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After reading this article I felt like something needed to be said. If you are new and just getting into trading, I'm sure there are tons of these type of people on this forum then you need to be careful. You are playing a negative sum game with some of the smartest and wealthiest people in the world. We see threads all the time talking about maxing out leverage to get rich quick. To put in plainly don't be a dumb ass.
I'm sure more info will come out about this but, from what I know now this should never have happened 700K at 20 years old? Like WTF how does this even happen. I've blown accounts before and couldn't imagine going this far in the hole, let alone a kid with zero income!
Suicide is a horrible, it has effected my family life in more ways then I would ever wish upon anyone. If you see someone struggling please reach out to them, this shit shouldn't happen to anyone!
Still don't understand how their platform allows $700K deficit Etrade liquidated my account for much less. Something that just doesn't add up.
edit: looking at his account snap shot, it does show huge drawdown in that amount but how about getting on the phone with the broker to figure it out instead.
While it doesn't seem to be really verified, the Robinhood platform could have glitched or not been clear enough when closing the trade, where one leg could have still been in settlement, maybe making it look like it was just the sold put side was shown in deep bad drawdown for the account, assuming the market had moved enough during the trade. Where maybe the college kid should have called Robinhood support and wait to see what was up instead of the tragedy that followed. But yes, it looks like way too much leverage maybe unwisely using up much of the account in maybe the tens of thousands, perhaps with margin in the leverage.
@Cloudy I think hit it on the head. It's not that RobinHood allowed a young kid 730k in margin to blow himself up with. What I can almost guarantee happened is he was trading vertical spreads and the loss he was seeing displayed was the assignment cost for only one side his trade. I've been reading for awhile on a notorious trading subreddit and this is a common occurrence on Robinhood. So common that there are regular posts where people think they're massively in debt to the broker. It will display assignment cost for one side of your spread without the offsetting side. You can easily do a 5 dollar wide spread in Amazon for only a few hundred dollars in buying power. 3 of those and you're already up over 700k in notional for about 1.2k in bp. This poor kid probably saw that number displayed by Robinhood and thought his life was over. Now, is that Robinhood's fault, or the trader's fault for not knowing what he's getting into? I don't know the answer to that but either way this is a god damn tragedy.
Trading: The one I'm creating in the present....Index Futures mini/micro, ZF
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Perhaps some percentage of fault lies with Robinhood. What number I can't say. I don't feel this would of happen at Interactive Brokers. They have their blank together.
Ron
...My calamity is My providence, outwardly it is fire and vengeance, but inwardly it is light and mercy...
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
We've seen a couple of possible explanations so far in this thread relating to Robinhood -- that possibly they were lax in allowing the kid to take unbelievably large positions, and the possibility that he was actually mistaken in his reading of the information on the Robinhood account page, due to the way it's presented.
Either one makes it to some degree a matter for Robinhood to take responsibility for and to make corrections in their procedures.
But in addition to these or any other possible technical issues with Robinhood, I think the major responsibility is much the same as with some other brokers in encouraging people to get into trading who really have no business entering a high-risk field with so little understanding, resources and ability to withstand and manage risk. I include any of the very, very low margin brokers whose message, like Robinhood's, is something like, "See how little money you need to have to trade and get fantastically rich." Robinhood just seems to be pushing that envelope a little harder.
Like everyone, I deeply regret this happened, and it just was not necessary. The kid obviously thought his life was ruined, and no matter what the actual financial facts were, it was not. Even if he actually owed that kind of money, which he possibly didn't, it was not. This is the real tragedy. But trading in the markets when you really shouldn't is kind of like playing a game in the middle of a busy highway, not something that should be easy or encouraged for the inexperienced and the too-young.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
