College student, 20, commits suicide after 'glitch' on online trading platform Robinhood showed a negative $730,000 balance

[Jet_ski]

When I first heard of Robinhood, someone told me oh hey here’s this new great investing app that will give a free stock (up to $5) if you sign up and your trades will be free. I was immediately suspicious, in finance there are no giveaways. Then I checked their site and I decided they must be exploiting retail investors: their site looked like trading is so simple and making money is a sure thing.

 

I fault Robinhood here because they get people hooked on trading by making them feel like they can make money. Again another reason I blame Robinhood is that they didn’t calculate the numbers correctly. There’s no excuse for that.

 

While this kid’s response was wrong, I’m certain thousands of others have gotten depressed and lost money trading when they shouldn’t have been trading in first place.

 

10 hours ago, LAwLz said:

Yeah that's what I am thinking too.

No way a mentally stable and healthy individual would just suicide as soon as they saw a negative balance on their account.

Also, how can you have so little insight into your finance that you don't know if you are 730,000 dollars in debt or make money?

 

This entire story smells fishy.

 

2 hours ago, AnonymousGuy said:

You're missing that there are some instruments like options which can cost you more money than you actually put in.  With options you can become obliged to provide shares at current market price.  And if a stock moves 600% like Hertz did you may be holding options that require you to delivery 10,000 shares that you bought when the price was only $1 but now it's $6 and your $100 options bet now costs you $60,000 to make good on.

 

I'm "experienced" in market trading and I stay the fuck away from options.

This kid couldn’t have had that much leverage. But here’s what I think the glitch was. Suppose you’re bullish on Amazon and it’s trading at $2400. You think it’ll go up to $2600. What you can do is buy 3 calls with strike $2400 and sell 3 call with strike $2600. Not a crazy large bet.

 

Now it’s the settlement date and say Amazon is at $2700. Say your broker glitches and doesn’t take into account that the long calls offset the shorted calls. And so your broker calculate this as your short exposure:

3x100x$2700 = -$810,000

But then your long are only worth:

3x100x$200=$60,000

So on a cash basis you owe $750,000. But in reality you don’t because the long and short offset and your actually cash positron would be:

3x100x($2600-$2400) + 3x100x($2600-$2700) = $30,000

 

If you’re some 20 yo kid who doesn’t actually know how these things work and all you’ve based your decisions has been the “Profit Loss” calculator on Robinhood, you’re gonna believe what you see on the screen.

[DrMacintosh]

I've never respected anyone who makes a living off of stocks and I don't really like the idea of a stock market either because someone decided to attach feelings to money and it destroys people. Also the system is rigged against anyone from becoming successful.  

[Brooksie359]

This seems like a clear case of some mental health issues. Its tragic and shows just how serious mental health issues can be. I could definitely see someone being pushed over the edge if they were already suffering from depression. 

[poochyena]

I read this story last night and it seemed suspicious. How soon did he kill himself after seeing his account? It sounded like he misunderstood the numbers he was looking at, and looking just even a little deeper would have revealed he didn't actually lose money. There is clearly something more here.

 

1 hour ago, Jet_ski said:

I fault Robinhood here because they get people hooked on trading by making them feel like they can make money.

But you can make money, so how is that robinhood's fault?

1 hour ago, Jet_ski said:

I was immediately suspicious, in finance there are no giveaways.

This website you are using right now is free...

[Jet_ski]

4 minutes ago, poochyena said:

I read this story last night and it seemed suspicious. How soon did he kill himself after seeing his account? It sounded like he misunderstood the numbers he was looking at, and looking just even a little deeper would have revealed he didn't actually lose money. There is clearly something more here.

 

But you can make money, so how is that robinhood's fault?

This website you are using right now is free...

Robinhood encourages people to trade for free because they are selling the order books to algo traders who front run the orders.

 

A controversial part of Robinhood's business tripled in sales thanks to high-frequency trading firms
https://www.cnbc.com/2019/04/18/a-controversial-part-of-robinhoods-business-tripled-in-sales-thanks-to-high-frequency-trading-firms.html

 

The issue is that Robinhood marketing and “educational” material is very misleading specially for novices. While you might know that the market is completely unpredictable in the short-term, plenty of people don’t. Unless you are a professional who does this methodically and has the resources, even if you make money it’s pure luck. And the fact that Robinhood marketing material gives people the impression that they can do this.

 

Other brokers won’t let you do many of the trades that Robinhood allows almost anyone to implement. It’s like a pharmacist letting people just go grab whatever medicine the want; it’ll end horribly.

[StDragon]

This is why people with a gambling disorder needs help before they go to deep; preferably not with a swan dive into an empty pool.

[thorhammerz]

5 hours ago, Tristerin said:

Eww, never got into that side - fuck asset betting when gambling.  

The sad bit is that brokerages are becoming ever more incentivized to promote such risky behaviors, as they only have so many avenues of revenues for themselves. Fees in particular are in a swift race to the bottom (trading fees already bottom-of-the-barrel, data-access-fees are liable to follow the same path in the medium/long term), and market-making / front-running only gets you so far if your user-base & infrastructure aren't massive & state-of-the-art.

 

[BigDamn]

I use Robinhood myself and have seen it miscalculate earnings before, albeit within margin of reason. When this happens, what is displayed on the current day graph is incorrect and you'll have to switch to the 1 week graph (for example) to see your actual earnings. For example, the current day graph may show me at +$3000, while I'm actually only +$500. This has also happened when losing money, and the current day graph shows me losing significantly more money than I actually lost.

 

If you're properly keeping track of how much money you have, this shouldn't be too alarming. If I know I started the day with $5000 (for example) and it tells me I've lost $2000, but my balance is at $4500 there's obviously something wrong. This isn't to excuse Robinhood's issues, however, as it's completely unacceptable that this happens. I would still recommend it to new traders with little funding but serious trading should be done elsewhere. Once I can selloff my oil and airline stocks I'll be off Robinhood for good.

[Taf the Ghost]

17 hours ago, Jet_ski said:

Robinhood encourages people to trade for free because they are selling the order books to algo traders who front run the orders.

 

A controversial part of Robinhood's business tripled in sales thanks to high-frequency trading firms
https://www.cnbc.com/2019/04/18/a-controversial-part-of-robinhoods-business-tripled-in-sales-thanks-to-high-frequency-trading-firms.html

 

The issue is that Robinhood marketing and “educational” material is very misleading specially for novices. While you might know that the market is completely unpredictable in the short-term, plenty of people don’t. Unless you are a professional who does this methodically and has the resources, even if you make money it’s pure luck. And the fact that Robinhood marketing material gives people the impression that they can do this.

 

Other brokers won’t let you do many of the trades that Robinhood allows almost anyone to implement. It’s like a pharmacist letting people just go grab whatever medicine the want; it’ll end horribly.

I hadn't heard they were selling their Order Book. That's both brilliant and evil.

[spartaman64]

18 hours ago, DrMacintosh said:

I've never respected anyone who makes a living off of stocks and I don't really like the idea of a stock market either because someone decided to attach feelings to money and it destroys people. Also the system is rigged against anyone from becoming successful.  

im not sure how the stock market makes people attach feelings to money any more than banks etc. and how is it rigged against anyone? like sure if you are one of those people who follow analysts and trade off their advice i know a couple of people that do that and every one of them is negative but when i tell them to do their own research they say they are just getting unlucky -_-. but if you do your own research then whether or not you succeed is largely in your hands 

[Kisai]

1 minute ago, spartaman64 said:

im not sure how the stock market makes people attach feelings to money any more than banks etc. and how is it rigged against anyone? like sure if you are one of those people who follow analysts and trade off their advice i know a couple of people that do that and every one of them is negative but when i tell them to do their own research they say they are just getting unlucky -_-. but if you do your own research then whether or not you succeed is largely in your hands 

It's less a stock market is "rigged against you" and more "rigged against the retail invester"

 

It's basically a known thing that algorithmic trading cannibalizes retail investors, which is why most 401K/RRSP type trading by individuals is discouraged. You will be robbed blind by the algorithm trading systems taking arbitrage off your orders when you buy/sell.

 

Now, I rarely do trades, but I've personally done better than my own RRSP which has flailed around since 2008 crash, which costs $80/yr regardless if it goes up or down. My brokerage account costs me $0/yr if I do nothing, so long as there's $50,000 in assets. So considering that the brokerage account exists entirely because of the workplace "stock" I had, sold, and then put my own money into. 

 

What happens under algorithms is that it sees signals and starts selling/buying, and this tends to trip all the retail investors orders to sell a stock when it drops more than a certain percentage, but that can also be tripped artificially by throwing orders on the book at values that would normally result in arbitrage. That's why the stock market has certain circuit breakers now to prevent flash crashes. The algorithms will make a company like Amazon or Apple worth $0 if it's allowed to, even though it's book value is completely unchanged.

[spartaman64]

3 minutes ago, Kisai said:

It's less a stock market is "rigged against you" and more "rigged against the retail invester"

 

It's basically a known thing that algorithmic trading cannibalizes retail investors, which is why most 401K/RRSP type trading by individuals is discouraged. You will be robbed blind by the algorithm trading systems taking arbitrage off your orders when you buy/sell.

 

Now, I rarely do trades, but I've personally done better than my own RRSP which has flailed around since 2008 crash, which costs $80/yr regardless if it goes up or down. My brokerage account costs me $0/yr if I do nothing, so long as there's $50,000 in assets. So considering that the brokerage account exists entirely because of the workplace "stock" I had, sold, and then put my own money into. 

 

What happens under algorithms is that it sees signals and starts selling/buying, and this tends to trip all the retail investors orders to sell a stock when it drops more than a certain percentage, but that can also be tripped artificially by throwing orders on the book at values that would normally result in arbitrage. That's why the stock market has certain circuit breakers now to prevent flash crashes. The algorithms will make a company like Amazon or Apple worth $0 if it's allowed to, even though it's book value is completely unchanged.

thats why i only do long term investing less risky and less guesswork involved.