20yo Robinhood Customer Commits Suicide After Seeing $730K Negative Balance
forbes.com
forbes.com
“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.
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.
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.
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.
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.
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.
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.
There's no real need to mention suicide in the notification, "feeling distressed? Call" would work fine.
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.
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.
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.
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.
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
* 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.
From the robinhood website.
“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
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.
[0] https://help.streetsmart.schwab.com/pro/4.36/Content/Option_...
/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.
Related: https://www.amazon.com/Set-Phasers-Stun-Design-Technology/dp...
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,
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".
Sounds like this guy wanted to kill himself regardless of any debts.