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Home / Business / New investors face high risks as much as the stock market: NPR

New investors face high risks as much as the stock market: NPR



Trading stocks has become easier and cheaper than ever. But have places like Robinhood become too risky for inexperienced investors?

Jim Watson / AFP via Getty Images


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Jim Watson / AFP via Getty Images

Trading stocks has become easier and cheaper than ever. But have places like Robinhood become too risky for inexperienced investors?

Jim Watson / AFP via Getty Images

Stuck at home this spring, University of Nebraska student Alexander Kearns spent his spare hours buying and selling stocks online, learning as much as he could to invest.

“He looked like a kid who was really, really excited when he was studying something he found interesting,” says Bill Brewster, his cousin from the marriage.

What no one knew was that Kearns had made trading opportunities on a popular app called Robinhood, and at one point seemed to have mistakenly concluded that he had lost more than $ 730,000.

“How was a 20-year-old with no income able to get leverage worth nearly a million dollars?” Kearns wrote in a note found after his June 12 suicide. “… I also have no clue what I was doing now under supervision.”

With so many people stranded at home during the coronavirus pandemic, millions of Americans have turned to stock investments in recent months, lured by the advent of free trade. Online brokers like TD Ameritrade, Schwab and Fidelity have reported an increase in customer accounts.

Robinhood alone saw that its customer base grew from 10 million to 13 million during the first four months of 2020, an unprecedented increase far from what the company expected.

With an average age of 33, many Robinhood users are much younger than traditional stock investors, and critics say the app seems too designed to appeal to an adult generation in online gaming.

“Once you do a trade, they encourage you to do it. They light candies. It’s almost like a video game when you get to the next level. It’s all playing on the endorphins you get from trading.” says Timothy Welsh, president and CEO of Nexis Strategy, a consultant in the asset management industry.

Robinhood is also accessible to people without much money to spend. Users get a free share of the stock when they sign up, and if you can’t afford to buy a portion of an expensive stock like Apple or Tesla, Robinhood lets you buy a portion of one.

University of Southern California student Alexander Fox has used the app to trade small amounts of stock since high school.

“It started because a lot of other friends were in it. So I went in for it,” he says.

He and his friends have learned a lot from what they know about investing from videos and YouTube sites, he says. He now makes his own videos about trading.

A big Warren Buffett fan, Fox is wary of buying only shares of companies he believes will have long-term value.

But Jacqueline Prester, who teaches financial education classes to high school students in Mansfield, Mass., Says young people should not invest real money.

Prester has its students play a simulated game in the counterfeit stock market and has seen first hand how fiery trading can be for them.

“It can be problematic and it can be similar to gambling. And I think that’s where a lot of students get themselves in trouble,” she says.

In fact, apps like Robinhood can be even more risky than gambling because they allow users to engage in margin trading, a form of investment using borrowed money that can quickly lead to steep losses, critics say. .

Robinhood officials declined to comment on the story. But in the days after Kearns’s suicide, they took steps to add more customer service agents and redesign the app interface in ways that would make it easier to understand options trading.

“It is not lost on us that our company and our service have become synonymous with retail investment in America, and that this has led to millions of new investors making their first investments through Robinhood,” Vlad Tenev and Baiju Bhatt. co-founders, said in a statement.

Company officials also reject the notion that the app encourages new traders to take risks. Because Robinhood was designed to be easy to use, it is demystifying the investment world and opening Wall Street to inexperienced investors, the company says.

Bloomberg columnist Nir Kaissar agrees that the company could tone down some aspects like the app casino. But he is also a Robinhood advocate, saying he is democratizing stock trading.

“One of the things I love about Robinhood is that it has attracted millions of new people to the market,” he says. “If we want people to be more careful about personal finances and investments – and I think we generally say we do – then I think they should have the experience of being an investor. I do not think these are things you can necessarily learn only in a textbook. “

The risk is that investors may not always understand the risks they take, and this may determine a much heavier amount than they are prepared for.

If you or someone you know can think of suicide, contact National Suicide Prevention Rule in 1-800-273-8255 (In Spanish: 1-888-628-9454; The Deaf and the Deaf: 1-800-799-4889) or Crisis text line by texting HOME to 741741.


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