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RH's entire schtick is to be the amateur's investment broker. Their barrier to entry for margin and options is practically 0. When the only thing you need to do in order to get access to level 3 options is check a couple boxes, you're practically encouraging this type of activity. RH is breaking a ton of rules atm and there is a reason why most brokers are high touch for margin/options and unfortunately the Kearns' family is first hand evidence of this.

Most other brokers WILL NOT allow this. When I applied for options Schwab had a broker call me and make sure I knew about all the risks involved for the level I applied for.

RH was also down a couple times in March, which lost me a good amount of money. A week is a VERY long time if you're playing short-term options. There's also other issues where they were holding customer shares in margin when they had cash to cover, and when they've allowed customers to leverage 5k -> 1M of positions (a huge nono).

The conclusion here is that RH is a toy broker following the mantra of move fast and breaks things. Good if you're casually investing, but for options and serious investing with real amounts of cash it's worth getting a broker that is serious at providing reliable service.

>The conclusion here is that RH is a toy broker following the mantra of move fast and breaks things.

I personally see them at the Juul of the finance world. They're intentionally targeting young inexperienced people and telling them "just download this app and you'll be rich! all your friends are doing it, don't miss out!"

Not sure how many brokers you have applied to lately but -

TDA, Fidelity, Webull, Interactive Brokers, Tasty works, ETrade, and more all make options just as accessible as RH.

When I applied to enable Options trading on my Fidelity account, I had to wait 3 days plus they sent me a booklet which looked like it was printed in the 80s about the risks of options trading, they also pointed me to a section on their site with tutorials about options trading once they had enabled my account. By the time they were done I was rethinking my plan to trade options :-)

How long ago was this?

I opened both Fidelity and E*Trade brokerage accounts in the last 3 weeks and it took minutes to submit options applications for both, at max levels. ET was approved instantly and Fidelity the next day. Not a single piece of paper from either one.

Depending on how much money you are putting in your account, you might be getting a different reaction. It also might depend on the product; I think Fidelity has at least 2 different types of trading accounts (I think one is paid). The paid one may not have as many guardrails.

> and a person followed up about a week late

I remember reading when the original story broke that the negative balance / suicide happened over a weekend.

And about the the negative balance, I've had a similar story (with much less). The problem is that once a long-short vertical option expires worthless, Robinhood showed a negative balance for the full amount of the short position, even if you had a long position covering most of it. Because they don't update the available balance/money you made from the long side until it clears (which can take a few days).

I believe it was extremely bad UX on Robinhood's part, even my heart skipped a beat when I saw the negative bal, and that was for only 5k.

Imagine being the UX designer

Good point. I can't blame the UX ppl though for not anticipating some clearing issues, they are after all UX ppl not finance majors.

It's part of their job to understand the business domain.

Yeah. I'm not assigning or absolving blame, I just know if I'd designed this interface I would be losing a lot of sleep at night.

>You have to go out of your way to trade options (they're disabled by default), and the only way you can get options enabled in Robinhood as a college freshman is to straight up lie on the application.

If all it took was a lie on an application for Robinhood to grant someone the ability to use extremely risky trading strategies, that's still Robinhood's fault. Robinhood isn't absolved of responsibility just because the student did something dishonest.

Given the fact he was 20 years old, his options application should have automatically been under a heightened degree of scrutiny, if not immediately rejected. That it wasn't indicates Robinhood is not responsibly implementing KYC controls, which is a huge deal.

You're an adult 18. I think people need to take more responsibility for their own actions instead of this increasing trend of treating adults as kids.

We've created this bizarre feedback loop of treating older and older people to like children, which causes older and older people to act like children.

I know man, these hedgefund managers and Boeing executives have been totally infantilized!

I'm clearly talking about the 18-year-olds referenced in the post I'm replying to. But good job I suppose?

I am just pointing out that there is a range of people trying to absolve themselves of responsibility, and I am not clear what leads folks to conclude that 18-year are the problem.

When COVID/2008 hits the fan, its the young people on zero hour contract that loose their income first, landlords might loose some, and banks loose least.

If anything our system is setup so that the higher you are, the less consequences you face. I believe this is the new phenomenon and its not helped by 'kids these days, back in my day...'.

New phenomenon? You should read some history books! It’s never not been like this, it’s almost always been worse: thousands of years of those at the bottom losing everything while those at the top, if not getting assassinated in power struggles, get all the payoffs. As bad as it is today, it was almost always much worse in the past.

And company's need to take more responsibility for their own actions as well, instead of blaming their users for being stupid. Predatory and aggressive behavior isn't made acceptable just because the person you preyed on was foolish.

Finance is one of the most highly regulated industries. If there was wrongdoing, the SEC would be all over it.

By your logic, you might as sue all auto manufacturers for not installing BAC interlocks on the vehicles they sell, or all tobacco companies just because the users are too stupid to read the giant warning labels. That's not the society I want to live in.

>If there was wrongdoing, the SEC would be all over it.

Like this? https://www.cnbc.com/2020/12/16/robinhood-reportedly-facing-...

>all tobacco companies just because the users are too stupid to read the giant warning labels

Like this? https://www.publichealthlawcenter.org/topics/commercial-toba...

In our society, we hold companies responsible for being poor citizens. And "our users are stupid" is not a valid justification for being a poor citizen, whether you like that or not.

I'm not talking about the part prior to the crackdown on tobacco. I'm saying there are still people using it after the giant warning labels.

They have an investigation, but we'll see what it turns up. Remember, we work on an innocent until proven guilty basis.

If you're saying that companies need to be good citizens or we shut them down, then you should close almost all businesses. You don't think the other brokers take the same steps that RH does? I can tell you from the inside that they do.

It took decades of lawsuits and to get those warning labels, which would vanish overnight if the government didn’t force it. Those decades included a lot of misinformation campaigns to the point of fraud. Most smokers simply cannot quit - they have tried dozens of times and most got hooked in high school

If someone is 20, it's more likely that they have no idea what they're doing with options, and a brokerage has a regulatory requirement to ensure that options are suitable for the customer before approving an account for options trading. It's not a bright line; age is information that can be used to make a reasonable determination about whether the customer is cognizant of all the risks. At the very least, they should call and speak with young customers before approving.

They usually just use a questionnaire online. Most brokers aren't making phone calls unless it's absolutely necessary. Not saying it's the best way, but if RH is getting sued, then any other broker could be too. They could start testing people, like with a version of the CFA Fundamentals test.

Are the people running the firm adults? Do they have responsibilities, like checking customer documents, picking up the phone and showing correct balance?

I don't believe they have to pick up the phone. They are a virtual company that does get back to people, but it takes time. If we are saying prompt replies are a required responsibility, then how do we tolerate the government's widespread slowness? The document checking and balances are a common thing across industry - documents are checked in automated systems that check the SEC criteria and balances are not instantly updated. Other brokers have these same issues.

Children used to get more practice with making meaningful decisions and what not than they typically do today. A lot of 18 year olds aren't really prepared to behave like adults.

I'm not excusing it. I'm just making an observation.

And I'm not blaming parents for that. The world has changed and it's harder than it used to be to simultaneously protect kids and give them room to grow.

I generally agree. I think it also varies by location. I know 20 year olds who are married with kids and working in very adult jobs, such as the military or the mines. Generally these "kids" grew up in a more rural area and had less supervision and more responsibility.

However 18 year olds are able to sign any legal document, and also join the military.

> If all it took was a lie on an application for Robinhood to grant someone the ability to use extremely risky trading strategies, that's still Robinhood's fault.

In your world, do we blame casinos when someone goes in and gambles away their money? My naive perspective sees no difference. The concept of an individual being responsible for their own terrible choices really seems to have changed unbelievably in the last 20 years.

The minimum age for gambling in many states is 21. So yes, if this 20 year old student walked into a casino and gambled away all his money, it would be the casino's fault for allowing that to happen.

https://www.finra.org/rules-guidance/rulebooks/finra-rules/2...

Try CTRL+F "suitability" for a five-second read of why the casino comparison doesn't apply here.

For the personal accountability perspective, I would say it applies even more, since there are no requirements at all for walking into a casino and burning up $100k, yet we don't blame the casinos, we blame the person burning the money.

For the perspective that Robinhood owns his risk somehow, from not following their suitability guidelines, I'm not familiar with any of this so can't speak about it. Naively reading this, it appears to be extremely open ended, requiring a consistent internal process for approval, along with a warning, rather than anything specific.

"No member or person associated with a member shall recommend to any customer any transaction for the purchase or sale (writing) of an option contract unless such member or person associated therewith has *reasonable grounds* to believe upon the basis of information furnished by such customer after *reasonable inquiry* by the member or person associated therewith concerning the customer's investment objectives, financial situation and needs, and any other information known by such member or associated person, that the recommended transaction is not unsuitable for such customer."

The burden's on the firm to demonstrate why it believed the customer was qualified to trade the product, and to demonstrate that it made an effort to evaluate the customer's goals, finances, and needs.

Maybe the terminology is too foreign to me, but

> ... shall recommend to any customer any transaction ...

> ... that the recommended transaction is not suitable

Was Robinhood recommending transactions, or just enabling transactions? Even if not, this seems very open ended with no specifics, since “reasonable” is up for interpretation. I suppose we’ll see, probably sooner rather than later. I assume some actual specifics will result from all of this though.

When I ask a criminal barrister for advise, he/she carries some responsibility, and should have my best interest in mind. If I ask a guy on the street, he does not.

If Robinhood wants to carry same responsibility as casinos, they should call themselves a casino.

Then they will loose certain privileges like in UK it's illegal for casinos to provide leverage or 'gambling debt', they will be subject to payout percentage regulation, etc. https://www.casino.co.uk/guides/payout-percentages-rtp/

> How many brokers provide investment guidance?

It is usually quite explicit that they are not providing investment advice with the online ones.

Advice and guidance are two separate things (even if they sound the same.) Vanguard, for instance, has volumes explaining trading and investment strategies but advice would me more like implying you should use a strategy or buy a specific equity.

If it were underage girls that lied for pornhub amateur and got accepted the argument would not hold, so I don't think it should hold in this case either.

It is the company's job to make sure the screening process is not too permissive.

What I do not understand, is how do you just accept that a major company managing people's (potentially) life savings in a regulated market has no responsibility to pick up the phone? I would accept it if RH did not communicate with the customer at all because they were overwhelmed or something. But they did communicate, they sent out an email demanding money.

Do they have no process to talk to a customer who has lost a lot of money? This is not a rare freak event, it's key part of the business they are in. You'd think about this within the first 10 minutes of even entertaining the idea of starting a trading firm. Even the WSB reddit had a link to a suicide prevention hotline, how is RH more irresponsible than a random web forum.

We as a society don't need to bend over backwards to accomodate these zero-support business models - and especially not as the bedrock of our economy.

Lastly, I want to share a court case from Russia: for a few years it was common for banks to mass send out loan contracts in the post to random Tom, Dick and Harry. It would just appear in your postbox randomly, and if you countersign it you would get the money. One bloke scanned the document and amended it, he really went to town: increased the borrowing limit, put in a negative interest rate, etc. The bank signed it without realising. Obviously the bank sued, argued that their business model made it impossible to read every contract and the that the guy knew that.

The judge held up the contract, saying it wasn't the customers problem their business model involves spamming people and signing things without reading.

> You have to go out of your way to trade options (they're disabled by default), and the only way you can get options enabled in Robinhood as a college freshman is to straight up lie on the application.

Isn't this a problem with most brokers? They all seem to require that you claim experience trading an asset class before they let you trade that asset class.

Brokers are required by law to "protect" traders from financially harming themselves by restricting the trades that can be made until the trader verifies that they know what they are doing. Some brokers will go as far as to personally call you up and give you an on-the-spot quiz about how options work before letting you trade them, for example.

Many brokers seem to have gotten very lax about this in recent years, and even Schwab/Ameritrade allowed me to trade options without verifying anything. My guess is that the recent Robinhhood/GME fiasco is going to see FINRA cracking down hard and reinstating some strict verification procedures.

I was able to trade options with TradeKing in 2010 by just checking a box, claiming that I knew that I was doing.

(I was still in college and did not know what I was doing, but fortunately only ended up losing a few hundred bucks.)

This isn't new - it's how it's worked for a good long while.

The regulations, such as FINRA Rule 2111, were not in place until the early 2010s. FINRA/SEC implemented stricter requirements for the verification I mentioned in my first comment, but over the past ~5-7 years the brokerages have relaxed them. So yes, it is new relative to your experience in 2010.

Yeah, it's pretty easy to get level 3 trading option these days. In fact, if you select level 3 and answer incorrect, they even prompt you and say, hey that option won't let you get verified for level 3.

With older brokerage firms, they use to call you up after you signed up. You would have to chat with them on the phone before they unlocked your account.

Those are changes RH made in reaction to this kid killing himself. They added increased barriers and human interaction because of this, that weren’t present when this happened to him.

Novice question: to lose that much money do you need to sell options? My understanding was that buying options was relatively safe.

Options are considered binary plays: they either expire in the money, or they expire worthless.

It would be trivially simple to empty out your entire account by buying foolishly deep out-of-the-money options. (E.g. betting that GameStop shares will be worth $800 by the end of the week).

yes

but the catch is that he didn't lose the money really ... it was a UX glitch that made him suicide

Some options (buying calls or puts, selling covered calls or cash-secured puts) are "safe" in the sense that you can't lose more than your initial investment. Some do have a larger downside that can exceed your initial investment, and some have technically infinite downside. That's why there are several levels of options, so you can be approved for the safe bets but not the ones that could cost you a million dollars on a $1,000 bet.

> You have to go out of your way to trade options (they're disabled by default), and the only way you can get options enabled in Robinhood as a college freshman is to straight up lie on the application.

Could you please clarify, what does the application ask that he would have had to lie about?

Questions like trading experience with different kinds of options, annual income, liquid net worth, total net worth are all pretty standard. Some brokers (not RH) also about about the source of your experience. Actual experience trading options may push you higher on the list than simply being instructed in what options are by an investment professional if you're otherwise on the border between two.

I've been declined for top options levels before because my total net worth was too low even with years of actual options trading experience (including complicated multi-leg strategies).

Sadly I agree. The idea that someone willingly applied to have options trading available and is in fact an adult should be enough that its not the trading platform's fault.