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Robinhood Trader Panics – Commits Suidcide

by | Jun 20, 2020 | Day Trading, Trading E-Minis

Why A Trading Education is Mandatory

“An investment in knowledge pays the best interest” – Benjamin Franklin

Trading is an effective way to make money, but like anything else, a wanna-be trader must know what they are doing. That is so sensible, but it is truly astounding that so many new traders simply open a trading account and throw their money at the market, hoping for a big profit. Unfortunately for some, just the opposite happens and they lose their money and give up.

The subject of my post is a case in point:

Today, while reading the financial news this morning, this headline caught my eye:

“Apparent suicide by 20-year-old Robinhood trader who saw a negative $730,000 balance prompts app to make changes”

As I read the article, I was stunned. A young man who was trading on the commission-free app “Robinhood” had taken his own life when he logged onto the app and saw that his account showed he had a negative balance of -$730,000. How can a 20-year old kid, a kid with little or no trading experience, come to lose so much money?

Alexander Kearns, the young man who was the subject in the article, was apparently one of the millions of new traders on Robinhood who thought to make a “killing” in the market. He was trading options at the time of his death, and was in dispair when he logged in to his Robinhood account and saw the huge negative number, but not realizing that the other side of the trade hadn’t executed. 

Kearns left behind a note before he died, which indicated he was distraught and confused over his Robinhood account.
“How was a 20-year-old with no income able to get assigned almost a million dollars’ worth of leverage?” Kearns wrote in the note that his cousin Bill Brewster posted. “The puts I bought/sold should have canceled out, too, but I also have no clue what I was doing now in hindsight.”
This was a tragedy because Alexander didn’t understand the account balance his account was showing him. He was trading straddles – puts and calls and the balance he saw in his account was not an actual loss, as the other side of the trade hadn’t executed (or wasn’t reflected in his account). That means that the -$730,000 he saw as the value of his account was not the actual account value, as it hadn’t registered the offset of the other side of the trade.
There’s no doubt it would have been a far more palatable loss or even a profit. I can’t say because I haven’t read further about this poor young man and the details of his trade, but it matters not because his life is over, needlessly, because he didn’t know what he was doing.
“The kid threw himself in front of a train over nothing, because a tech company can’t figure out they shouldn’t show a negative $730,000 cash balance to a 20-year-old kid,” Brewster said.
It’s so crucial that anyone who attempts to engage in trading as a means of making money doesn’t trade real money without a solid education in trading methods. It’s also crucial to know the mechanics of trading: how the markets work, how the platform works, and, in the case of options &  straddles, to know how to read the value of their account as trades are executed and are reflected in interpreting the account balance.
Personally, I’ve never traded options, but as an E-mini trader for nearly 20 years, I say with complete assurance that risk management is the key to making money as a day trader. In fact, I consider risk management to be so important that I authored a free course on risk management and how to trade successfully by gauging the risk inherent in every trade before actually putting on the trade.
I sincerely hope that everyone who is a novice trader takes the time to educate themselves on trading techniques and risk management. It’s too late for this young man but if one other trader is saved from making a similar mistake after hearing of Alexander’s death, then his death will have served as a lesson for others to get well-educated before risking money in the markets.
How To Avoid Costly Trading Mistakes

Learn a skill that will enable you to make money for the rest of your life. Learn to trade! Yes, trading can be learned, like anything else, except that it’s the most valuable skill of all because it can support a person forever, without having to depend on a job or a paycheck. Traders can make enough money in just a few hours a day to live comfortably. Become financially independent and live without fear of running out of money.

Don't Make These Common Trading Mistakes

Most new traders make a variety of mistakes but a few of them are fairly common. The first thing newbie traders should do when they are learning about trading is to recognize what these mistakes are so that they can be avoided.

Unfortunately, Alexander didn’t bother taking the time to learn how to trade, and it cost him his life. His case is extreme of course, but still, it resulted from his having made a very basic trading error and one that could have easily been avoided had he taken the time to learn.

How To Avoid Costly Trading Mistakes