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

Re:First for banning HFT

[roman_mir]

How about you don't go around banning anything and instead you deregulate the industry enough for people to start their own competing exchanges, which may have different rules, that would allow or not allow HFTs? The retail investors are pushed out of the stock market by HFTs.

But if you REALLY want to solve the actual ROOT problem rather than attacking the causes, how about banning government from printing and handing out money to banks, banning federal reserve from monetising Treasury debt? Banning the Fed from trying to manipulate the interest rates?

See, that's what would take care of the gambling problem, couple that with dismantling the FDIC and all of a sudden you have people who actually would be worried about their banks and financial institutions and start evaluating risks and rewards based on real market signals.

Where do we start?

[rickb928]

There is so much wrong with Wall Street, and the stock markets, and brokerages, and HFT.

In the current economic situation in the U.S., where QE leaves the discount rate below 1%, the Prime Rate is today 3.25%, and the fed funds rate is 0.25%, your savings account is rarely paying you >1% APY, and your CD is paying >1.20%, the stock markets seem to be the only place to get a return even slightly higher than our currently underestimated inflation rate.

Until we stop printing money to pretend we can sustain the economy in this way, the stock markets are about the only show in town with a chance of a gain. Your capital has no place to go. Corporate bonds are a difficult choice for many, and have their own issues.

HFT is not an investment strategy. It is an arbitrage strategy, which to me is a difference with a minimal distinction. HFT sucks value out of slower traders. In case you were wondering, 'slower traders' are both other HFTs that are a few milliseconds late, and of course you and me. That is, humans. this offends my sense of decency, but the financial markets are not bound by decency, so I cannot use that as a complaint.

Brokerages,of whom all the important ones are HFTs in 'disguise', don't aid this at all. They are in this for their most lucrative clients. And virtually no one reading this qualifies as lucrative. We are their prey, and they hunt us at will.

How do we fix this in the U.S.?

1. Restrain government spending.

2. Revamp the income tax system to simplify the law, spreading the tax burden more equitably and including more taxpayers in the system - allowing even 30% of wage earners to escape paying any taxes risks leaving them with no skin in the game, and concerned only for keeping it that way. Indistinguishable from the 1% in this regard, and for the same reason - they want their own, and screw those who are subsidizing it.

3. End QE and get the Fed under control. Suffer the consequences. 1 & 2 will help with this, but it will take years.

From there, I dunno, because we will need to clean out the Congress and hope that we can find representatives that will serve the public good. I am not hopeful.

Re:First for banning HFT

[roman_mir]

Regulations is what allows for "gambling and thievery", without regulations such behaviour would immediately be punished by the market.

Regulations, OTOH, prevent any competition while giving the thieves and gamblers enough rope to hang themselves and pretty much the rest of the economy with them. Government regulations, taxes, inflation is the biggest scam in history of this world and democracy is the biggest self-delusion that people accepted that is used to perpetrate that scam. Your comment is just a perfect example of that delusion.