Alexander Kearns suicide: Naperville, Illinois 20 year old kills self after seeing negative $730,165 on his Robinhood stock trading app account.
A 20 year old Nebraska college student killed himself after seeing a negative cash balance of $730,165 in his account on the Robinhood stock trading app.
Alexander E. Kearns, 20, died on Friday after hurling himself in front of an oncoming freight train in his home town of Naperville, Illinois in an apparent suicide.
‘How was a 20 year old with no income able to get assigned almost a million dollar’s worth of leverage?’ the note reads. ‘A painful lesson. F**k Robinhood.’
Although the details of Kearns’ trades have not been made public, it’s though that the college student’s negative account balance was merely a temporary glitch, and he was not in fact $730,000 in debt as he believed.
From his note, Kearns appears to have been using what’s known as a ‘bull put spread,’ a strategy that limits risk for a trader by both buying and selling put options at different exercise strike prices.
It’s likely that the negative balance appeared in Kearns’ account only temporarily, as one half of the trade settled before the other did.
Told Robinhood via Forbes: ‘All of us at Robinhood are deeply saddened to hear this terrible news and we reached out to share our condolences with the family over the weekend.’
The company declined to share details of Kearns’ trades, citing privacy concerns.
Trading made to look like child’s play or gaming?
According to his family, Kearns had only recently started trading as an antidote to boredom during the coronavirus pandemic, and was enthusiastic as he learned more about the markets and different trading strategies.
‘When he saw that $730,000 number as a negative, he thought that he had blown up his entire future,’ Brewster told Forbes. ‘I mean this is a kid that when he was younger was so conscious about savings.’
Brewster said he hopes to educate the public and push Robinhood to make changes to its interface to avoid future tragedy.
Sorry for your loss. This happened to me when I first started trading options and woke up to -35k after requesting margin be taken away. I knew it wasn’t real, but I called my broker and emphasized that people take their lives over debt less than this. Sad to see it occur.
— Joe (@DIAmondntheQQQs) June 17, 2020
The rise in popularity of trading apps and waiting profits….
‘Tragically, I don’t even think he made that big of a mistake. This is an interface issue, they have slick interfaces. Confetti popping everywhere,’ Brewster told Forbes, referring to the shower of colorful confetti Robinhood displays when cash is deposited into an account.
‘They try to gamify trading and couch it as investment,’ he said.
Since launching in 2013, Robinhood has exploded in popularity, attracting 13 million users with a median age of 31.
The app, which is commission-free, has pushed traditional brokerages such as Charles Shwab and Merrill Lynch to offer free online trading in order to compete.
Robinhood and similar offerings make it easy to get involved in trading options, which are agreements to buy or sell blocks of stock at a certain price by a certain date.
Options trading can be lucrative, but entails degrees of risk especially to the uninitiated who may not fully understand how such trading strategies work. Had Kearns been cognizant that a put spread entails limited risk he would have realized the numbers as it appeared were indeed not correct and most likely only one side of the equation.
Unlike trading stock, in which it is impossible to lose more money than you initially invest, in certain situations options trading can expose the trader to losing a theoretically infinite amount of money. Having said that, borrowing vast funds to service bets can also lead to overall market declines if markets turn and there is a lack of credit — causing a stampede exit crises.
‘The markets are bananas right now. It’s not the time for amateurs,’ warned Brewster, an analyst at Chicago-based Sullimar Capital Group, in a tweet the dailymail reports.
‘Really really pay attention to position sizing. Stay away from exotic instruments like options and futures.’
Visitation for Kearns is scheduled for Friday at Beidelman-Kunsch Funeral Homes & Crematory in Naperville.
In lieu of flowers, his family requests that donations be made in his name to the American Foundation for Suicide Prevention.