Robinhood 20yo trader with no income loses 700k on options, takes life • Hacker News Board

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#121

Post by logicchains » Mon, Jun 15, 2020, 5:07 AM UTC

Ghjklov wrote: post #107

nostrademons wrote: post #102

Earlier quoted context omitted.

There are firms that do exactly this. Robinhood's business model is to sell the order-flow data of its users to HFT hedge funds, who then take the opposite side of the trade. It's proven very profitable both for Robinhood and for funds that do this.

Why is that okay for them to do that? Genuinely curious.

It gives the retailers a better price. The HFTs can quote more tightly (offer smaller spreads) in their dark pools, because they know some large, well-informed hedge fund isn't going to come along and roll them over.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#122

Post by lazylizard » Mon, Jun 15, 2020, 5:22 AM UTC

sytelus wrote: post #83

nine_k wrote: post #15

Imagine: "A 20 yo runs across highway in heavy truck traffic, dies". Well, yes. There is an obvious risk, and you either acknowledge this risk and act accordingly, or get struck. Fortunately, if you do a very bad investment, you can sell all your assets, go bankrupt, and keep your life. Too bad the poor guy chose to take his life. But this again looks like not doing enough homework. This is very sad. I wish these thi…

I think every high school student should have one day class dedicated on following topics and so many lives would be saved: 1. Folies of investments, how you can lose everything. 2. Folies of marriages, divorce laws and how you can lose everything. 3. Folies of gambling in casinos and how you can lose everything. 4. Folies of alcohol, tobacco and other soft drugs and how you can lose everything. Each of these class s…

They already teach math...

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#123

Post by klyrs » Mon, Jun 15, 2020, 5:28 AM UTC

nine_k wrote: post #74

smabie wrote: post #65

Earlier quoted context omitted.

The efficient market hypothesis says otherwise. If it was easier to lose money (ignoring trading costs and spreads) than it was to make money, I could easily beat the market by doing the opposite of the average joe loser.

That could also be problematic: you mighth need to know what the average joe loser does instantly, or maybe even before the fact, to turn an actual profit. Though doing the contrarian move is sort of common wisdom: "sell when everyone is buying, buy when everyone is selling", of course if you understand what to sell/buy in either case.

> you mighth need to know what the average joe loser does instantly, or maybe even before the fact, to turn an actual profit.

As in, run a day trading service and analyze anonymized trading data?

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#124

Post by metrokoi » Mon, Jun 15, 2020, 5:28 AM UTC

MattGaiser wrote: post #109

nnoitra wrote: post #88

Earlier quoted context omitted.

And when he doesn't pay back?

They charge such absurd interest that it doesn't matter as they can just repo it.

That would likely take much longer to default on a loan or loans and owe 700k worth in deficiency than it took this unfortunate kid to lose the same amount even if you were trying, and arguably much harder to find those sketchy mortgage brokers and auto houses than downloading an app and making a few bad trades. A loan on a car or house isn't the same as owing 700k to Robinhood, there's nothing to repossess.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#125

Post by toast0 » Mon, Jun 15, 2020, 5:31 AM UTC

hetman wrote: post #95

nine_k wrote: post #74

Earlier quoted context omitted.

That could also be problematic: you mighth need to know what the average joe loser does instantly, or maybe even before the fact, to turn an actual profit. Though doing the contrarian move is sort of common wisdom: "sell when everyone is buying, buy when everyone is selling", of course if you understand what to sell/buy in either case.

I think you're right. By the time you know what everyone is buying/selling with any certainty, the boat has already sailed.

I mean, if you just want to be contrarian, watch your holdings for what's going up over whatever period, and sell that --- that's what everyone is buying.

Look over the whole market for whst is going down, and buy that, that's what everyone is selling. Every finance information outlet ever tells you the day/month/year's biggest winners and losers, and most people aren't watching that and taking the contrarian position, or the winners and losers would be pretty boring.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#126

Post by konamicode » Mon, Jun 15, 2020, 5:33 AM UTC

nostrademons wrote: post #113

Ghjklov wrote: post #107

Earlier quoted context omitted.

Why is that okay for them to do that? Genuinely curious.

It's a dark pattern, but there's nothing illegal about it. Their privacy policy states "We may also share information with others in an aggregated or otherwise anonymized form that does not reasonably identify you directly as an individual." Knowing that there exists someone who is about to buy TSLA does not identify that person, and yet is still incredibly useful to a market-maker. Selling data you've collected (wit…

If I am a Robinhood customer who is investing for the long term instead of day trading - should I care?

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#127

Post by opportune » Mon, Jun 15, 2020, 5:40 AM UTC

Apocryphon wrote: post #105

sytelus wrote: post #83

Earlier quoted context omitted.

I think every high school student should have one day class dedicated on following topics and so many lives would be saved: 1. Folies of investments, how you can lose everything. 2. Folies of marriages, divorce laws and how you can lose everything. 3. Folies of gambling in casinos and how you can lose everything. 4. Folies of alcohol, tobacco and other soft drugs and how you can lose everything. Each of these class s…

Ideally, it would be great for a country to have systems in place so that the worst you can possibly lose is less than everything.

That would definitely fuck up the housing market for starters.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#128

Post by chii » Mon, Jun 15, 2020, 5:46 AM UTC

arminiusreturns wrote: post #94

adsfgnionio wrote: post #52

Earlier quoted context omitted.

>he'd be celebrated as a hero who beat the market at such a young age He'd be a lucky fool in my book. This sort of trading is gambling, pure and simple. Winning doesn't retroactively make it a good decision to play.

The entire financial market is gambling, it's just a matter of degree of risk, and the higher the risk the higher possible return. People need to stop fooling themselves otherwise.

investing in a business (buying stocks) is not the same as speculating. Options trading is speculative in nature, because for someone to "win", someone else has to lose.

That is not the case for stock purchases - the stock appreciates in value because the business it represents appreciated in value.

Just because something has risk, doesn't automatically make it gambling.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#129

Post by BeeOnRope » Mon, Jun 15, 2020, 5:47 AM UTC

AlchemistCamp wrote: post #104

smabie wrote: post #65

Earlier quoted context omitted.

The efficient market hypothesis says otherwise. If it was easier to lose money (ignoring trading costs and spreads) than it was to make money, I could easily beat the market by doing the opposite of the average joe loser.

The efficient market hypothesis says nothing of the sort. Upside and downside with options aren't symmetrical. Unlike when purchasing long positions in stocks, when trading options it's possible to lose many times more money than you initially put in. You also really can't ignore the spreads. Market makers win pretty consistently and everyone else is playing a worse than zero-sum game.

They are symmetric in the sense that you can both buy and sell options, so whatever payoff curve you get e.g., by buying an option (say unlimited downside and fixed upside) you can sell the same option to get the mirrored outcome (unlimited upside, fixed downside).

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#130

Post by chii » Mon, Jun 15, 2020, 5:48 AM UTC

wpietri wrote: post #64

amiga_500 wrote: post #56

Earlier quoted context omitted.

People "made" 700k for him to lose it, less fees. Because speculative trading is a zero sum game, it creates no wealth. And no, this isn't wheat farmers hedging bad weather.

Yeah, I think fees and externalities mean that speculation is a negative-sum game. I used to work for financial traders, but I quit that industry because I decided it was, however lucrative, a net societal negative.

speculating is not a net societal negative - it allows one party to trade the risk away.

But of course, the same instrument can be abused by gamblers. But it's not the instrument itself that's the problem - it's that there are people gambling with money they can't lose.