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Home / Business / Young investors face high risks as more people flock to stock trading: NPR

Young investors face high risks as more people flock to stock trading: NPR



Stock trading is easier and cheaper than ever. But do venues like Robinhood make it too risky for inexperienced investors?

Jim Watson / AFP via Getty Images


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Jim Watson / AFP via Getty Images

Stock trading is easier and cheaper than ever. But do places like Robinhood make it too risky for inexperienced investors?

Jim Watson / AFP via Getty Images

Trapped at home this spring, University of Nebraska student Alexander Kearns spends her free hours buying and selling stocks online, learning as much as possible about how to invest.

Bill Brewster, his married cousin, said: “He sounded like a real kid, so excited to study something that he found interesting.

What no one knows is that Kearns traded options on a popular app called Robinhood, and at some point appeared to have erroneously concluded that he lost more than $ 730,000.

“How can a 20-year-old with no income get leverage worth nearly a million dollars?” Kearns wrote in a letter found after committing suicide on June 12. “… I don’t know what I’m doing now, thinking too late.”

With so many people trapped at home during the coronavirus epidemic, millions of Americans have turned to stock investing in recent months, lured by the advent of free deals. Online brokers such as TD Ameritrade, Schwab and Fidelity have reported an increase in client accounts.

Robinhood alone saw its customer base skyrocket from 10 million to 13 million in the first four months of 2020, an unprecedented increase far beyond anything the company was expecting.

With an average age of 33, many of Robinhood’s users are much younger than traditional stock investors, and critics say the app appears to be heavily designed to appeal to a large generation. up on online games.

“After you finish the transaction, they encourage you to do so. They burn confetti. It’s almost like a video game when you go to the next level. It’s all playing on the endorphins you get from.” execution of the transaction, “said Timothy Welsh, president and CEO of Nexis Strategy, a consultant for the asset management industry.

Robinhood is also accessible to people who don’t have a lot of money to spend. Users get a free share of stock when they sign up, and if you can’t afford a share of expensive stock like Apple or Tesla, Robinhood allows you to buy a fraction of a stock.

Alexander Fox, a University of Southern California student, has been using the app to trade small amounts of stocks since high school.

“It started because a lot of my other friends were involved in it. So then I fell for it,” he said.

He and his friends have learned a lot they know about investing from YouTube videos and websites, he said. Now he makes his own video of the transaction.

As a huge fan of Warren Buffett, Fox is careful to buy only shares in companies he believes will be of long-term value.

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

Prester lets his students play a simulated stock market game with counterfeit money and has seen first-hand how engaging trading for them can be.

“It can be addictive and it can be like gambling. And I think that’s where a lot of students get into trouble,” she said.

In fact, apps like Robinhood can be more risky than gambling because they allow users to participate in margin trading, a form of loan investment that can quickly lead to losses, said the critic.

Robinhood officials declined to comment for this story. But in the days after Kearns’ suicide, they took steps to add more customer service agents and redesigned the app’s interface in a way that makes it easier to understand options trading.

“We lost nothing that our company and services became synonymous with retail investment in the US and this led to millions of new investors making their first investment. they adopt Robinhood, “Vlad Tenev and Baiju Bhatt, colleagues of the firm’s founders, said in a statement.

Company officials also dismissed the notion that the app encourages young traders to take risks. Because Robinhood is designed for ease of use, it sheds light on the world of investment, opening Wall Street to inexperienced investors, the company said.

Bloomberg columnist Nir Kaissar agrees that the company may downsize some of the app’s casino-like aspects. But he is also the defender of Robinhood, saying it is democratizing stock trading.

“One of the things I like about Robinhood is that it … has attracted millions of new people to the market,” he said. “If we want people to be more informed about personal finance and investing – and I think we as a whole we do – then I think they need experience as an investor. I don’t think so. are things that you can necessarily learn in a textbook. “

The danger is that investors may not always understand the risks they are taking and that could lead to a much larger fee than they are prepared to do.

If you or someone you know may be considering suicide, get in touch National suicide prevention hotlines in 1-800-273-8255 (In Spanish: 1-888-628-9454; Deaf and Hard of Hearing: 1-800-799-4889) or Crisis text lines By texting HOME to 741741.


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