM options that will close that equity position, but the totals will be skewed until then. Broker UIs can be made clearer but these are basic fundamentals.
If anything, it highlights the fact that these people should not be trading in the first place if they don't understand their own positions, and brokers need a much stricter gate before allowing them access.
most brokerages will exercise the other leg for you immediately and be around to respond if this happens to you. robinhood does none of that. there’s no customer service for DAYS.
If it’s exercised early then you won’t know until the next day. There will always be some discrepancy. It’s up to you to understand what trade you made and how your positions will exit.
That being said, yes customer support could help him understand what’s happening.
UI malfunction happened to my mobile E*Trade app roughly from January until end of May. The first time it happened, my heart rate jumped! I only have simple stocks, and I knew the day was not as bad, but the app showed big red numbers. Luckily, switching report in the app shown different numbers... so I knew the app was not displaying the right numbers.
Which was upsetting as I had no easy way to know my real situation. Later I found out that the app was reporting fine when the stock market was open, but then lost its mind after the market close, showing random numbers (mostly in red or minimizing the gain).
Now, it seems to be fixed. But lesson learned. Actually, it happened to my dad, back in the 80's when the only way was to go at the bank and ask for the numbers. The teller missed a line and gave my dad a very bad number. He had invested portion of the money coming from the sale of our house, while the new house was under construction. The investment was supposed to be very conservative (and it was), another trip to the bank the next day clarified the situation.
I am wondering if those data issue would happen more, and if the consequences would be higher now than before ?
It is scary to me that a 20yo can play with money so easily. I am no fan of retail bank, but I would expect some "Are sure? You might lose all and more" before signing the paper. Maybe Robinhood should explicitly compute the maximum you can lose and ask you to confirm that you do understand it. Actually, they might end up with more people trying exotic investments as like me I refuse to touch it unless I fully understand the risks.
I'd blame the marketers. He should not have felt comfortable making trades at the scale of hundreds of thousands of dollars even if they netted out to a small amount.
The law requires brokerages to assess clients knowledge and fitness to trade more advanced instruments like spreads and naked options. This individual most likely lied to the brokerage about his trading experience, and that's why he was approved for Level 3+. There are many warnings issued when you start in futures and options, to make users aware of the risks of trading without sufficient experience and education. The cost of equal access to financial instruments (imo, a good thing) is that the balance between KYC, education, and risky behavior is hard to strike. This is an example of those costs coming due. I don't really think the marketers are to blame.
Their interface is an abomination. Even the tiny amount of information they do present is hard to parse. I use it for fun time investing, but would never trust real money with a company that can't plainly and clearly show me the status of said money.
Poor kid. Even if the ending balance was -730K he could declare bankruptcy. Most college kids don't have a lot of assets so it's not like starting from 0 will set him back 10 years, although maybe his situation was different.
Either way, this is really unfortunate. The way we treat debt, especially in regard to our younger population, is kind of despicable. But hey, whatever keeps the wheels turning, right?
Most people on RH are fully aware what they're doing. Even filing for bankruptcy in such a case seems unfair to me. Why would you allow someone to gamble for almost 1m? It's the same logic that if an underage kid shouldn't go to jail if he kills someone.
To be fair, they wouldn't allow a random kid to be that leveraged. This was because he had an options spread. His long options would cover most of the 770k... It just doesn't show immediately.
> Even filing for bankruptcy in such a case seems unfair to me
I have a debt, I cannot pay the debt. What do you suggest as an alternative to bankruptcy? Indentured servitude?
> Why would you allow someone to gamble for almost 1m?
My point exactly. The lender is responsible for lending to people who can make good on their bets.
> It's the same logic that if an underage kid shouldn't go to jail if he kills someone.
I think it's more about finding a sweet spot between lender/borrower responsibility. If you're giving some kid who's day trading after watching a few youtube videos $1M, you're irresponsible and deserve to lose your $1M. The system shouldn't protect these people. I would apply the same logic and processes to student loans as well.
Credit card companies created a bunch of services designed to "help" you get out of debt without declaring bankruptcy. Which is really just a way to keep debtors tied up paying on a debt they can never pay back for as long as possible. To the point where the total interest payments and arbitration fees exceed the interest and principal on the initial loan.
Bankruptcy is an important part of capital markets. It's there to make clear the risks of lending to people who don't have the ability to pay back the loans. The more difficult it becomes to declare bankruptcy, the more predatory lending becomes.
If you knew it was impossible for someone to declare bankruptcy, why wouldn't you loan as much as possible to them? This is exactly how we got into a student loan crisis. If debtors could declare bankruptcy, then lenders would be much more judicious with their money. But as it stands, there's no real risk to giving an 18 year old hundreds of thousands of dollars in loans because it's practically a guarantee of 7% interest payments for 20+ years.
> If you knew it was impossible for someone to declare bankruptcy, why wouldn't you loan as much as possible to them? This is exactly how we got into a student loan crisis. If debtors could declare bankruptcy, then lenders would be much more judicious with their money. But as it stands, there's no real risk to giving an 18 year old hundreds of thousands of dollars in loans because it's practically a guarantee of 7% interest payments for 20+ years.
so first of all, the reason there's no risk in student loans is because the servicer doesn't actually lend their own money; they just manage the loan for the government.
second, bankruptcy isn't the only risk you take when you make a loan. there's always a chance that the person simply won't make enough money in their natural life to pay back the principle. $100k, you will probably get back in interest over many years. but if you loan $1mm, you might never recover the principal.
A chapter 13 bankruptcy has a up to 5 year payment plan which is sort of what you're asking for.
A lender can sue for repayment, and get that enforced through garnishment, but the debt can be discharged through bankruptcy. Credit card lenders are generally unsecured debt, so if the debtor doesn't have enough assets, they'll get nothing; it's in such lenders' interests to avoid a bankruptcy filing.
> I think it's more about finding a sweet spot between lender/borrower responsibility. If you're giving some kid who's day trading after watching a few youtube videos $1M, you're irresponsible and deserve to lose your $1M. The system shouldn't protect these people. I would apply the same logic and processes to student loans as well.
> In fact a screenshot from Kearns’ mobile phone reveals that while his account had a negative $730,165 cash balance displayed in red, it may not have represented uncollateralized indebtedness at all, but rather his temporary balance until the stocks underlying his assigned options actually settled to his account.
This makes it even more sad, better UI could have saved a life. Putting a notification with a link to call the National Suicide Prevention Lifeline on an account that moves that far and fast into the red might not be a bad addition either.
That's a bit like saying "People in your situation often commit suicide. Would you like me to dial the Suicide Prevention Lifeline for you?" isn't it? You risk causing it by suggesting it when it may have never entered the persons mind to begin with.
I would view this kind of notification as different than discussing suicide. You presumably just encountered something very shocking, and are likely considering what options are available to you.
There's no real need to mention suicide in the notification, "feeling distressed? Call" would work fine.
Kearns may not have realized that his negative cash balance displaying on his Robinhood homescreen was only temporary and would be corrected once the underlying stock was credited to his account. Indeed it’s not uncommon for cash and buying power to display negative after the first half of options are processed but before the second options are exercised—even if the portfolio remains positive.
“Tragically, I don’t even think he made that big of a mistake. This is an interface issue, they have slick interfaces."
I think this is the saddest part. This definitely is entirely Robinhood's fault. Saying so is basically saying a casino is at fault for somebody committing suicide because of a gambling loss. But a better UX could have helped in this case.
It’s probably a little weirder than that, because what (seems to / likely may have) happened wasn’t even a loss, just a state in the clearing of 2 options. So what if you thought your life savings vanished but they really hadn’t?
I’m not even positing an answer but what a horrible incident.
I don't think it's fair to say this "definitely" isn't Robinhood's fault. They deliberately market to beginning traders and make these kinds of complex trades available to them. If they're going to do that, they need to make the interface crystal clear even to someone who doesn't know what they're doing.
If he had gambled and lost $700+k then I'm kind of with you, but he hadn't. When it all shook out he might have secured a small profit or taken a loss proportional to his original stake ($16k).
It's showing the life changing loss without giving the user sufficient context or insight into what's happening that's the problem.
A casino is a funny comparison here. I doubt Robinhood wants to be regulated the way casinos are. Casinos in most jurisdictions are mandated to take at least minimal steps to address the risks of problem gambling. For example, posting hotline numbers to help problem gamblers, training employees to spot problem gamblers, and in some cases even banning known problem gamblers.
If a casino was found to be doing none of those things, when a suicide occurred, I suspect it would be in deep trouble.
Yeah as uncomfortable as it is to say, you have to put some blame on the 20yo with no income who decided to play with financial instruments beyond his knowledge..
There's a broader tension here with the _perils_ of democratization and freedom that I think is a common thread shooting through many of the issues the Western world is grappling with in the information age
I'm personally of the belief that Robinhood absolutely deserves fault for allowing normal Joes to trade options at all, but many would argue allowing people that capability is a net good
That's totally fair. Robinhood definitely needs to put better rails and better UX to protect against these cases. But I think there's a lot more to the situation though. It's really horrible that his first instinct was to jump to suicide, rather than talk to somebody. His parents. Robinhood support. Any additional step could to led to him understanding that his position was not as bad as he thought it was. I just wish he felt he could have talked to somebody instead of feeling like there was no way out. The whole thing breaks my heart.
US casinos post signs warning about gambling addiction and and post phone numbers for 24/7 help lines. Does this ethical obligation exist for trading apps as well?
Robinhood has had a lot of screwups lately. At what point are they legally liable? Are they not held to a higher standard of accountability than normal tech companies due to being a financial institution?
I can't really imagine a scenario where they're legally liable. Hospitals send six figure bills all the time to people without any legal repercussions.
They have several extra responsibilities: ensuring your trades are handled fairly, the price information you're provided is reasonably accurate, and reasonably ensuring that you are generally capable of understanding what you're doing and the risks involved.
Ensuring you don't lose money, or overreact to numbers on a screen, are not among them.
I feel terrible for the kid. Even though he should have been well aware of what to expect in this situation, it seems like common sense that RH (or any trading software) should have some UI indication when the balance shown is a partially settled trade. It is an accounting reality - yes for a bit his account is really -$700k - but even if you know that, opening the screen and seeing it without some caveat is like a prank. Got you! You're actually not bankrupt. Seems unnecessary.
He had to answer a small questionnaire/set of affirmative responses to be able to trade these option strategies. If he lied on them that is not their responsibility anymore (unfortunately).
to avoid things like this, robinhood might be better off if it literally operated as a bucket shop. you take bets on stocks but don't actually buy or sell them.
Buying and selling stocks is not a big deal. Worst case you go to $0. It’s the options.
Many brokers require you to jump through lots of hoops before trading options. And even then limit you to simple contracts first. Maybe rh should do the same,
I've done it, takes less than a minute and is akin to accepting a EULA (which of course no one reads).
On the flip side, TD Ameritrade had me go through a somewhat lengthy process and required a 2,000 deposit. They even shipped me a technical booklet on options trading.
I wouldn't be surprised if they shorten that process though. Robinhood spawned an entire generation of 18-35 year old high risk & low info options traders. Everyone else probably wants a piece of that.
buying options is no big deal as well; the most you lose is your investment. when you sell options, either naked, covered, or in a spread, the rules are much more complex. should be left to expert marketmakers or full time prop traders. very bad idea for amateurs.
I'm unsure what to really make of this tragic incident. Does the social factors in the US make bankruptcy an extreme embarrassment? Should someone not even at the legal drinking age be able of gambling to such a debt. One thing I'm certain is the US needs better social programs for young adults. Everyday I think the current generation of young adults are being robbed by the ones in power because nothing has positively changed in the past decades. We instead have increase in rent, homes, cost of food, requirement of university becoming the norm with insane tuition costs and while wages have typically stayed motionless.
Probably there was something else going on. The current U.S. President has used bankruptcy for some of his companies, and this came up during the Republican primary season in 2016 when he and Carly Fiorina, one of the other Republican candidates, were both called failed businesspeople because they had both used bankruptcy.
So I wouldn't say that the U.S. culture is particularly one of bankruptcy being an extreme embarrassment; we elected a President who has used bankruptcy. Now granted, occasionally HE says something that is an extreme embarrassment, but that's a whole different issue.
I do wonder how suicide rates have been trending during the pandemic lockdown with social isolation and such. No idea if it was a factor here, but I wonder.
Not really a fan of RH at all, used it for a few months and the interface seemed 'slick' but lacked detailed information I care about similar to schwab etc. I made one trade, then closed out the account. As for options I always felt like it was mostly gambling, serious long term investors should probably stay away unless they have a very detailed understanding of strike prices and all that goes into it. I would like to see a bit of training or a certification of understanding before anyone opens a margin account and starts trading options, as it seems irresponsible and scenarios like this will happen in the future.
For anyone who doesn't understand what happened, he didn't actually over 700k. He got assigned one side of a put spread which took his balance negative and it takes 24h to exercise the other side.
As an analogy, imagine you owe friend A money (one side of the spread) and friend B owes you money (other side of the spread). Friend A calls and says pay me back, so you venmo them money, and then you call friend B and ask them to pay you back. Basically, he was caught in that period where the money to friend A left your account, but the money from friend B hadn't settled yet.
While it's easy to be mad at Robinhood and blame bad UI, I think it's important to note, that every platform I've traded options on has displayed this situation in the exact same way. I've traded on Schwab in the past and currently use Robinhood and Tastyworks for options trading and all three have given me massive margin calls for this exact same situation that iron themselves out 24 hours later. While Robinhood is the platform in question here, this same thing would have happened almost anywhere else, so I have a hard time blaming Robinhood's UI. Additionally, the negative balance actually triggers the exercise of the second side of the spread, and there's nothing that says the second side of the spread needs to be exercised if his balance was still positive. Because of that, it's not possible (or doesn't make sense) to just say something like, "well if one side is exercised, just do the other right away". Maybe the UI could be improved, but unless a user fundamentally understands what is going on, you're more than likely going to run confusing situations.
What I DO blame Robinhood is having pretty much no standard for who they give options trading to. It's been 7 or so years since I had to apply for options trading on Schwab, but the process was fairly in-depth to get anything beyond level 1 options trading (maybe things have changed). When I applied for options trading on Robinhood, it was a few clicks and I had level 3 trading permissions (the highest they allow) with almost no information being verified.
Again, I'm sure Robinhood isn't alone in their lax policies around options account approval, but between the way they've built their platform to feel like a game, their targeting of younger investors, and the fact that /r/wallstreetbets talks about them constantly, they have become THE platform for investors who don't fully know what they are doing and they need to take extra precautions to protect their users from themselves.
The explanation in the article is reassuring and all that, but even still RH was allowing $700k+ margin on a $16k account. Maybe they feel the risk is low for covered-options writing-- and justifiably.
However, last I checked (some time ago) a purely cash account would have required literally $700k+ to execute this trade. Because, you know, stuff happens.
Recently saw my main checking account show a negative balance, with lots of red all over the calendar for the coming week, after logging in some time before 7am. It created a major sense of "OH SHIT", and took up a half hour of working and re-working out the ledger to come to my own conclusion that the web app was having some kind of problem. Logged in two hours later to confirm my math that everything was alright. So fucked up.
Okay look... it's really terrible and robinhood can improve their interface. However, this kid also probably had some kind of anxiety problem. Most people in this situation would panic, but most would not take their own life. We cannot expect companies (or anyone) to insulate us from the realities of life.
The lesson of the story is ultimately that... if you can't handle the heat, please, for the love of everything good, don't enter the kitchen. Options are a gamble. Everyone knows that. It's written in every article on options trading.
> The note found on his computer by his parents on June 12, 2020, asked a simple question. “How was a 20 year old with no income able to get assigned almost a million dollars worth of leverage?”
Sounds like this guy wanted to kill himself regardless of any debts.
Very tragic, but at the age of 20, it's not like you have much capital as it is - one would declare bankruptcy and continue onwards. It's not like Robinhood was going to send the mafia after his family if he didn't come up with the money.
Does anyone else think that in an awful way this story is incredible advertising for Robinhood? How many young people are going to read this story and think they can trade 730K on margin? If you’re already broke there isn’t much downside, but relatively unlimited upside.
I wonder if Robinhood lost any users really after their outages. I know they have a ton more cause of so many retail investors flooding the market but what really was the consequence of that even for them?
I love options trading, but I used to work for an options exchange. I don't write uncovered positions because I can't afford the tail risk.
/r/wsb, on the other hand, loves tail risk, long or short. That subreddit needs to be shutdown by the SEC. It's serving as an investment advisor for a significant number of young people, whether it masquerades as satire or not.
This is why we in theory have regulations preventing uninformed traders from using options, which RH has effectively skirted around.
RH is taking the same advantage that Juul got – free marketing and a lot of young people abusing the product. Wondering if they'll get the same crackdown as well.
I don't frequent /r/wsb, but the onus should not be on the SEC to clamp down on a community, it should be on the service the "significant young people" are using to execute satirical investment advice.
For example, if Robinhood wants to gamify everything, then advanced trading opportunities should be part of some built-in experience-based level up system. E.g. you can't trade options until you have made X classic trades, or after you've completed X days of simulated advanced trading.
> advanced trading opportunities should be part of some built-in experience-based level up system
It already is a thing on all brokerages, including RH. If you go into your portfolio in the app, there are different option trading levels (which is standardized across the industry), and you can get upgraded to the next level as you do trades over time. You cannot just jump to level 3 as soon as you install the app. While I cannot comment on how their algorithms for upgrade eligibility work, it already exists in the same shape and form as on all other brokerage services.
> /r/wsb, on the other hand, loves tail risk, long or short. That subreddit needs to be shutdown by the SEC. It's serving as an investment advisor for a significant number of young people, whether it masquerades as satire or not.
I think this would set a bad precedent. the "advice" on wsb is mostly terrible, but if a bunch of trolls posting loss porn can be construed as an "investment advisor", I'd hate to see what other sorts of irresponsible speech can be shut down. if I give you shitty legal advice, I might be "acting as a lawyer" in some sense, but I'm not actually a lawyer and I shouldn't be subject to the same liability as a real lawyer.
It is illegal to provide investment advice and sell investment products without license for a reason. This young man is exactly that reason. People are stupid and they trust other stupid people.
AFAIK, it is only illegal for a layperson to give investment advice without a license if they are doing it for compensation or if they mislead the recipient into believing you are a professional advisor. my guess is most people on wsb do not meet this criteria.
you're only liable for the advice if you meet the criteria for an investment advisor under the Investment Advisers Act of 1940, which involves actually getting paid somehow for the service. [0] I'm not an expert on the topic, but I can't see how you could possibly construe this as being intended to regulate informal discussions among laypeople. if so, why would they write the whole law around the responsibilities of investment advisors and specific criteria for being one?
similar liability exists for other people who give advice in a professional capacity (eg, lawyers, doctors, engineers), but I can't think of any situation where a layperson would be held responsible for bad advice.
The extraordinary push by firms such as Robinhood to encourage unprepared individuals to participate in day trading is a troubling development. They can call it "investing" all they want, but it is clear that unlimited commission-free trading without any meaningful vetting encourages uninformed day trading.
The markets benefit from having a highly diverse set of entities, each with its own particular area of expertise that gets pooled together.
The markets are damaged by high rates of uninformed trading, which only promote instability and general disfunction. More importantly, these traders have overwhelming odds of getting hurt. The only ones who benefit from such trading are 1) firms like Robinhood who get paid for their unsophisticated order flow, 2) market makers, and 3) informed entities pushing markets back towards efficiency. Speaking as one who benefits, I can say that we would all be better off as a society without this particular order flow.
I think there should be a limit on the rate of commission-free trading until an individual can demonstrate a reasonable level of proficiency. A firm like Robinhood could do some good if they provided a great paper trading environment and tools that allowed users to evaluate expected profit and variance in particular strategies they want to pursue. Once a trader demonstrates profit beyond random noise, commission-free trades could be gradually increased. I think this would encourage people to learn how to provide services of real value to markets through their trading or else recognize they are unable to be profitable. Unfortunately, I doubt Robinhood would ever do this as it would significantly undermine their current business model.
This is cherry-picked, emotional, and an anecdote.
How about some happy stories of all the 20-year-olds who became millionaires from unregulated bitcoin trading to show the other side of the coin?
I guess I have a rather libertarian view on this, that it's worse to outlaw the knife than for a fraction of knife users to accidentally cut themselves. That said, I'm entirely in support of more educational resources on the topic, but don't hold anybody accountable for that.
Do you really think that organizations which are equipped to provide educational resources on the topic (e.g. Robinhood) are going to do so out of the goodness of their hearts? No, someone must be held accountable for it to happen, and I wouldn't hold my breath delegating this responsibility to the public sector.
Unregulated bitcoin trading is completely different from this situation. We're not talking about hucksters and gambling. Tons of kids look up to legitimate, wealthy people who say "investing is the best thing for your future" and the only way the young folk know how to do this is to get on Robinhood because of its marketing/branding/ease-of-use. How many more kids are going to try to take well-meaning advice recklessly due to lack of experience / unfinished brain development, and find themselves in a void of inescapable depression leading to suicide because nobody is being held accountable?
> Tons of kids look up to legitimate, wealthy people who say "investing is the best thing for your future"
This is fair, but if you continue to listen to those same people, you'll hear them say "put your money in VTSAX and forget about it for 30 years", not "go trade options".
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[ 4.8 ms ] story [ 225 ms ] threadI still love gambling on RH, but you have to know its gambling before you start. I feel bad for this kid, getting caught up in the hype and throwing away his life over a few dollars that really never existed anyway.
You save fees and then get screwed when Robinhood is down on expiration day.
That said, we can all thank RobinHood for driving comissions down to zero, and then do business at brokerages that work. I personally wouldn't trade at IB, because I only do a tiny amount of trading, and don't want to go into the rabbit hole of individually routing my orders; it's great that it's available, but I don't need that, nor do I want an API or stuff.
Everything you said + the fact they thought it was a better option to kill themselves instead of contacting robinhood? finding out what their options were? (not trying to pun)
> "His final note, filled with anger toward Robinhood, says that he had “no clue” what he was doing."
yeah, that's true on so many levels. people will try to use stories like this to take freedoms away from everyone else to 'only let the experts deal with it'. at the very least though, I suspect robinhood will fix that particular interface issue.
“Tragically, I don’t even think he made that big of a mistake. This is an interface issue, they have slick interfaces. Confetti popping everywhere,” says Brewster referring to the shower of colorful confetti Robinhood routinely deploys after customers make trades. “They try to gamify trading and couch it as investment.”
Am I reading this correctly and he really wasn't in the hole badly, but a crappy presentation of information broke him?
Firstly, if someone reading this is in the same situation, take a breath and know this is not Student Loans, you are young and bankruptcy is about as bad as its going to get.
If you are the interface designer, well, I don't know what to say to you other that sort your damn self out. Its your job not only to convey the truth, but show what the final result is approximately going to be. Conveying just the current facts is as misleading as outright lying.
Can someone correct me?
Robinhood's UI is not particularly informative in this process either.
If I held through expiration and the short leg (AMZN $2640) was assigned, I would be contractually obligated to buy 300 shares of Amazon at $2640 a piece. This would briefly reduce my buying power by -$792,000. But as I also hold a contract to sell 300 shares of Amazon at $2635 ($790,500), it would have a net cost of only $1,500. And since I already received $600 up front, it would be just $900 additional out of pocket. But for a period of time, my account balance would have displayed -$792k.
1. You sell a call credit spread. This is where you sell a call at say $100 and collect premium (let's use $2 for this example), then buy a call at $105 to cap your possible losses.
2. The options expire and the price of the stock is $110. I have lost the maximum amount. I sold a call and collected premium of $2, and bought a call at $105, so my total maximum loss was the difference ($3).
3. Robinhood will settle these assignment after hours, and will for whatever reason show the balance as if you hadn't bought the $105 call protection. So my balance may show a massive loss until the reconcile both the short and the long end of the calls.
I have seen my balance go to -200k before when it was way in the positive before the day ended. This happened to be a Friday and it wasn't resolved until the markets opened the following Monday.
Luckily, I realized what was going on, but many novice investors may not.
Many traders will close their positions before market close, leaving a relatively tiny amount on the table to avoid the risk.
Since it's a defined risk trade, you can easily sell a large number of contracts which can result in very large stock positions when exercised. It's not an issue, the math works out, but it's something you need to understand before making the trade.
With a put spread, if I sell $50P and buy $45P, the holder of the $50P I sold can exercise at any point, and I have to buy his 100 shares at $50/ea. Let's say I got a $2.50 premium ($250 total) on that spread. At that point, my account is -$4750, +1 $45P. Perhaps the premium on the $45P is $0.50, so my account's nominal value is -$4700, +100 shares at this point.
However, my $45P expires in 3 days, so maybe I want to hold on and see if the shares I had to buy at $50 will increase to $55, my $45P expires worthless, and I can then sell them for $5500 total, leaving my account +$800. Or, worst case in the other direction, the price drops below $45, and I exercise my $45P to sell them for $4500, leaving my account -$250. But until expiry or assignment, my account's nominal value is in the red.
People already sign disclaimers stating they understand how to trade and potential risks. Perhaps a more intensive testing process can help to enforce that, but they're still adults making their own decisions and I don't want to add even more regulations for market access.
It is like giving a loaded assault rifle to a trained member of the military compared to an average civilian. You can't just assume each will have the same level of knowledge. You need to provide that civilian more detailed instructions in order to make sure they don't cause accidental and unnecessary damage with it.
You also sign a lot of paperwork stating that you understand the mechanics and risks of trading. There are several levels between buying stock and selling options that you need to ask approval for.
The truth is that Robinhood targets a less educated segment of the market. They have a moral responsibility to either educate those users or put protections in place so it is harder for those users to harm themselves due to the lack of an education that can be assumed standard in other investment contexts.
I already stated elsewhere that there should be more verification and testing of credentials and knowledge but at some point, the adult making the decision still has the final responsibility.
>I already stated elsewhere that there should be more verification and testing of credentials and knowledge but at some point, the adult making the decision still has the final responsibility.
And in the absence of this verification and confirmation of credentials, Robinhood should be expected to communicate these details in a way that even someone without those credentials can easily understand.
Saying you didn’t know what you were signing isn’t an excuse and doesn’t relieve you of your contract. While more verification is necessary, lying about your credentials is still your fault, if not outright criminal.
Yes, but I think it's important to note that every other broker I've used presents the information in the same way and the way they are displaying the info is an accurate representation of the state of the account at that moment.
Blaming bad UI is the easy way out here. Robinhood should take the blame for this, but not because of bad UI. Robinhood should be at fault because the knowingly allow tons of "investors" to have options trading access with little or no screening and verification.
Blaming the UI here would be like blaming a single specific gun maker for a mass shooting, when the real question you should be asking is how did this person get a gun at all?
These instruments are very high risk and not really meant for average investors. Their primary goal is for hedging and leverage.
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One of the reasons for the "Black Friday" (kicking off the Great Depression) was the proliferation of leverage among people who didn't really understand it. That's why most other companies make you sign forms and ask for verbal agreements before allowing you to have access to things this dangerous.
Black Thursday. Black Friday is the name of the crash in the federal gold market half a century earlier - or more commonly, the yearly American mega-sale event that follows Thanksgiving.
Robinhood already asks for information about your net-worth, income, etc. The problem is that they verify nothing (at least in my experience). I read /r/wallstreetbets all the time, and plenty of 18 year olds say they are making 100k+ and RH just approves them. They need to improve that process.
I marked that my liquid assets are under 25k, net worth is under 25k, and yearly income is under 25k (all the lowest you can select) and they approved me for option trading instantly.
Looking at GOOG the UI shows me put where the max loss is $8.5k. Seems reckless if they really use the information I gave them to determine what level of risk is appropriate.
Better verification of a person's financials and trading knowledge before allowing this access would be helpful.
There is a rather large difference between how you do interfaces for people with training who are experts and the amateurs that Robinhood is targeting. It is the difference between a full cockpit and the interface you put on something like Garmin's autolanding system[1].
So, yeah, I'm blaming the interface people at Robinhood because they are targeting a non-broker segment of the population and need to find a way to put that information a broker would give you into the interface. This information includes things like "you do not own this much money" at a minimum. Facts are amazing things, but eventual truth might of save this person.
If you target a group of people, its your responsibility as a UI designer to make sure your interface is actually safe for that group of people.
1) https://www.garmin.com/en-US/autonomi/
But regulation requires that you do self-certify as (to a certain extent) an expert who understands the more sophisticated product in order to trade it.
I suppose I don't disagree that they're targeting people who in many cases probably shouldn't be passing that screen, but I suppose I think that's the problem, rather than it not being dumbed down enough.
Could the UI be better? Probably. My point isn't to absolve them here, it's just to point out that this same issue exists across most of the platforms. That leads me to believe that, while the UI may have contributed, it's not the root cause of the issue.
Like I said elsewhere, its horrible this kid killed himself over something as transient as this, and RH's interface is pretty dumb, but if you're selling uncovered put spreads, and covering them with call spreads and you're doing all of this in RH....well you're either much better at RH than I am, or much worse.
If anything, it highlights the fact that these people should not be trading in the first place if they don't understand their own positions, and brokers need a much stricter gate before allowing them access.
That being said, yes customer support could help him understand what’s happening.
Their interface is an abomination. Even the tiny amount of information they do present is hard to parse. I use it for fun time investing, but would never trust real money with a company that can't plainly and clearly show me the status of said money.
Either way, this is really unfortunate. The way we treat debt, especially in regard to our younger population, is kind of despicable. But hey, whatever keeps the wheels turning, right?
Not sure if that makes it better or worse
I have a debt, I cannot pay the debt. What do you suggest as an alternative to bankruptcy? Indentured servitude?
> Why would you allow someone to gamble for almost 1m?
My point exactly. The lender is responsible for lending to people who can make good on their bets.
> It's the same logic that if an underage kid shouldn't go to jail if he kills someone.
I think it's more about finding a sweet spot between lender/borrower responsibility. If you're giving some kid who's day trading after watching a few youtube videos $1M, you're irresponsible and deserve to lose your $1M. The system shouldn't protect these people. I would apply the same logic and processes to student loans as well.
wage garnishment. take some $ from each paycheck automatically deducted from payroll. i believe credit card companies and other debtors can do this
Credit card companies created a bunch of services designed to "help" you get out of debt without declaring bankruptcy. Which is really just a way to keep debtors tied up paying on a debt they can never pay back for as long as possible. To the point where the total interest payments and arbitration fees exceed the interest and principal on the initial loan.
Bankruptcy is an important part of capital markets. It's there to make clear the risks of lending to people who don't have the ability to pay back the loans. The more difficult it becomes to declare bankruptcy, the more predatory lending becomes.
If you knew it was impossible for someone to declare bankruptcy, why wouldn't you loan as much as possible to them? This is exactly how we got into a student loan crisis. If debtors could declare bankruptcy, then lenders would be much more judicious with their money. But as it stands, there's no real risk to giving an 18 year old hundreds of thousands of dollars in loans because it's practically a guarantee of 7% interest payments for 20+ years.
so first of all, the reason there's no risk in student loans is because the servicer doesn't actually lend their own money; they just manage the loan for the government.
second, bankruptcy isn't the only risk you take when you make a loan. there's always a chance that the person simply won't make enough money in their natural life to pay back the principle. $100k, you will probably get back in interest over many years. but if you loan $1mm, you might never recover the principal.
A lender can sue for repayment, and get that enforced through garnishment, but the debt can be discharged through bankruptcy. Credit card lenders are generally unsecured debt, so if the debtor doesn't have enough assets, they'll get nothing; it's in such lenders' interests to avoid a bankruptcy filing.
Fiar point, fully agree.
This makes it even more sad, better UI could have saved a life. Putting a notification with a link to call the National Suicide Prevention Lifeline on an account that moves that far and fast into the red might not be a bad addition either.
https://www.bbc.com/future/article/20140112-is-it-bad-to-tal...
https://www.nami.org/Blogs/NAMI-Blog/September-2018/5-Common...
There's no real need to mention suicide in the notification, "feeling distressed? Call" would work fine.
https://www.bbc.com/news/entertainment-arts-49001246
https://www.bbc.com/news/entertainment-arts-44170473
“Tragically, I don’t even think he made that big of a mistake. This is an interface issue, they have slick interfaces."
I think this is the saddest part. This definitely is entirely Robinhood's fault. Saying so is basically saying a casino is at fault for somebody committing suicide because of a gambling loss. But a better UX could have helped in this case.
I’m not even positing an answer but what a horrible incident.
It's showing the life changing loss without giving the user sufficient context or insight into what's happening that's the problem.
If a casino was found to be doing none of those things, when a suicide occurred, I suspect it would be in deep trouble.
There's a broader tension here with the _perils_ of democratization and freedom that I think is a common thread shooting through many of the issues the Western world is grappling with in the information age
I'm personally of the belief that Robinhood absolutely deserves fault for allowing normal Joes to trade options at all, but many would argue allowing people that capability is a net good
From the robinhood website.
Ensuring you don't lose money, or overreact to numbers on a screen, are not among them.
I feel terrible for the kid. Even though he should have been well aware of what to expect in this situation, it seems like common sense that RH (or any trading software) should have some UI indication when the balance shown is a partially settled trade. It is an accounting reality - yes for a bit his account is really -$700k - but even if you know that, opening the screen and seeing it without some caveat is like a prank. Got you! You're actually not bankrupt. Seems unnecessary.
It seems to me that they blatantly failed at this responsibility in this case
Many brokers require you to jump through lots of hoops before trading options. And even then limit you to simple contracts first. Maybe rh should do the same,
https://en.wikipedia.org/wiki/Bucket_shop_(stock_market)
https://news.ycombinator.com/item?id=23523246
So I wouldn't say that the U.S. culture is particularly one of bankruptcy being an extreme embarrassment; we elected a President who has used bankruptcy. Now granted, occasionally HE says something that is an extreme embarrassment, but that's a whole different issue.
I do wonder how suicide rates have been trending during the pandemic lockdown with social isolation and such. No idea if it was a factor here, but I wonder.
As an analogy, imagine you owe friend A money (one side of the spread) and friend B owes you money (other side of the spread). Friend A calls and says pay me back, so you venmo them money, and then you call friend B and ask them to pay you back. Basically, he was caught in that period where the money to friend A left your account, but the money from friend B hadn't settled yet.
While it's easy to be mad at Robinhood and blame bad UI, I think it's important to note, that every platform I've traded options on has displayed this situation in the exact same way. I've traded on Schwab in the past and currently use Robinhood and Tastyworks for options trading and all three have given me massive margin calls for this exact same situation that iron themselves out 24 hours later. While Robinhood is the platform in question here, this same thing would have happened almost anywhere else, so I have a hard time blaming Robinhood's UI. Additionally, the negative balance actually triggers the exercise of the second side of the spread, and there's nothing that says the second side of the spread needs to be exercised if his balance was still positive. Because of that, it's not possible (or doesn't make sense) to just say something like, "well if one side is exercised, just do the other right away". Maybe the UI could be improved, but unless a user fundamentally understands what is going on, you're more than likely going to run confusing situations.
What I DO blame Robinhood is having pretty much no standard for who they give options trading to. It's been 7 or so years since I had to apply for options trading on Schwab, but the process was fairly in-depth to get anything beyond level 1 options trading (maybe things have changed). When I applied for options trading on Robinhood, it was a few clicks and I had level 3 trading permissions (the highest they allow) with almost no information being verified.
Again, I'm sure Robinhood isn't alone in their lax policies around options account approval, but between the way they've built their platform to feel like a game, their targeting of younger investors, and the fact that /r/wallstreetbets talks about them constantly, they have become THE platform for investors who don't fully know what they are doing and they need to take extra precautions to protect their users from themselves.
* RH feels like accepting a TOS or a EULA; * E-Trade makes it that you are reporting net-worth and are willing to risk it.
Can RH be held liable for misrepresenting the regulations? This might have been settled without any loss of life.
However, last I checked (some time ago) a purely cash account would have required literally $700k+ to execute this trade. Because, you know, stuff happens.
The lesson of the story is ultimately that... if you can't handle the heat, please, for the love of everything good, don't enter the kitchen. Options are a gamble. Everyone knows that. It's written in every article on options trading.
Sounds like this guy wanted to kill himself regardless of any debts.
Every day media covered news that twitter went down again and thus creating more publicity resulting in more users.
I guess some people were scared off, but way more people saw the news and had a "oh, so Robinhood exists, cool!" moment.
/r/wsb, on the other hand, loves tail risk, long or short. That subreddit needs to be shutdown by the SEC. It's serving as an investment advisor for a significant number of young people, whether it masquerades as satire or not.
RH is taking the same advantage that Juul got – free marketing and a lot of young people abusing the product. Wondering if they'll get the same crackdown as well.
Do we? It's not like you have to be an accredited investor to buy and sell options.
For example, if Robinhood wants to gamify everything, then advanced trading opportunities should be part of some built-in experience-based level up system. E.g. you can't trade options until you have made X classic trades, or after you've completed X days of simulated advanced trading.
It already is a thing on all brokerages, including RH. If you go into your portfolio in the app, there are different option trading levels (which is standardized across the industry), and you can get upgraded to the next level as you do trades over time. You cannot just jump to level 3 as soon as you install the app. While I cannot comment on how their algorithms for upgrade eligibility work, it already exists in the same shape and form as on all other brokerage services.
I think this would set a bad precedent. the "advice" on wsb is mostly terrible, but if a bunch of trolls posting loss porn can be construed as an "investment advisor", I'd hate to see what other sorts of irresponsible speech can be shut down. if I give you shitty legal advice, I might be "acting as a lawyer" in some sense, but I'm not actually a lawyer and I shouldn't be subject to the same liability as a real lawyer.
similar liability exists for other people who give advice in a professional capacity (eg, lawyers, doctors, engineers), but I can't think of any situation where a layperson would be held responsible for bad advice.
[0] https://www.investopedia.com/terms/i/investadvact.asp
The extraordinary push by firms such as Robinhood to encourage unprepared individuals to participate in day trading is a troubling development. They can call it "investing" all they want, but it is clear that unlimited commission-free trading without any meaningful vetting encourages uninformed day trading.
The markets benefit from having a highly diverse set of entities, each with its own particular area of expertise that gets pooled together.
The markets are damaged by high rates of uninformed trading, which only promote instability and general disfunction. More importantly, these traders have overwhelming odds of getting hurt. The only ones who benefit from such trading are 1) firms like Robinhood who get paid for their unsophisticated order flow, 2) market makers, and 3) informed entities pushing markets back towards efficiency. Speaking as one who benefits, I can say that we would all be better off as a society without this particular order flow.
I think there should be a limit on the rate of commission-free trading until an individual can demonstrate a reasonable level of proficiency. A firm like Robinhood could do some good if they provided a great paper trading environment and tools that allowed users to evaluate expected profit and variance in particular strategies they want to pursue. Once a trader demonstrates profit beyond random noise, commission-free trades could be gradually increased. I think this would encourage people to learn how to provide services of real value to markets through their trading or else recognize they are unable to be profitable. Unfortunately, I doubt Robinhood would ever do this as it would significantly undermine their current business model.
How about some happy stories of all the 20-year-olds who became millionaires from unregulated bitcoin trading to show the other side of the coin?
I guess I have a rather libertarian view on this, that it's worse to outlaw the knife than for a fraction of knife users to accidentally cut themselves. That said, I'm entirely in support of more educational resources on the topic, but don't hold anybody accountable for that.
Unregulated bitcoin trading is completely different from this situation. We're not talking about hucksters and gambling. Tons of kids look up to legitimate, wealthy people who say "investing is the best thing for your future" and the only way the young folk know how to do this is to get on Robinhood because of its marketing/branding/ease-of-use. How many more kids are going to try to take well-meaning advice recklessly due to lack of experience / unfinished brain development, and find themselves in a void of inescapable depression leading to suicide because nobody is being held accountable?
This is fair, but if you continue to listen to those same people, you'll hear them say "put your money in VTSAX and forget about it for 30 years", not "go trade options".
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