![]() New users are given a free stock - usually valued below $10 - to get them started, and confetti blasts across the screen when users make their first stock and option trades. The neon colours and slick interface of Robinhood, as well as its pitch to users to “level up with options trading”, is a step change from the relatively sedate websites of its older rivals such as ETrade and Charles Schwab. That has been supercharged in the new era of online trading platforms. Research by neuroscientist Hans Breiter shows the same part of the brain activated by drugs like cocaine is also triggered when a person anticipates a financial gain. “I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin,” he told the attendees. He said regulators were looking at how to improve disclosure © Rod Lamkey/Gettyīerkshire Hathaway’s famously acerbic vice-chairman Charlie Munger made his views on day traders and their enablers clear at last year’s annual meeting of the Daily Journal, the publisher he chairs. SEC chairman Jay Clayton testifies last week before the House Committee on Financial Services hearing, ‘Capital markets and emergency lending in the Covid-19 era’. “Have we crossed the Rubicon into dangerous territory? I think we probably have.” A broad discussion is needed about the downsides of giving everyday investors unfettered access to the markets, he adds. “It’s the beginning of a long journey, not the end,” Mr Brewster says. Mr Brewster lauds the changes promised by Robinhood, but remains worried about how it and other platforms have transformed trading and sucked in younger, inexperienced and potentially vulnerable people. “We need to do something to make sure these kinds of things don’t happen.” Mr Casten later tweeted: “Democrat or Republican, Alex could have been any of our kids. “I read it over the weekend and it’s terrible,” Mr Clayton said. Vlad Tenev and Baiju Bhatt, the co-founders of Robinhood, said they were “ devastated” by Mr Kearns’ death, and vowed that the company would expand educational resources related to options trading, tweak the app to clearly show users’ financial exposure when making options trades and would consider adding new criteria for customers to trade sophisticated options.Ĭongressman Sean Casten of Illinois last week raised the tragedy with Jay Clayton, the head of the Securities and Exchange Commission, who said regulators were looking at how to improve disclosure. TD Ameritrade, which shares quarterly data, added more than 500,000 new accounts in the first quarter - three times the amount for the same period a year earlier. Schwab, ETrade and Interactive Brokers together added 1.5m new accounts in the first five months of the year, nearly double the amount for the same period in 2019. Robinhood added 3m users in the first quarter, pushing its total number of users above 13m. The surge in retail trading has been a boon to brokerages. “They’re almost pushing people into financial dynamite.” ![]() “The more I dug into it, the angrier I got,” says Bill Brewster, an analyst at Sullimar Capital in Chicago who is married to Kearns’ cousin and speaks on behalf of the family. Some observers worry the new class of e-brokers have helped turn the experience into something akin to a video game, with constant updates about profits and losses and social media fuelling the frenzy. The tragic episode highlights the dark side of the recent boom in retail trading and the offerings from online brokerages - such as free trading, options, cheap debt and the ability to buy small slices of stocks - which have lured more investors to the markets. In fact, his account had a balance of $16,000. Horrifically, it appears Kearns mistook the potential loss on one leg of an options trade for the outcome of the overall bet - wrongly believing that he had racked up a loss of $730,165. In a note left for his family, Kearns said he had “no clue about what I was doing” and never intended to “take this much risk”. On June 12 back at home in Naperville, Illinois, Kearns took his own life, after believing he had lost nearly $750,000 in a soured options bet made on Robinhood, an online brokerage that has become emblematic of a new era in retail investing. Unfortunately, his youthful dabbling ended in tragedy. He played the trombone, studied at the University of Nebraska and, like millions of other Americans, traded stocks to pass the time or make some money when coronavirus shut down schools and workplaces.
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