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

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.'"

Comments

First for banning HFT

[Anonymous Coward]

It serves no purpose.

Re:First for banning HFT

[interkin3tic]

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.

Re:First for banning HFT

[tnk1]

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".

Re:First for banning HFT

[Anonymous Coward]

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.

Re:First for banning HFT

[Anonymous Coward]

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.

Re:First for banning HFT

[Anonymous Coward]

How about if we ban loopy right whiners from making simple minded poorly informed rants about how the Federal Reserve works? Of course the reactionary media would need to fill in another villain to scare weak minded people, but they never really seem to have trouble at it.

Re:First for banning HFT

[ackthpt]

internet prank with stock market side effects, or intentional market disruption and subsequent gain? btw this is why I don't read tweets.

It's very revealing in what sort of morons do and base their trading upon it.

Re:First for banning HFT

[alexander_686]

Headline algorithms exist and make a lot of money. They only have to be right 51% of the time to work.

Mind you, most of the algorithms work off expected vs. actual earnings, revenue, or some other such number rather than the headlines. Of course, those numbers are released first and then humans write the headlines, but still

Re:First for banning HFT

[jfengel]

Coherence is, I'm afraid, not really an option in a democracy. Every decision is a compromise, and it's not even the same people hammering out the compromise from year to year. The best way to get coherence is to put one person in charge, but the downsides of that are well known.

We can try to design our system to be robust to the failures of democracy, though these days even that seems beyond our reach. We've grown so adept at blaming each other that even the flawed process of hammering out a compromise has become secondary to trying to get a brief moment in which to impose our will on our political enemies while they are down.

Wow!

[MightyMartian]

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!

[MyLongNickName]

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:Wow!

[TsuruchiBrian]

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 is not entitled to a life of financial stability.

Re:Wow!

[Algae_94]

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!

[Jane Q. Public]

"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.

Thanks.

[Fuzzums]

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.

Here's the thing

[Sycraft-fu]

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.

Re:Exactly, put a gambling tax on it

[lgw]

So, basically, what your saying is "I don't understand most of how the market works, so please ban everything I don't understand." Your post reminds me strongly of a senator writing about copyright on the Internet.