Day Trading, Penny Stocks & Commission Free Brokers such as Robinhood have become extremely popular within the past year. That growth has been exponentially accelerated since the onslaught of the global pandemic that is the Novel Strain of Coronavirus; COVID-19. Furloughed employees, college students sent home till further notice, employees working from home, easy access to commission-free trading, and an extremely volatile market that’s had a very strong rebound from March to June of this year seems to have created the perfect storm for this boom.
Why Do People Day Trade Penny Stocks and Options on Robinhood?
For a lot of people that work traditional “9-5” jobs and or the student or stay at home parent the quickest path to wealth is oftentimes trading or investing in the stock market. Penny Stocks & Options Trading is usually where novice investors focus their money and time.
Penny Stocks are defined as any stock that trades for under $5. The low share price and built-in volatility of penny stocks offers a unique risk vs reward scenario that a lot of day traders find attractive.
Trading Options gives you the ability to reserve the right to transact a stock at a later point. You are adding the element of time to your trade, not just direction. Using options as a day trade vehicle allows you to capture a stock’s movement at a fraction of the cost of the stock.
Robinhood Markets, Inc. is a U.S.-based financial services company that offers commission free trading in penny stocks, options, ETF’s and cryptocurrency, via its mobile app and website. Since its inception in 2013 Robinhood has primarily focused on attracting younger, less sophisticated investors and it’s worked.
In May of this year Vlad Tenev, Robinhood’s co-CEO stated that his platform added 3-million funded trading accounts since the start of 2020 and as of March its daily trading volume was three times higher than its 2019 Q4 averages.
What are The Top Penny Stocks on Robinhood Right Now?
The top penny stocks on Robinhood according to Robintrack, a website that keeps track of how many Robinhood users hold a particular stock over time and analyzes the relationship between the price and popularity of those stocks, are:
- Ideanomics Inc. (NASDAQ: IDEX): a global company focused on electric vehicles and various Fintech products.
- Broadway Financial Corp. (NASDAQ: BYFC): a United States-based savings and loan holding company.
- Urban One Inc. (NASDAQ: UONEK): a multi-media company with a focus on radio broadcasting targeting African American and urban listeners.
- Globalstar, Inc. (NYSE: GSAT): a telecommunications company that generates revenue from the provision of mobile satellite services.
- XpresSpa Group Inc (NASDAQ: XSPA): a health and wellness holding company with spa outlets throughout many airports. They’ve also spun out COVID-19 testing.
This is Where Things Go Wrong.
Robinhood has had a long history of criticism and for good reason. On November 12, 2019, we published an article titled: Robinhood Left the Unlimited Margin Glitch Unfixed for Nearly a Year. In this article, we discussed what users of the Wallstreetbets subreddit called “The Infinite Money Cheat Code”. This “glitch” allowed WoodC93 a member of the Wallstreetbets Subreddit to accumulate a $950,000 TSLA position, a $425,000 AAPL position by figuring out how to trick the platform into allowing him further margin limits, all with a $15,000 deposit.
On March 2, 2020, we again published an article titled: Not All Good In The Robinhood. This time the app crashed in the middle of the day and as a result, people lost a tremendous amount of money.
Tragedy Strikes
On Friday, June 12, 2020, 20-Year-Old Alexander E. Kearns committed suicide after seeing a $730,000 negative balance in his Robinhood account. He apparently threw himself in front of an oncoming freight train, in his home town of Naperville, Illinois. Kearns seems to have used what is known as a ‘bull put spread’ a technique that minimizes the risk to an investor by buying and selling put options at different strike prices.
Alex Kearns apparently plummeted into a deep depression Thursday (6/11/2020) night after looking at his Robinhood account balance, which appeared to show a negative cash balance of over $730,000. In a suicide note made public by his cousin-in-law Bill Brewster, Alex insisted that he never authorized margin trading and could not understand how his small account with a $16,000 balance could rack up that kind of loss.
According to an article published on Forbes: Kearns may not have realized that his negative cash balance displaying on his Robinhood home screen was only temporary and would be corrected once the underlying stock was credited to his account. Indeed it’s not uncommon for cash and buying power to display negative after the first half of options are processed but before the second options are exercised—even if the portfolio remains positive.
The Fallout
In the past week, Reddit has exploded with memes and posts chastising Robinhood. On the popular subreddit r/RobinHoodPennyStocks user mrgizmo212 posted a meme titled “Seems About Right…”
That same Reddit user then posted a mocked up version of Robinhood’s homepage titled: Robinhood Just Updated Their Homepage!? WTF?
In Closing
After everything that has happened Robinhood has a responsibility to make vast improvements to its UI & infrastructure and to properly educate its customers on the risks of investing.
If you or someone you know is thinking about suicide, please call the National Suicide Prevention Lifeline at 800-273-TALK (8255) or text the Crisis Text Line at 741-741.
