20yo Robinhood Customer Commits Suicide After Seeing $730K Negative Balance

Recent big discussion:<p><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=23523246" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=23523246</a>

<i>Kearns may not have realized that his negative cash balance displaying on his Robinhood homescreen was only temporary and would be corrected once the underlying stock was credited to his account. Indeed it’s not uncommon for cash and buying power to display negative after the first half of options are processed but before the second options are exercised—even if the portfolio remains positive.</i><p><i>“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.”</i><p>Am I reading this correctly and he really wasn&#x27;t in the hole badly, but a crappy presentation of information broke him?<p>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.<p>If you are the interface designer, well, I don&#x27;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.

This is really tragic. For one, he never ended up that much in the hole and two, even if one finds themselves bankrupt at 20, it&#x27;s not the end of the world, you simply file bankruptcy and it&#x27;s difficult to borrow money for the better part of a decade...but other than that your life goes on as normal. I opened a business at a young age and was bankrupt by the time I was 24. It was sad and painful, but it is far from tragedy or hopelessness.

Remember ~6 months ago, when RH had that little &quot;glitch&quot; that let traders access essentially unlimited leverage? Stuff like that is why RH is a meme, and options trading has become wallstreetbets favorite game. Its not like RH even makes it particularly easy to setup these kinds of trades, or has any useful tools that make it a better platform. If you want to setup a put spread, or an iron condor, or any other fancy options trading strategy on e-trade its a few clicks away. On RH? Not a chance, you&#x27;re going to have to build those strategies yourself, one leg at a time.<p>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.

For anyone who doesn&#x27;t understand what happened, he didn&#x27;t actually over 700k. He got assigned one side of a put spread which took his balance negative and it takes 24h to exercise the other side.<p>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&#x27;t settled yet.<p>While it&#x27;s easy to be mad at Robinhood and blame bad UI, I think it&#x27;s important to note, that every platform I&#x27;ve traded options on has displayed this situation in the exact same way. I&#x27;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&#x27;s UI. Additionally, the negative balance actually triggers the exercise of the second side of the spread, and there&#x27;s nothing that says the second side of the spread needs to be exercised if his balance was still positive. Because of that, it&#x27;s not possible (or doesn&#x27;t make sense) to just say something like, &quot;well if one side is exercised, just do the other right away&quot;. Maybe the UI could be improved, but unless a user fundamentally understands what is going on, you&#x27;re more than likely going to run confusing situations.<p>What I DO blame Robinhood is having pretty much no standard for who they give options trading to. It&#x27;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.<p>Again, I&#x27;m sure Robinhood isn&#x27;t alone in their lax policies around options account approval, but between the way they&#x27;ve built their platform to feel like a game, their targeting of younger investors, and the fact that &#x2F;r&#x2F;wallstreetbets talks about them constantly, they have become THE platform for investors who don&#x27;t fully know what they are doing and they need to take extra precautions to protect their users from themselves.

&gt; In fact a screenshot from Kearns’ mobile phone reveals that while his account had a negative $730,165 cash balance displayed in red, it may not have represented uncollateralized indebtedness at all, but rather his temporary balance until the stocks underlying his assigned options actually settled to his account.<p>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.

Okay look... it&#x27;s really terrible and robinhood can improve their interface. However, this kid also probably had some kind of anxiety problem. Most people in this situation would panic, but most would not take their own life. We cannot expect companies (or anyone) to insulate us from the realities of life.<p>The lesson of the story is ultimately that... if you can&#x27;t handle the heat, please, for the love of everything good, don&#x27;t enter the kitchen. Options are a gamble. Everyone knows that. It&#x27;s written in every article on options trading.

Not really a fan of RH at all, used it for a few months and the interface seemed &#x27;slick&#x27; but lacked detailed information I care about similar to schwab etc. I made one trade, then closed out the account. As for options I always felt like it was mostly gambling, serious long term investors should probably stay away unless they have a very detailed understanding of strike prices and all that goes into it. I would like to see a bit of training or a certification of understanding before anyone opens a margin account and starts trading options, as it seems irresponsible and scenarios like this will happen in the future.

Does anyone else think that in an awful way this story is incredible advertising for Robinhood? How many young people are going to read this story and think they can trade 730K on margin? If you’re already broke there isn’t much downside, but relatively unlimited upside.

Recently saw my main checking account show a negative balance, with lots of red all over the calendar for the coming week, after logging in some time before 7am. It created a major sense of &quot;OH SHIT&quot;, and took up a half hour of working and re-working out the ledger to come to my own conclusion that the web app was having some kind of problem. Logged in two hours later to confirm my math that everything was alright. So fucked up.

Very sad.<p>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 &quot;investing&quot; all they want, but it is clear that unlimited commission-free trading without any meaningful vetting encourages uninformed day trading.<p>The markets benefit from having a highly diverse set of entities, each with its own particular area of expertise that gets pooled together.<p>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.<p>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.

Poor kid. Even if the ending balance was -730K he could declare bankruptcy. Most college kids don&#x27;t have a lot of assets so it&#x27;s not like starting from 0 will set him back 10 years, although maybe his situation was different.<p>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?

Robinhood has had a lot of screwups lately. At what point are they legally liable? Are they not held to a higher standard of accountability than normal tech companies due to being a financial institution?

I remember the gate-keeping options questionnaire (SEC mandated?) from RH, comparing to E-Trade:<p>* 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.<p>Can RH be held liable for misrepresenting the regulations? This might have been settled without any loss of life.

Very tragic, but at the age of 20, it&#x27;s not like you have much capital as it is - one would declare bankruptcy and continue onwards. It&#x27;s not like Robinhood was going to send the mafia after his family if he didn&#x27;t come up with the money.

US casinos post signs warning about gambling addiction and and post phone numbers for 24&#x2F;7 help lines. Does this ethical obligation exist for trading apps as well?

<i>Kearns may not have realized that his negative cash balance displaying on his Robinhood homescreen was only temporary and would be corrected once the underlying stock was credited to his account. Indeed it’s not uncommon for cash and buying power to display negative after the first half of options are processed but before the second options are exercised—even if the portfolio remains positive.<p>“Tragically, I don’t even think he made that big of a mistake. This is an interface issue, they have slick interfaces.&quot;</i><p>I think this is the saddest part. This definitely is entirely Robinhood&#x27;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&#x27;m unsure what to really make of this tragic incident. Does the social factors in the US make bankruptcy an extreme embarrassment? Should someone not even at the legal drinking age be able of gambling to such a debt. One thing I&#x27;m certain is the US needs better social programs for young adults. Everyday I think the current generation of young adults are being robbed by the ones in power because nothing has positively changed in the past decades. We instead have increase in rent, homes, cost of food, requirement of university becoming the norm with insane tuition costs and while wages have typically stayed motionless.

This is sad. If the report is correct, Robinhood might be negligent here. I don&#x27;t know if there&#x27;s security law required, but Schwab has 4 levels of option tradings [0], and you&#x27;d need to apply and get approved. I&#x27;ve investing&#x2F;trading for more than 10 years now, but they&#x27;ve only given level 0, and rejected my level 1 application. It seems this guy&#x27;s trade is at level 2.<p>[0] <a href="https:&#x2F;&#x2F;help.streetsmart.schwab.com&#x2F;pro&#x2F;4.36&#x2F;Content&#x2F;Option_Approval_Levels.htm" rel="nofollow">https:&#x2F;&#x2F;help.streetsmart.schwab.com&#x2F;pro&#x2F;4.36&#x2F;Content&#x2F;Option_...</a>

I love options trading, but I used to work for an options exchange. I don&#x27;t write uncovered positions because I can&#x27;t afford the tail risk.<p>&#x2F;r&#x2F;wsb, on the other hand, loves tail risk, long or short. That subreddit needs to be shutdown by the SEC. It&#x27;s serving as an investment advisor for a significant number of young people, whether it masquerades as satire or not.

Tragic, and worse due to the misunderstanding.<p>Related: <a href="https:&#x2F;&#x2F;www.amazon.com&#x2F;Set-Phasers-Stun-Design-Technology&#x2F;dp&#x2F;0963617885" rel="nofollow">https:&#x2F;&#x2F;www.amazon.com&#x2F;Set-Phasers-Stun-Design-Technology&#x2F;dp...</a>

If he sold it the next trading day he would have 1-2 thousand of losses. The amount that was Negative is the temporary Balance when the stock was sold because of the put contract he sold, so he was obligated to buy it at that strike price.

What a senseless waste of life.

to avoid things like this, robinhood might be better off if it literally operated as a bucket shop. you take bets on stocks but don&#x27;t actually buy or sell them.

This is cherry-picked, emotional, and an anecdote.<p>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?<p>I guess I have a rather libertarian view on this, that it&#x27;s worse to outlaw the knife than for a fraction of knife users to accidentally cut themselves. That said, I&#x27;m entirely in support of more educational resources on the topic, but don&#x27;t hold anybody accountable for that.

&gt; <i>The note found on his computer by his parents on June 12, 2020, asked a simple question. “How was a 20 year old with no income able to get assigned almost a million dollars worth of leverage?”</i><p>Sounds like this guy wanted to kill himself regardless of any debts.