Slashdot Mirror
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.'"
They are *not* suggesting banning the activity, but restricting it with taxation to make it less attractive to profit from short-term fluctuations in prices - this would dampen volatility.
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A transaction tax sounds like a good idea to me, do you have any concrete objections to it?
It could increase the volatility. If a tax was introduced, it wouldn't make sense to trade for small changes in price. When the prices change become large enough that it makes sense, the people selling would drive the price down further, leading more people to sell.
It would also lessen the liquidity, leading to worse prices. As it is today, I can sell my stock to HFTrs at close to the current value. If there were no HTFrs, I would have the choice of selling now at sub-optimal prices now or waiting in the hope that somebody would at some time would meet the price I want.