Active traders on Robinhood tend to ...

Question

BlackTom AI · Accepted Answer

The question presented is: Active traders on Robinhood tend to ...
The provided data includes the correct answer as: "lose money due to transactions costs."
Since the answer options are missing from the dataset, there is no additional set of alternatives to evaluate against. Nevertheless, I can analyze the given correct option in isolation.

Why the statement 'lose money due to transactions costs' can be correct:
- Transaction costs (commissions, spreads, and any fees per trade) reduce overall profitability, especially for frequent traders. Even small per-trade costs can accumulate quickly if a trader executes many buys and sells.
- Robinhood and similar platforms often advertise zero-commission trades, but there are still indirect costs to consider, such as the bid-ask spread and potential price impact when trading assets with lower liquidity. These costs can erode gains for day traders or high-frequency activity.
- For active traders, turnover is high; the cumulative effect of transaction costs plus time-related costs (like taxes or slippage) can lead to net losses even if some individual trades are profitable.
- The behavioral tendency of active traders to chase short-term moves can result in suboptimal entry/exit timing, magnifying costs and reducing net returns over time.

What this reasoning implies about potential missing options:
- If options suggested that transaction costs do not matter or that active trading always leads to profits, those would be incorrect because the cost structure and opportunity costs still matter even on platforms marketed as zero-commission.
- If any option claimed that profits depend solely on skill without considering costs, that would ignore the real impact of trading costs on net performance.

In summary, the core idea behind the given correct option is that even with zero explicit commissions on some platforms, the friction from transaction costs and related execution costs can erode returns for active traders, making the statement broadly plausible as true.

IFEPIA7022_001_2025_3 - Economics of Finance EOF Final - Dec 16, 2025

Active traders on Robinhood tend to ...

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