In my ongoing series of technology and bankruptcy, today I am writing about Robinhood. For the unaware, Robinhood is a mobile app providing commission-free trades of stocks, exchange-traded funds, and cryptocurrencies. In other words, you can buy and sell securities on your cell phone and computer. Like most apps, Robinhood is convenient, easy to use, and inexpensive. However, there is a potential downside. Similar to a previous blog I write about online gambling, Robinhood can also lead to uncontrollable debt. The title of this post asks, can Robinhood bankrupt you? In short, yes it can.
New York Times Article
In 2020, the New York Times published an article – Robinhood Has Lured Young Traders, Sometimes With Devastating Results. The article’s subhead line certainly sums up an alarming issue. It reads, Its users buy and sell the riskiest financial products and do so more frequently than customers at other retail brokerage firms, but their inexperience can lead to staggering losses.
The article tells a few heartbreaking stories about people who get into serious financial trouble using the Robinhood app. One person, a Navy medic, who lost approximately $38,000. He used his credit cards and home equity loans to fund his account. In another tragic example, a 20-year-old college student committed suicide after his Robinhood account balance was a negative $730,000. When reading about these two people, I wonder how many more are out there.
Is Robinhood a Form of Gambling?
One quote from the article struck a chord with me when drawing comparisons to gambling.
“They encourage people to go from training wheels to driving motorcycles,” Scott Smith, who tracks brokerage firms at the financial consulting firm Cerulli, said of Robinhood. “Over the long term, it’s like trying to beat the casino.”
Likewise, the article points out that Ashton Kutcher compared Robinhood to gambling website at a company staff meeting. He later walked back his comments with absolutely not insinuating that Robinhood was a gambling platform. Regardless of technicalities, the ease of use, marketing tactics by Robinhood, and real-life stories, many feel that the app certainly has a gambling aura.
Too often, trading accounts are funded with credit cards, home equity or personal loans. If you lose on the market and cannot repay your credit card companies or loan providers, you have some options. For example, this type of debt can likely be discharged in bankruptcy. I again ask, can Robinhood bankrupt you? Yes, but it is not the end of the world. We are here to help you. And a free consultation to discuss your situation is just a phone call away.