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Tweet From Hacked AP Account Causes High Freq. Traders To Drop DOW 150 Points 314

New submitter Mike Lape writes "Stocks plunged and recovered within minutes after the hacked AP Twitter account sent out a tweet that indicated that the White House had been the victim of an explosion and that President Obama had been injured. '...the Dow Jones Industrial Average took a quick 143-point plunge, before recovering most of its losses within minutes. The three-minute plunge triggered by the tweet briefly wiped out $136.5 billion of the S&P 500 index's value, according to Reuters data. Interestingly, Tuesday has been the best day of the week for the blue-chip this year with an average return of 0.46 percent. If the index closes in the black today, it will have been up for the 15th consecutive Tuesday. The last time the Dow rose for 15 straight Tuesdays was in 1927.' An analyst said, 'That goes to show you how algorithms read headlines and create these automatic orders – you don't even have time to react as a human being.'"
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Tweet From Hacked AP Account Causes High Freq. Traders To Drop DOW 150 Points

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  • by Anonymous Coward on Tuesday April 23, 2013 @03:12PM (#43528979)

    It serves no purpose.

    • Re: (Score:3, Interesting)

      by noh8rz10 ( 2716597 )
      internet prank with stock market side effects, or intentional market disruption and subsequent gain? btw this is why I don't read tweets.
    • by interkin3tic ( 1469267 ) on Tuesday April 23, 2013 @03:15PM (#43529015)
      How about we emphasize that it hurts productive industries and threatens the stability of the economy, rather than just say it serves no purpose. We don't want to discourage it simply because it doesn't help anyone but a few people, we want to discourage it because it HARMS the rest of us.
      • by Anonymous Coward on Tuesday April 23, 2013 @03:30PM (#43529259)

        But in this case, the HFT lost money while everyone else made money (those who bought at the cheaper prices). This may be a reason not to use HFT, but it's no reason to ban it.

      • by Anonymous Coward on Tuesday April 23, 2013 @03:34PM (#43529305)

        That goes to show you how algorithms read headlines and create these automatic orders

        No they don't. That would be the most stupid trading strategy ever imagined, you would loose your shirt in less time than you can say "Goolge translate".

        What happened is that actual people reacted to the news and the trading algorithms (not necessarily HFT, but trading bots) thought they hit a pattern and amplified the movement. Nobody lost anything except the bot herders that sold at -150 because they trusted their bots. I really can't see how that "hurts productive industries and threatens the stability of the economy" as you say.

      • by llZENll ( 545605 ) on Tuesday April 23, 2013 @03:42PM (#43529417)

        We need a new exchange that only executes trades once per month. If a company is on this exchange it is not allowed to be on any other exchanges. Problem solved. If you need your money out early there is a small fee. No more flash crashes, much less speculation, invest in a company due to dividends and growth and not emotionally fabricated stock appreciation.

        • I'm sure that will be really convenient for people in retirement... or people who hit on hard times... or people who have stock in companies that are suddenly shown to have acted immorally.
        • by lgw ( 121541 )

          Mutual funds effectively trade once a day. I hear they're quite popular. I prefer ETFs, where I can see the current price before I decide to buy or sell, but both options are available.

    • by msauve ( 701917 )
      You're apparently out of the loop. HFT stabilizes the market by adding liquidity, or so we're told.
      • by tnk1 ( 899206 ) on Tuesday April 23, 2013 @03:28PM (#43529225)

        And it probably does do that... but the stabilization is probably offset entirely by the strategies that the HFT algorithms use. In short, many of them are playing a meta-game of "this line will do that because lines usually do these things", as opposed to: "this looks like a good investment because it has good revenue and solid assets".

        • A company that is doing well is not necessarily a good investment, especially if everyone already "knows" it's a good investment. Good investments are companies that are undervalued. They can even be terribly managed companies that are just not as terrible as people think. There are many strong companies out there who's share price is severely inflated and therefore very bad investments.

          Everyone can see for themselves how different computer algorithms and different humans investment strategies compare bu

      • by AuMatar ( 183847 ) on Tuesday April 23, 2013 @03:29PM (#43529235)

        Also, they aren't pissing on your leg- they're adding to your leg's liquidity.

      • by ackthpt ( 218170 )

        You're apparently out of the loop. HFT stabilizes the market by adding liquidity, or so we're told.

        That's just a rumor. Just like the preposterous idea that anyone really understands any of it.

        Wonderful bit about how the past Fed. Chairmen haven't had a clue about it and how in the 1970's the markets only moved a million shares in a week, but now do it in a matter of seconds. Quite a lot of it is like watching a flock of birds darting this way and that. It's a current of stock trades, maybe it obeys something like Ohm's Law.

      • This is not what I have been told. I have been told that it makes the market more efficient by squeezing the bid/ask spread. This allows people to execute trades faster and cheaper than before. However, this comes at the price of increased volatility. (There is some proof of this – but trying to pull out the effect of HFT against all of the other factors is hard.)

    • HFT is basically betting on race horses with incredibly fast horses. When this headline hits the news, that number will go up/down and hence we have to buy/sell.

      Incidentally, it does indeed do what the HFT algos predict. Self fulfilling prophecy. When HFT algos predict that the value will go up and buy, the value will go up...

      • Also known as a positive feedback loop.

      • by dutchwhizzman ( 817898 ) on Tuesday April 23, 2013 @04:03PM (#43529699)
        Don't ban it, tax it as gambling. 50% of profits go to government, losses aren't deductible. If you buy a stock and sell it again within a week, it's considered speculation and subject to gambling tax. This will make high volume trading not impossible, but much harder to actually make a profit with, while actual investors in stock that think companies will make money by honest profits are protected. This is for stocks. Any derivatives are by nature all speculation and should be taxed regardless of how long they are held before being sold, bought or exchanged for actual stock or product.
  • Wow! (Score:5, Insightful)

    by MightyMartian ( 840721 ) on Tuesday April 23, 2013 @03:15PM (#43529013) Journal

    You know, twenty five years ago, everyone was convinced it would be computers built by the military-industrial complex that would become self-aware and take out the human race. Now I'm beginning to wonder if HFT algorithms will be the ones that do it.

    • Re:Wow! (Score:5, Funny)

      by Hentes ( 2461350 ) on Tuesday April 23, 2013 @03:19PM (#43529073)

      If they are this easy to fool then we have little to fear.

    • Re:Wow! (Score:5, Insightful)

      by MyLongNickName ( 822545 ) on Tuesday April 23, 2013 @03:22PM (#43529125) Journal

      Here's the rub. For someone like me, I couldn't care less about HFT. I am in it for the long haul. I've invested for almost all of my adult life. I don't invest on hunches, instead I buy broadly and then hold for a long time. My investments do about as well as the broad market and I have almost no trading costs. Even if some doofus thinks he can beat the market (no, they can't), he'll eat up 1-2% of his money on fees.

      So let folks be stupid and market time and talk about dead cat bounces and triple witching hours and other mumbo jumbo. In the long-run I will beat the vast majority and I will do so with very little effort on my part.

      The reality is the only investors who can beat my strategy are active investors who are involved in the management of the assets they own (like Buffett) and those with insider information (real insidr info, not what your brother in law told you at the cocktail party). So, let the market tank for a couple hours, a couple days or even a couple years. I couldn't care less.

      • Re: (Score:3, Informative)

        by 7-Vodka ( 195504 )
        You couldn't care less...

        Maybe you should know that the big banks who do HFT also co-locate inside the exchanges and front run orders making hundreds of billions per year.

        Also, you might want to know that if the market crashes and restarts like today the big banks can get their losing trades reversed and you can't.

        All the profit they're making has to come from somewhere. Are you so certain it doesn't come out of your pocket?

        • Can you please cite a source?

          • Re:Wow! (Score:4, Interesting)

            by kilfarsnar ( 561956 ) on Tuesday April 23, 2013 @04:29PM (#43529973)

            Here ya go. That wasn't hard.

            http://www.globalresearch.ca/computerized-front-running-and-financial-fraud/18809

            http://247wallst.com/2012/12/04/high-frequency-trading-a-grave-threat-to-the-markets-and-the-economy/

        • Re: (Score:2, Insightful)

          The money might be coming out of the pockets of other investors. It also might be coming from efficiency that HFT enables, The economy is not a zero sum game. Efficient allocation of resources leads to less waste and more total wealth. I am not saying that their gains are not to the detriment of others, I am just saying that they aren't necessarily. Also, nobody is forced to invest in the NYSE. They only people getting screwed are people who signed up.

          Anyone who thinks the stock market isn't gambling

          • Re:Wow! (Score:4, Insightful)

            by Jane Q. Public ( 1010737 ) on Tuesday April 23, 2013 @05:33PM (#43530633)

            "The money might be coming out of the pockets of other investors. It also might be coming from efficiency that HFT enables"

            I don't know that I'd call it "efficiency". Ease, maybe. Not the same thing.

            "Efficient allocation of resources leads to less waste and more total wealth."

            Show me where HFT leads to efficient of allocation of resources. I do not agree at all.

            Trading in goods leads to efficient allocation of resources. But HFT today happens FAR too fast to have much impact on physical goods or manufacturing. It's only "efficient allocation of resources" if you consider numbers in a computer to be resources.

            And in exchange, as this event demonstrates, we have to contend with dangerous and unhealthy volatility.

            The Stock Market was intended to "efficiently allocate resources" when stocks represented actual investment in actual goods and services. Today, as often as not they are just derivatives being shuffled around, which don't much affect "resources" other than cash in somebody's pocketbook.

            It's hardly anything anymore but a big casino. And even worse, with HFT it isn't successful companies that gain or lose, it's whoever can place his bet first. People who think that makes for a healthy market are off their nut.

        • You couldn't care less...

          Maybe you should know that the big banks who do HFT also co-locate inside the exchanges and front run orders making hundreds of billions per year.

          Also, you might want to know that if the market crashes and restarts like today the big banks can get their losing trades reversed and you can't.

          All the profit they're making has to come from somewhere. Are you so certain it doesn't come out of your pocket?

          Profits are not finite, or more precisely, bound in such a manner that forces someone's win to match someone's losses.

          • Profits are not finite, or more precisely, bound in such a manner that forces someone's win to match someone's losses.

            Don't be silly. Profits are bounded by the value of good and services produced. That is to say, they're bounded by the economy. The value of goods and services produced is finite -- you can only produce so much in one day -- so is the gross revenue, and therefore so are the net profits. Even in the digital world where you could theoretically produce quadrillions of digital licenses of valuable software at the same price, the money supply limits you. You couldn't sell 5 quadrillion licenses for WinRAR s

        • Re:Wow! (Score:5, Insightful)

          by Algae_94 ( 2017070 ) on Tuesday April 23, 2013 @05:31PM (#43530617) Journal
          I follow similar investment strategies, and here's my take:

          Maybe you should know that the big banks who do HFT also co-locate inside the exchanges and front run orders making hundreds of billions per year.

          That's very nice that those banks are making money. Front running is illegal already. This practice may affect my purchase prices by a couple pennies if true. That is miniscule compared to the gains realized over holding a good investment long term.

          Also, you might want to know that if the market crashes and restarts like today the big banks can get their losing trades reversed and you can't.

          If I'm a long term investor, I generally have no trades on a given day, therefore, I have no trading loses to reverse. If I were going to trade an investment, I would have established what I believe the value to be. If the market went awry like today and the prices where not what I thought the values were, I WOULD NOT TRADE DURING A PANIC.

          All the profit they're making has to come from somewhere. Are you so certain it doesn't come out of your pocket?

          The profit of every company and individual has to come from somewhere. Why would I assume it's at my expense with no evidence that it is?

      • Re:Wow! (Score:5, Informative)

        by alexander_686 ( 957440 ) on Tuesday April 23, 2013 @03:39PM (#43529383)

        I will point out something to buy and hold investors

        The Bid / Ask spread has dropped by 90% in the past 30 years. You used to pay .5% to 2% for each trade – not it basically nothing. Moving to decimalization helped, but it is the HFT that really collapsed the spread. This is even truer for ETFs then for normal stock.

        The fees that mutual funds and ETFs (which a lot of buy and hold investors hold) have also collapsed the past 30 years. Specifically for index funds, they have fallen by 90%. There are a lot of reasons for this, but about a quarter to a third is lower trading costs, which can be traced backed to HFT.

        So, you save about 1% to get into a investment, and about .25% each year if that investment is a mutual fund.

        • Yeah, but even if the transaction cost has decreased, they can screw you over in other ways, like timing your sale for the time of day they want to say it occurred so that you get the lowest possible price and timing your purchase for the time of day so that you get the highest possible price. The big brokers, as market makers, can game your transactions so as to make themselves, as market makers, the most amount of money and still be able to say with a straight face that "they carried out your transaction
          • by lgw ( 121541 )

            timing your sale for the time of day they want to say it occurred so that you get the lowest possible price and timing your purchase for the time of day so that you get the highest possible price.

            My broker offers me a 2-second execution guarantee on most trades. Maybe you should look into that.

            The big brokers, as market makers, can game your transactions so as to make themselves, as market makers, the most amount of money and still be able to say with a straight face that "they carried out your transaction as you requested".

            I see my trades work as expected - if the bid or ask displayed is bigger than my transaction, I get that price or better. If the market is thin I'll use a limit or stop order to make sure I don't get burned. It's good to pay attention to this stuff when trading, but really it's not like a broker is going to cheat his customers without it getting noticed.

            They can also play on the "dark markets" where bigger transactions and movements occur, so that the rest of the market and the little schmoes never really see the momentum of the full market.

            The best scam of the past few decades was conning a co

      • by gatkinso ( 15975 )

        Whew! I am relieved! For a second there I was under the impression that the price little guys pay for stock doesn't reflect these shenanigans. Thanks for clearing that up!

    • by gtall ( 79522 )

      Everyone? Wow, are you from another planet? The only ones I know who thought that were a bunch of geeks who watched too much TV in their formative years.

    • As long as they stay as dumb as the average broker and just act on pavlovian reflexes, we should be safe.

  • by PhamNguyen ( 2695929 ) on Tuesday April 23, 2013 @03:17PM (#43529045)
    Where is the evidence that this drop was caused by HFT algorithms? Unless there is evidence to the contrary, I don't believe that computers are yet capable of parsing that tweet and recognizing that its content is extraordinary (as opposed to the usual tweets that come from that account and others). A few minutes is easily enough time for humans to react.
    • nobody said it was caused by the algorithms themselves. it was caused by the HFT traders who are always on a hair trigger to buy/sell.
    • by Dins ( 2538550 )

      I don't believe that computers are yet capable of parsing that tweet and recognizing that its content is extraordinary (as opposed to the usual tweets that come from that account and others).

      I don't know, I could see it. Set up a rule that any tweet containing the words "explosion" and "white house" in close proximity raise a flag. Bonus points for "Obama" and "Injured" close to each other.

      • I'm agree this tweet could have been flagged automatically. However, I question that a trading algorithm that automatically trades on such tweets could recognize this as a "once in a decade" type event.
        • by Dins ( 2538550 )

          I think the words "explosion" "white house" "obama" and "injured" together in a tweet from a major news organization would qualify as extraordinary.

          Don't get me wrong - I know what you're saying, and anyone who would set up a system to automatically trade based on an algorithm like that is a fucking idiot.

        • I can see it being sent to someone's screen in flashing red characters who then only has to press a button that says "ignore" or "Sell, sell, sell!"

      • What the hell does bombing have to do with economy? Care to explain that?

        You wanna tell me people stop buying stuff if something somewhere goes boom?

  • by almitydave ( 2452422 ) on Tuesday April 23, 2013 @03:17PM (#43529047)

    I almost wonder if it was deliberately done to make a quick buck off a short sell. Sell high, make everyone panic, buy low.

    • by Animats ( 122034 )

      I almost wonder if it was deliberately done to make a quick buck off a short sell.

      I would assume so. The question is whether the people behind it had enough money available to make a big profit. The drop was only about 2%, so if you had $10 million to invest, you'd only make $200K if you timed it perfectly. Realistically, $50K to $100K. Not worth it.

  • Comment removed (Score:5, Interesting)

    by account_deleted ( 4530225 ) on Tuesday April 23, 2013 @03:20PM (#43529085)
    Comment removed based on user account deletion
  • Gosh! (Score:5, Funny)

    by fuzzyfuzzyfungus ( 1223518 ) on Tuesday April 23, 2013 @03:21PM (#43529093) Journal

    I sure am glad that, unlike crazy neckbeard stuff like bitcoins, Serious Professional economic instruments don't suffer hilariously baseless volatility because some goofy website got hacked...

    That would, like, reduce my confidence in the rationality of the market.

    • Here's the thing (Score:5, Insightful)

      by Sycraft-fu ( 314770 ) on Tuesday April 23, 2013 @03:35PM (#43529323)

      Bitcoin moves like a stock (a thinly traded one at that), not like a currency. You are making false equivalence here. This caused a 1% drop in stocks for a couple minutes. Bitcoin has a bid-ask spread higher than 1%. The US Dollar didn't move at all based on this, and indeed changes in value around 2-3% per year.

      The criticism of Bitcoin's volatility is highly valid when it wants to be a currency. I wouldn't use stocks as a currency due to their volatility either.

    • I think you're confusing the stock market with arguments about the stability of the value of the US dollar vs stability of the value of a Bitcoin. Stock prices have always been volatile and subject to the panicked reaction of idiots whenever there's bad news.

  • Focus on the fact that all it takes is a rogue tweet to send the world, or financial markets, into a swarming panic frenzy. Expect more from people with less savvy and higher criminal intent.
  • by PopeRatzo ( 965947 ) on Tuesday April 23, 2013 @03:23PM (#43529143) Journal

    What kind of trader sells on an uncorroborated news story about the President being shot? It takes all of thirty seconds to see if anyone else is reporting the story.

    I understand that they're trying to front-run the many big investors that are getting information in advance, and the high-frequency trading algorithms, but the willingness to hit the dump button on a sole report is just dumb.

    The problem is the damage they do to everyone else. Otherwise, I'd say they deserve to lose.

    • How did that do any damage to anyone other than idiots? If you had been smart, you'd have a buy order in place ready to buy if the market dipped enough. Then you would have made 1% today without even paying attention.

      Seems to me like this was an entirely deserved shot in the foot to anyone who suffered from it.

      • How did that do any damage to anyone other than idiots?

        Because a huge number of investors are people with retirement accounts, index funds, etc. They're not sitting at a computer watching the market because they're too busy working for a living. They have 401ks with market exposure because money gets 0% in the bank.

        I don't give a shit about day traders. Like you say, they'd have option spreads on to protect from a sudden drop, and if not, screw them for being dopes. But there are a lot more people who a

        • Because a huge number of investors are people with retirement accounts, index funds, etc. They're not sitting at a computer watching the market because they're too busy working for a living. They have 401ks with market exposure because money gets 0% in the bank.

          If they didn't respond to the drop, they weren't affected. The market dropped and rose again within a few minutes.

          Only the people who sold in response to the tweet or the drop caused by it, lost money. Doing nothing didn't hurt anybody.

          (I guess some people might have stop loss orders that would have been triggered, but I'd say today illustrates why those are stupid.)

          • by PopeRatzo ( 965947 ) on Tuesday April 23, 2013 @08:43PM (#43532283) Journal

            If they didn't respond to the drop, they weren't affected. The market dropped and rose again within a few minutes.

            You probably know that mutual fund movements happen at the end of trading.

            Someone who saw the precipitous drop and hit the panic button on their mutual fund (say, a retiree or soon-to-be retiree) would have lost, but good.

            A lot is made of the notion that mom and pop should be in the market. It's been a hallmark of the past decades that the market is where retirees should put their money, and current Fed policy almost forces it. Fact is, small investors are shark food in today's environment. The days of being able to see who's doing the buying and selling are over.

            I wonder if we'll ever find out what kind of trades were made by whomever manipulated the market today. The person who hacked the account and tweeted out that story could easily have netted 7-8 figures, unless it was not an individual, but a larger entity, in which case it could have easily been ten figures- on the dip and again on the rip.

            It doesn't help that while the Boston Marathon bombings were dominating the news, congress saw fit to gut that bill they passed around the election that outlawed congressional insider trading. Suddenly, on "security grounds" lawmakers and their staff can again trade on the knowledge of bills that are about to be passed (or not).

            I'm old enough to have heard Milton Friedman speak in person, on the campus where I used to teach (not business or economics, don't worry). I remember him saying that insider trading should be completely allowed, but only because back then you could actually see who was on both ends of a trade. Today, it is no longer possible to know who's trading what. All transparency is out of the market. That one fact does more damage to the so-called "free market" than any "socialist" policies coming from the administration.

    • 30 seconds? You have a faint idea how long 30 seconds are in HFT?

      If you want to get a feel of just how endlessly long those 30 seconds are, start developing firmware for microcontrollers. Then look at a second, and ponder just how much stuff you can do in that time. Now you know what 30 seconds is to them (since even with all the coke they're not even close to being clocked at 100+ MHz).

      • 30 seconds? You have a faint idea how long 30 seconds are in HFT?

        In HFT, nobody is pressing a button. That's why they call it HFT.

        The people who sold on this news report were human beings, making decisions based on a single uncorroborated news report of massive import. The sellers were not HFT-bots.

  • If one knew that such a hoax would cause DOW to drop that much it would be pretty easy to make a quick buck. I'm no stock market genius but buying low and selling high is always a win, am I right?
  • 1927 + 2 = 1929 (Score:4, Interesting)

    by maxwell demon ( 590494 ) on Tuesday April 23, 2013 @03:26PM (#43529189) Journal

    "The last time the Dow rose for 15 straight Tuesdays was in 1927."

    And two years later it crashed.

  • They're big on blaming high frequency traders when the market drops in 3 minutes on bogus news.

    They're not so big on crediting high frequency traders when the market recovers in 3 minutes when the news is recognized to be bogus.

    I guess it was the army of Wilford Brimleys in bow ties and green eyeshades that did that.

    • If the money didn't change hands after all was said and done, fine, but there is a winner and a loser on each trade. Given how much the market affects pensions, municipal finances and the economy on the whole, just because the total value recovered, doesn't mean those caught selling on the way down weren't devastated.

    • by Opportunist ( 166417 ) on Tuesday April 23, 2013 @03:49PM (#43529509)

      You sound like a programmer who wants to get some pat on the back for spending his weekend fixing the dumb error he made that nixed a week of work.

  • by JobyOne ( 1578377 ) on Tuesday April 23, 2013 @03:30PM (#43529261) Journal

    Damn the almost-perfect timing of my retirement account contribution this month!

  • Thanks. (Score:5, Insightful)

    by Fuzzums ( 250400 ) on Tuesday April 23, 2013 @03:31PM (#43529275) Homepage

    I want to thank the stock market, once again, for fucking, I mean speculating with my, no, our economy.
    Traders don't give a shit. The man in the street gets fired because stock prices need to go up and up and up and then - oh surprise - they crash.
    My world can do without stock market.

  • by sootman ( 158191 ) on Tuesday April 23, 2013 @03:35PM (#43529329) Homepage Journal

    "Stocks plunged and recovered within minutes"

    See? The system works.

    </sarcasm>

  • by WaffleMonster ( 969671 ) on Tuesday April 23, 2013 @03:58PM (#43529615)

    sell sell sell

    NASA reports asteroid on collision course for earth expected to "obliterate" housing market.

    sell sell sell

    Gold prices expected to reach a 20 year low as Lord Ganesh spotted on Indian TV favoring peanuts over gold.

    sell sell sell

    Acme Toothpick Company announces it will be laying off 1 million workers as the last tree in the amazon rain forest is cut down.

    sell sell sell

    North Korea launches devastating nuclear attack against giant sea turtles invading its territorial waters. Fears of radioactive fish expected to have catastrophic effects on east Asian seafood markets.

    sell sell sell

  • If only the code picking the quotes below the stories was just a tiny bit better. Right now I see the quote for April on Mark Twain's "Pudd'nhead Wilson's Calendar". Had it been the October quote, it would have been incredibly apt.

    October: this is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August and February.

  • by pclminion ( 145572 ) on Tuesday April 23, 2013 @05:13PM (#43530451)
    Suppose the White House DID blow up, and Obama WAS injured. Why the hell should this affect the price of corn?

The unfacts, did we have them, are too imprecisely few to warrant our certitude.

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