Friday, April 26, 2013

Fat Fingers, Phony Tweets and Today's Markets

A few years back, we had the "Flash Crash" due to the "fat finger..."  This past week -- on Tuesday -- if you looked at the price chart for the day, and didn't know what was going on, you might think that there was a data error (see circled area).  However, what you see is the real price action -- moving markets down 1% and then up 1%, within minutes -- due to false rumors of an explosion near the White House.

The DJIA dropped 120 points in just one minute due to the fake tweet!  Tory Capital reports below:

s&p 500 spy etf chart april 23 2013 on twitter flash crash

For a few surreal minutes, a mere 12 words on Twitter caused the world's mightiest stock market to tremble.

No sooner did hackers send a false Associated Press tweet reporting explosions at the White House on Tuesday than investors started dumping stocks eventually unloading $134 billion worth. Turns out, some investors are not only gullible, they're impossibly fast stock traders.

Except most of the investors weren't human. They were computers, selling on autopilot beyond the control of humans, like a scene from a sci-fi horror film.

"Before you could blink, it was over," said Joe Saluzzi, co-founder of Themis Trading and an outspoken critic of high-speed computerized trading. "With people, you wouldn't have this type of reaction."

For decades, computers have been sorting through data and news to help investment funds decide whether to buy or sell. But that's old school. Now "algorithmic" trading programs sift through data, news, even tweets, and execute trades by themselves in fractions of a second, without slowpoke humans getting in the way. More than half of stock trading every day is done this way.

Read more here:

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