This is going to end badly for a lot of people at some point.
It’s all fun and games until the market tanks for an extended period of time and people that cannot afford to be are over leveraged in stock.
It’s all fun and games until the market tanks for an extended period of time and people that cannot afford to be are over leveraged in stock.
If the market tanks for a long time, that's a big problem for everyone (directly or indirectly).
Every market has what's called a bid/offer spread. That's the difference between the price the next buyer will pay, and what the next seller will accept (if the prices were the same, it would result in a trade, and thus back to having different prices). Market makers earn this spread by always being willing to buy low and sell slightly higher. Robinhood traders are largely unsophisticated and place market orders that cross this spread and thus incur the implicit cost. Market making has become to automated that these small spreads (pennies in many cases) are actually extremely lucrative.
So, Robinhood goes out to a market maker and says "you can execute all my trades for me, but you'll have to pay me for the privilege because I know you'll make a lot of money off my trades". This is called payment for order flow, and Robinhood makes a lot of money this way.
The bid-ask spread on some of the questionable options Robinhood traders are transacting in is quite a bit higher, though.
Source: former head of quant trading for multi billion dollar hedge fund
People day trading options may be just as well off in a down market, since they can buy puts or volatility indexes to make money on any direction of market movement.
why are they doing it if they cannot afford to do it? If someone made a conscious decision to day trade with money they cannot afford to risk, they have to accept responsibility for losing it when the markets turn sour.
> they have to accept responsibility for losing it when the markets turn sour
Or is that adage bullshit like everything else related to the economy too?
https://ia601609.us.archive.org/21/items/in.ernet.dli.2015.1...
p.238 "Messenger boys established foreign exchange businesses and speculated in currencies of all lands. Towering over all of them was the gigantic figure of the super-profiteer Stinnes. Expanding his credit and exploiting the mark, he bought whatever was for sale, coal mines and ships, factories and stocks, castles and country estates, actually for nothing because every payment, every promise became equal to naught. Soon a quarter of Germany was in his hands and, perversely, the masses, who in Germany always become intoxicated at a success that they can see with their eyes, cheered him as a genius. The unemployed stood around by the thousands and shook their fists at the profiteers and foreigners in their luxurious cars who bought whole rows of streets like a box of matches ; everyone who could read and write traded, speculated and profited and had a secret sense that they were deceiving themselves and were being deceived by a hidden force which brought about this chaos deliberately in order to liberate the State from its debts and obligations."
FWIW the guy who brings and empties my skips was giving me tips on Covid medication stocks last week...
Our monetary system is based on a plan instituted 1oo years ago, before credit cards, electronic banking and and international market for finance. The Fed either changes the rate at which banks borrow money or buys financial instruments outright. This was fine back in the day when the main job of banks was making loans to people to buy homes (See It's a Wonderful Life). However today, money will will seek the highest ROI and stays in the financial system. We are seeing inflation of financial products (stock market bubble) despite record unemployment. Other weird things are booming house sales with record low interest rates. Until money is put in the hands of people who will spend it, we will never have inflation. NO MATTER HOW MUCH MONEY IS PRINTED.Today when I hear the word 'productivity' and 'growth' I realize it is not talking about the real world where there are mouths to feed and people who need a roof. Rather these words are talking about another entity, capital.