The instant death of a 20-year-old trader and alarm bells about online trading applications
The suicide of Alex Kearns, a 20-year-old trader who ended his life on the mistaken way of losing more than $ 700,000, has sparked calls for the need to reform online stock trading applications.
Alex Kearns is a normal 20 year old boy like everyone else. He played the trombone, was studying at the University of Nebraska, and like millions of other Americans, he started playing the stock market to kill time and make some money when the corona virus forced schools and offices to close. But unfortunately, his life ended in tragedy.
On June 12, Kearns committed suicide at his home in Naperville, Illinois after believing he had lost nearly $ 750,000 on a wrong bet. Kearns trades stocks on Robinhood, an online brokerage app that has become a symbol of the new era, the era of retail investors.
In a message left to his family, Kearns said that he "didn't know what he was doing" and had never intended to "go so deep in the risk". It was even more sad that Kearns was mistaken about the amount he would lose on options trading. He believes he has lost $ 730,165 but in fact his account is still positive $ 16,000.
This tragic attack clearly depicts the dark corner of the recent investment craze and the sad shadow behind the attractive offers offered by e-brokers. to attract investors like free trades, options contracts, low interest loans or maybe buying a small portion of a stock. Observers worry that these e-brokers will make stock trading like a video-game, with flashing screens constantly updating profit and loss and virtual craze generated by social media. festival.
Number of new accounts opened monthly of 3 online trading software Schwab, E-Trade and Interactive Brokers (in units of thousands). Source: Financial Times.
"The deeper I dig, the angrier I feel," said Bill Brewster, an analyst at Sullimar Capital and a relative of Kearns.
Only in the first quarter Robinhood had 3 million new users, bringing the total number of users to over 13 million. Schwab, Etrade and Interactive Brokers together added 1.5 million new accounts in the first 5 months of 2020, nearly double the same period in 2019. TD Ameritrade also had 500,000 new accounts opened in the first quarter, which is much higher 3 times the same period last year.
Following the death of Kearns, Vlad Tenev and Baiji Bhatt, 2 co-founders of Robinhood, pledged to add knowledge resources related to options trading and to modify the application to Show more clearly how much a user could lose while executing this type of transaction. Obinhood also promises to increase the criteria applicable to customers who want to trade complicated options contracts.
The Icarus wings
At the 2019 annual shareholder meeting of the Daily Journal publisher, Berkshire Hathaway Vice President Charlie Munger once commented on day traders and the factors that made this group of investors emerge as 1 wave. "I think it's like trying to lure young young people into drug addiction. Really stupid."
Munger's comparison is not too far-fetched. Research by neuroscientist Hans Breiter shows that when a person is dazzled by the prospect of making a lot of money, their brain is stimulated in the same part as when using cocaine. And the online trading applications create even more powerful effects.
The eye-catching colors and smooth interface of Robinhood application together with the call for users to "upgrade with options trading" is a big step up from old websites like Etrade and Charles Schwab. New users will be given a free share (usually under $ 10) to start, and when the user makes the first transaction on the screen, there are words of encouragement.
"Video games and day trading are becoming more and more similar," said Andrew Lo, professor of finance at MIT. "For many gamers, especially young people who are new to the stock exchange and do not fully understand the effects of losing and winning on psychology, they will face quite dire consequences. ".
According to research by Professor Lo, fear, insecurity, regret, anxiety and disappointment, and even post-traumatic stress disorder are the psychological consequences that people lose when they first step. wet feet dry entering the market may encounter.
Previously, the process of registering to open an account to play securities online was quite complicated and time consuming. But today because of the development of technology, in the US the process only takes a few minutes and after 1 day investors can freely trade. To be able to trade more complex assets or borrow money from a broker, it takes longer for an investor.
For example, an investor on Robinhood can subscribe to a $ 5 / month fee "gold" tier after the 30-day trial expires. Gold grade allows investors t
Alex Kearns is a normal 20 year old boy like everyone else. He played the trombone, was studying at the University of Nebraska, and like millions of other Americans, he started playing the stock market to kill time and make some money when the corona virus forced schools and offices to close. But unfortunately, his life ended in tragedy.
On June 12, Kearns committed suicide at his home in Naperville, Illinois after believing he had lost nearly $ 750,000 on a wrong bet. Kearns trades stocks on Robinhood, an online brokerage app that has become a symbol of the new era, the era of retail investors.
In a message left to his family, Kearns said that he "didn't know what he was doing" and had never intended to "go so deep in the risk". It was even more sad that Kearns was mistaken about the amount he would lose on options trading. He believes he has lost $ 730,165 but in fact his account is still positive $ 16,000.
This tragic attack clearly depicts the dark corner of the recent investment craze and the sad shadow behind the attractive offers offered by e-brokers. to attract investors like free trades, options contracts, low interest loans or maybe buying a small portion of a stock. Observers worry that these e-brokers will make stock trading like a video-game, with flashing screens constantly updating profit and loss and virtual craze generated by social media. festival.
Number of new accounts opened monthly of 3 online trading software Schwab, E-Trade and Interactive Brokers (in units of thousands). Source: Financial Times.
"The deeper I dig, the angrier I feel," said Bill Brewster, an analyst at Sullimar Capital and a relative of Kearns.
Only in the first quarter Robinhood had 3 million new users, bringing the total number of users to over 13 million. Schwab, Etrade and Interactive Brokers together added 1.5 million new accounts in the first 5 months of 2020, nearly double the same period in 2019. TD Ameritrade also had 500,000 new accounts opened in the first quarter, which is much higher 3 times the same period last year.
Following the death of Kearns, Vlad Tenev and Baiji Bhatt, 2 co-founders of Robinhood, pledged to add knowledge resources related to options trading and to modify the application to Show more clearly how much a user could lose while executing this type of transaction. Obinhood also promises to increase the criteria applicable to customers who want to trade complicated options contracts.
The Icarus wings
At the 2019 annual shareholder meeting of the Daily Journal publisher, Berkshire Hathaway Vice President Charlie Munger once commented on day traders and the factors that made this group of investors emerge as 1 wave. "I think it's like trying to lure young young people into drug addiction. Really stupid."
Munger's comparison is not too far-fetched. Research by neuroscientist Hans Breiter shows that when a person is dazzled by the prospect of making a lot of money, their brain is stimulated in the same part as when using cocaine. And the online trading applications create even more powerful effects.
The eye-catching colors and smooth interface of Robinhood application together with the call for users to "upgrade with options trading" is a big step up from old websites like Etrade and Charles Schwab. New users will be given a free share (usually under $ 10) to start, and when the user makes the first transaction on the screen, there are words of encouragement.
"Video games and day trading are becoming more and more similar," said Andrew Lo, professor of finance at MIT. "For many gamers, especially young people who are new to the stock exchange and do not fully understand the effects of losing and winning on psychology, they will face quite dire consequences. ".
According to research by Professor Lo, fear, insecurity, regret, anxiety and disappointment, and even post-traumatic stress disorder are the psychological consequences that people lose when they first step. wet feet dry entering the market may encounter.
Previously, the process of registering to open an account to play securities online was quite complicated and time consuming. But today because of the development of technology, in the US the process only takes a few minutes and after 1 day investors can freely trade. To be able to trade more complex assets or borrow money from a broker, it takes longer for an investor.
For example, an investor on Robinhood can subscribe to a $ 5 / month fee "gold" tier after the 30-day trial expires. Gold grade allows investors t