After A Trader Suicide, Robinhood Reveals Changes to Options Trading
Robinhood is making multiple changes to its options trading products, part of improvements he promised to do after one of its customers died by suicide thinking he incurred losses of over $700,000.
In a blog post Tuesday, the commission-free trading app revealed it’s launching a feature that enables users to exercise their options contracts directly in the app. Robinhood will also improve its user interface and make funds from exercising available instantly, helping to avoid lengthy delays and trade restrictions.
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Robinhood has also introduced new measures that make it harder for options traders to qualify to do sophisticated products on its platform. This will include additional criteria and education for customers seeking level 3 options authorization.
It’s also improving in-app messages and emails sent to customers about multi-leg options spreads, a sophisticated style of trading involving two or more options. This will effectively modify the way that traders enter orders and receive information during early assignment.
Robinhood now requires customers wishing to trade options to disclose, among other things, their investment experience and knowledge, as well as personal financial information such as income. Robinhood then conducts an assessment of this information to decide whether a customer may be approved for options trading.
Further, the company has hired an education specialist and added more educational content related to that type of trading. That aims to help users navigate sophisticated trading strategies and to better understand the mechanics of early options assignments.
Options trading revamped after a 20-year-old trader’s suicide
The major updates come a few months after a young customer died by suicide, leaving behind a note to his family that expressed confusion over trading options on Robinhood.
Alex Kearns, 20, misunderstood the Robinhood financial statement and believed he had lost more than $730,000 from trading options. The negative balance, however, referred to available buying power in his trading account and the value of stocks tied to those options rather than to debt. Kearns family blamed Robinhood for his death at a time when the app has become a popular entry point to the financial markets for first-time investors.
For that, Robinhood made changes to the way it displays users’ balance and buying power to avoid future misinterpretations like the one that led to Kearns’ death.
Finally, the quickly growing trading app said it hired hundreds of additional support staff to fill its offices in Southlake, Texas, Tempe, and Arizona.
Explaining the rationale behind that, Robinhood said it is moving forward with adding new employees in order to reduce response times, as well as “building more self-service tools, and enhancing the information and education to enable more informed investment decisions,” it added in a blog post.
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