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

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

#141

Post by chii »

JKCalhoun wrote: post #48
nine_k wrote: post #37

Earlier quoted context omitted.

Please notice how highways are full of warning signs and barriers that prevent you from accidentally running across them. Same with construction sites, or heavy industrial plants. Maybe other risky places should have more warning signs, so that an optimistic 20-yo would have to stop and think before acting.

So if there are warning signs you're okay with allowing someone with no income to leverage to the tune of $700K? I think this is the basis for the accusation of tone-deafness.

> no income to leverage to the tune of $700K?

if robinhood is willing to take on the risk of a counterparty bankruptcy, i don't see why not. Robinhood is on the hook for lending the margin, not the boy.

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

#142

Post by pnako »

smabie wrote: post #65
bryananderson wrote: post #46

Earlier quoted context omitted.

There is not an equal probability of a day trader making 700k and losing 700k trading options. Market makers won’t demonize day trading—the “new blood” are their best marks.

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.

It's trivial to lose money by trading outside of the efficient frontier.

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

#143

Post by toast0 »

konamicode wrote: post #126
nostrademons wrote: post #113

Earlier quoted context omitted.

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?

No for a few reasons.

All the other major retail brokerages do this, unless they allow you to provide specific routing instructions (which usually comes at a cost, but I haven't checked lately). Everybody's doing it doesn't make it right, but it makes it unavoidable.

It's actually usually good for you --- your brokerage has a duty of 'best execution', so they can only route your trades to the HFT when the quotes are the same or better and they expect the HFT trade to complete as well as if they routed it to the other market. Often that means you'll get a better price, or more likelyhood of a complete trade, but some tradea might have executed better at another venue.

There's much bigger things to care about, like your brokerage's track record of availability or lack thereof during the trading day, how confusing their UI is for the things you want to do, if their means of access work with you (some people want local offices, which excludes some brokerages), fees and charges for services, including hidden fees like below market interest on deposits or above market interests on margin loans (but please don't have margin loans, cause it's usually a bad idea), etc.

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

#144

Post by ohyes »

smabie wrote: post #65
bryananderson wrote: post #46

Earlier quoted context omitted.

There is not an equal probability of a day trader making 700k and losing 700k trading options. Market makers won’t demonize day trading—the “new blood” are their best marks.

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 warren buffets and medallion funds of the world have much better information and resources that Joe Loser. EMH just says that all the publicly known information is priced in almost instantaneously... It doesn't say much about how that profit from those price changes are distributed. It also says nothing about non public information. Unfortunately you're competing with a bunch of motivated people who have access and analysis techniques that you simply do not have, and this data gets priced in by them exploiting their information and analysis to make trades which alter the price of the market to represent the true value.

In a very roundabout way, EMH says, people with access to information will perform arbitrage trades based on that information as soon as it is available. If you are not those people, you will just have to ride the rising market.

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

#145

Post by frank2 »

chii wrote: post #128
arminiusreturns wrote: post #94

Earlier quoted context omitted.

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.

>for someone to "win", someone else has to lose

Not necessarily: farmers use options as a kind of "price insurance" to insulate themselves from changes in the price of their crop between now and when they are ready to sell it.

Yes, for one party in an options trade to gain X dollars the other party must lose X dollars, but both parties can gain in what the economists and decision theorists call expected utility.

We have all heard the saying that after a person's income reaches $80,000 or so per year, further increases in income don't improve happiness as much as the previous increases. In other words, a person's utility function is not a linear function of income, but rather the curve flattens out a little after about $80,000 a year.

Similarly, just because an options trade is zero-sum in dollars doesn't mean it is zero-sum in the utility conferred on the two parties to the trade.

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

#146

Post by BoorishBears »

BoorishBears wrote: post #57
Ghjklov wrote: post #17

On the flip side, if this trader instead made 700k on options, he'd be celebrated as a hero who beat the market at such a young age and Robinhood would be an empowering role in elevating the young and disenfranchised. That is just the reality of the market. I hope this is not setting up so that the powers that be, and the market makers can demonize trading and then regulate away all the new blood who wants to get in…

Robinhood is such an ironic name for the app. The elephant in the room is, the people who Robinhood is supposedly letting buy into a vast money fountain that is the stock market already had a way to get in. The fees that other brokorages were charging shouldn't have mattered if these people were investing in the only responsible way for someone who doesn't know what they're doing... and that's buying into an index fu…

I suspect part of why this comment is apparently ruffling some feathers is this idea that there's just this magical market that all the old money is guarding people away from with PDT restrictions and "accredited investor" status.

I don't buy it. I believe the reason we still have accredited investors is because Uncle Sam wants to make sure you at least have 1 million dollars of assets to have liquidated if you go bust.

I have never seen a truly lucrative market that consistently beats just sticking your money in an index fund that's locked away behind being Rule 501 qualified unless you literally just have millions of dollars sitting around and don't mind throwing away half a million on some high risk venture knowing it can blow up at any time.

Also Robinhood is disgusting, I explain more in my other comment, but people are now coming out and saying this kid didn't even owe the money that he was shown, there's a known issue with Robinhood's handling of multi-leg options that might have bit him:

https://www.reddit.com/r/wallstreetbets/comments/h97l9z/how_...

This kind of bullshit is why Robinhood is such a ridiculous proposition. It's giving someone access to a flaming ring of death, then giving them a rusted out bicycle to ride through it, and acting like you did them some great favor by letting them access the flaming ring of death because some other people in full gear on motorcycles do it all the time.

Robinhood as a broker has serious flaws (I wonder if they patched the bug that let literally anyone get infinite amounts of leverage through their app?), constantly breaking during periods of high volatility, misrepresenting risk, having terrible fills for options and stocks, not showing extremely important information on options up front just to make it "easier" for people. You add all this up with who it's targeting and it's sickening.

This won't be the last time this happens.

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

#147

Post by [deleted] »

chii wrote: post #141
JKCalhoun wrote: post #48

Earlier quoted context omitted.

So if there are warning signs you're okay with allowing someone with no income to leverage to the tune of $700K? I think this is the basis for the accusation of tone-deafness.

> no income to leverage to the tune of $700K? if robinhood is willing to take on the risk of a counterparty bankruptcy, i don't see why not. Robinhood is on the hook for lending the margin, not the boy.

[deleted]

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

#148

Post by webmaven »

hcknwscommenter wrote: post #134
klyrs wrote: post #123

Earlier quoted context omitted.

> 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?

There was an SEC enforcement action a few years ago where they went against a platform trading company that catered to especially unsophisticated and risk taking clientele. They never actually put on any of the trades their clients were "making." They just pocketed the money and when the clients inevitably lost it all, the outcome was the same for the client.

> They never actually put on any of the trades their clients were "making." They just pocketed the money and when the clients inevitably lost it all, the outcome was the same for the client.

Whoa. That is so elegant in it's simplicity. Evil, certainly, but elegant.

And now I'm imagining more elaborate versions that incorporate the Baltimore Stockbroker scam to convince the clients to invest (and lose) even more money...

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

#149

Post by mam2 »

X-Istence wrote: post #81
james412 wrote: post #19

Earlier quoted context omitted.

Robin Hood has various tricks allowing your buying power to be inflated artificially, there have been a bunch of reports about it. It also appears RH users get margin accounts by default, at least from everything I've read. If that's true, it's probably the real problem. In the EU retail traders are permitted access to margin, but brokers are required to eat any loss exceeding the value of the account. It's not enoug…

> It also appears RH users get margin accounts by default, at least from everything I've read. If that's true, it's probably the real problem. No, you have to explicitly opt-in to it.

Nope

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

#150

Post by dx034 »

frank2 wrote: post #145
chii wrote: post #128

Earlier quoted context omitted.

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.

>for someone to "win", someone else has to lose Not necessarily: farmers use options as a kind of "price insurance" to insulate themselves from changes in the price of their crop between now and when they are ready to sell it. Yes, for one party in an options trade to gain X dollars the other party must lose X dollars, but both parties can gain in what the economists and decision theorists call expected utility. We h…

Same with airlines, hedging oil prices via futures and options is incredibly important for them to be able to price out flights a year in advance.

But that doesn't explain why a 20 year old with no income should have access to these instruments. There's a reason most banks wouldn't allow that, in the end the platform probably has to cough up the money.

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