![]() 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. 28, a move it said was done to meet capital requirements, sparking outcry among users and demands for its executives to testify before Congress.Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Īlex Kearns was an ordinary 20-year-old. However, Robinhood restricted trading in the most volatile stocks on Jan. The app helped fuel a wild rally in shares of video game retailer GameStop Corp and other companies out of favor with Wall Street hedge funds in what has been touted as a revolution in retail trading. The lawsuit comes amid growing scrutiny of Robinhood's commission-free trading and seeks unspecified damages. In reality, the loss was covered by other options in Kearns' account, according to the lawsuit. ![]() Kearns apparently believed an options trade placed through Robinhood had led to a $730,000 loss, far beyond the possible loss of around $10,000 that he had expected, according to the lawsuit. Monday's lawsuit said Robinhood has an obligation to know its customers and ensure their trading strategies are appropriate, but instead the broker preyed on inexperienced investors. "We were devastated by Alex Kearns’ death," said a statement from Robinhood, which added that it was improving its educational materials and more live support staff, among other changes. As a result, fearing he had obligated his family to repay the huge loss, he ran in front of a train and killed himself, according to the lawsuit, filed in California state court.
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