Robinhood Trader Commits Suicide, What Happened?
I want to start out by saying what a shame it is that this happened. When I first read the headline Robinhood Trader Commits Suicide, I instantly had a feeling that it had something to do with a huge loss, and that it probably involved margins or options, as this is pretty much the only way that one can get a negative balance in a brokerage account. To my non surprise, it looks like options and derivatives trading were clearly involved with this 20 year old kids suicide, in that this is how he ended up showing a negative $750,000 balance on his stock trading account, (Negative $730,000 to be exact.) Alexander Kearns, the name of the deceased, was trading with complex options and derivatives instruments, and the sad thing is that if he had exercised his current options positions, he may’ve been close to breaking even on the matter. It appears that the majority of this was a case of a misunderstanding, some bad luck, and probably some bad financial regulations. For more information, read on or subscribe to our blog for additional details and information.
Here are some of the things that I think will come of this kids suicide:
Derivative Instruments will be more tightly regulated
The general public may lose access to options
Options will get more expensive
Derivatives will be reserved only for experienced institutions
There will be tries to get rid of derivatives all together
Greater terms and conditions on brokerage accounts
This will serve as a lesson to other millennial traders
As much as I would like to say that we need tighter regulations in brokerage accounts etc. As someone who has worked in wealth management for years opening all different types of complex brokerage accounts for people, I can tell you that the regulations are there, and that in fact they may actually be too strict. The simple reality of the matter is that the regulations surrounding finance are now so strict, that in order to follow some rules, you have to break other rules, in that you find yourself in catch 22 positions all the time, sometimes to the point that you can’t even get some retail clients brokerage accounts without a seriously ridiculous amount of information about them. And by the way you can read a more detailed story of exactly what happened right here, be warned, it is sad indeed.
Why I Think Derivatives Only Should Be More Tightly Regulated, Why The “Robinhood Trader Commits Suicide” Headline is an Absolute Disaster
So, I don’t necessarily think that the entire financial industry should have more regulations, in that this actually hurts retail clients, from what I can tell, more often than it helps them, in that they aren’t able to get their money as fast, and due to the fact that all these regulations slow the process down so much that it is ridiculous. And while it looks good on the surface to say regulate the banks even more, the fact of the matter is they are so tightly regulated, and in fact I think probably too regulated, to the point where it is sometimes impossible to get anything done (now this is not always the case on every single event that happens, but 80 to 90% of the time, yes.)
Why Derivatives Aren’t The Easiest Thing to Regulate
Derivatives, are really even harder to regulate than your run of the mill brokerage accounts at say UBS or Morgan Stanley also, in that they run on a publicly traded, free, open and secondary market. Consider that as options trades, futures markets, or margin accounts become more and more regulated, that you are hurting everyday investors, and that you are poking holes in the economy, thereby hurting the job market for everyone. With all this being said, I think that RobinHood should have stricter regulations regarding who should have a margin or an options account. There need to be minimum income and educational requirements for anyone to own an options or a margin account. I think a few things should be needed in order for someone to be able to trade on derivatives:
- Minimum income of $50,000 per year, no ands ifs or buts
- Minimum age of 25 years old
- Must take and pass the Securities Industry Essentials and Exam in order to be eligible to trade in options (this would educate trader more, would deter those who are not educated as much as they should be, and would provide additional revenue for FINRA to help them regulate the derivatives industry more.)
^^I think that is probably the best of both worlds, you keep derivatives markets in play for those who are serious about it, and either weed out or educate the ones who are not. Whether or not something like this will happen however remains to be seen, only time will tell.
Final Thoughts on What Changes Will Come Of This RobinHood Traders Suicide
What do you think about this horrible RobinHood trading scandal, and do you see the Options markets getting more regulated in the future? Leave us a comment and let us know what you think, and remember to subscribe.
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