Young Investors Face High Risks As Many Flock To Stock Trading Stock trading has become easier and cheaper than ever. And people stuck at home during the pandemic have flocked to it. But have venues like Robinhood made it too risky for inexperienced investors?
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Millions Turn To Stock Trading During Pandemic, But Some See Trouble For The Young

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Millions Turn To Stock Trading During Pandemic, But Some See Trouble For The Young

Millions Turn To Stock Trading During Pandemic, But Some See Trouble For The Young

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STEVE INSKEEP, HOST:

Some people pass the time during the pandemic trading stocks online. This story, which some will find troubling, highlights the risk. Here's NPR's Jim Zarroli.

JIM ZARROLI, BYLINE: In March, investor Bill Brewster got a call from his wife's cousin. Alexander Kearns was a college student who'd begun stock trading through an app called Robinhood. And he wanted advice.

BILL BREWSTER: He sounded like a kid that was really, really excited to be studying something that he found interesting.

ZARROLI: Then in June, Brewster got another call. This time, the news was terrible. Kearns had killed himself. It turned out he'd begun options trading, a risky form of investing. And he mistakenly believed he'd lost more than $700,000. He left a suicide note expressing anger at Robinhood, the trading app he'd used.

BREWSTER: He said something to the effect of, in retrospect, it appears I had no idea what I was doing.

ZARROLI: Kearns' death was an extreme example of what can happen when someone without much experience begins online trading. With so many people stuck at home, online brokerage firms are seeing a surge in new customers. Robinhood alone has added 3 million new accounts. Brokerage industry consultant Timothy Welsh.

TIMOTHY WELSH: For the traditional online brokers like Schwab, Fidelity, E-Trade, TD Ameritrade they are - again, they're reporting record account openings, record trading volumes.

ZARROLI: Welsh believes one reason online investing has surged is because sports gambling is on hold, another is because apps like Robinhood make trading easy. Trades are free. If you can't afford an expensive stock like Tesla or Apple, it lets you buy a portion of one. Welsh says Robinhood is designed to be fun to use. When you sign up, you get a free stock to trade.

WELSH: Once you complete a trade, they encourage you to do so. They flash confetti. It's almost like a video game when you get to the next level. It's all playing on the endorphins you get from making trades.

ZARROLI: Robinhood officials push back against that characterization. They say because the app is easy to use, it's opened up stock trading to a new generation of investors. There's no question that Robinhood's users tend to be young. USC student Alexander Fox has been using it to trade stocks since high school.

ALEXANDER FOX: It started because a lot of my other friends were into it. So then I kind of fell into it.

ZARROLI: Over the years, he and his friends have learned a lot about investing mainly through YouTube videos and websites. But trading can be a heady experience for young people. Jacqueline Prester teaches investing in a Massachusetts high school. Her students play a simulated stock trading game.

JACQUELINE PRESTER: You saw that kind of rush that they got from trading and buying. They were just making really quick decisions and not thinking about the long term of it.

ZARROLI: Prester doesn't think students should be investing with real money.

PRESTER: It can be addictive. And it can be akin to gambling. And I think that's where a lot of the students get themselves in trouble.

ZARROLI: And it can be even more dangerous than gambling. Some apps let customers do risky kinds of investing like margin trading, where you can buy and sell stock using borrowed money. Bloomberg columnist Nir Kaissar agrees that inexperienced stock traders can get in over their heads. But he also says sites like Robinhood have democratized trading.

NIR KAISSAR: If we want people to become more savvy about personal finance and investing - and I think we generally say that we do - then I think they need to have the experience of being an investor.

ZARROLI: The danger is that investors may not understand the risks they're taking. And that could exact a much heavier toll than they're prepared for.

Jim Zarroli, NPR News.

(SOUNDBITE OF LIAM THOMAS' "WITH YOUR TOUCH")

INSKEEP: If you or someone you know is considering suicide, the National Suicide Prevention Lifeline is 800-273-8255.

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