The Herald Bulletin

Morning Update

Nation & World

April 24, 2013

How a phony tweet and computer trades sank stocks

NEW YORK — 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.

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.

Markets quickly recovered after Tuesday's plunge. But the incident rattled traders and highlighted the danger of handing control to the machines. It also raised questions about whether regulators should be doing more to monitor the relationship between social media and the markets.

Irene Aldridge, a consultant to hedge funds on algorithmic programs, said many of the trading systems just count the number of positive and negative words, without any filter. She wants regulators to do more but believes that glitches and plunges may be inevitable.

"You can't ban Twitter," said Aldridge, author of "High-Frequency Trading," a guide to algorithmic trading.

Just how exactly the trading unfolded Tuesday is still a bit of a mystery.

Some experts say the computers took their cue from humans, picking up on a pause in buying as traders read the phony tweet. In Wall Street's insanely fast trading world, humans holding back for even a second could have signaled to computers that buyers were drying up and that prices could fall, and so the computers should sell fast.

Text Only
Nation & World
  • spt_flanagan.jpg Hometown favorite wants to win Boston Marathon, for Boston

    Shalane Flanagan grew up in nearby Marblehead with a reverence for the Boston Marathon and dreamed, like many locals and foreign runners alike, that she would win the race someday. Her goal has changed now.

    April 19, 2014 1 Photo

  • news_felumlee.jpg Ohio couple married 70 years die 15 hours apart

    A couple who held hands at breakfast every morning even after 70 years of marriage have died 15 hours apart.

    April 19, 2014 1 Photo

  • news_missingboymass.jpg Body found by highway is missing Massachusetts boy

    The body of a small boy apparently cast off the side of a highway has been confirmed as a missing 5-year-old, authorities said Saturday.

    April 19, 2014 1 Photo

  • news_mounteverest.jpg 13th body pulled from snow in Everest avalanche

    Search teams recovered a 13th body Saturday from the snow and ice covering a dangerous climbing pass on Mount Everest, where an avalanche a day earlier swept over a group of Sherpa guides in the deadliest disaster on the world's highest peak.

    April 19, 2014 1 Photo

  • news_malaysiaairlines.jpg Sub search for missing jet to be finished within a week

    A robotic submarine looking for the missing Malaysia Airlines jet is expected to finish searching a patch of the Indian Ocean seabed within a week after so far coming up empty, and the search area may be expanded after that, officials said Saturday.

    April 19, 2014 1 Photo

  • news_bostonofficerslain.jpg MIT honors officer slain after Boston Marathon bombings

    Like many other youngsters, Sean Collier wanted to be a police officer. Unlike most, he brought that dream to life — and then died doing it, becoming a central character in the gripping hunt for the Boston Marathon bombing suspects.

    April 19, 2014 1 Photo

  • news_eyewitness.jpg Eyewitness testimony no longer a gold standard

    The American legal system offers few moments as dramatic as an eyewitness to a crime pointing his finger across a crowded courtroom at a defendant. The problem is that decades of studies show eyewitness testimony is right only about half the time.

    April 19, 2014 1 Photo

  • FEA - HB0121 - flu - 05 Second wave of milder flu hitting Northeast

    Months ago, the flu season seemed to be winding down. But health officials on Friday reported widespread flu-like illnesses in six states.

    April 18, 2014 1 Photo

  • NWS - HB0525 - marijuana - JM -pic (4).jpg Colorado deaths stoke worries about pot edibles

    A college student eats more than the recommended dose of a marijuana-laced cookie and jumps to his death from a hotel balcony. A husband with no history of violence is accused of shooting his wife in the head, possibly after eating pot-infused candy.

    April 18, 2014 1 Photo

  • news_skoreaferry.jpg Ferry captain arrested in South Korea disaster

    A prosecutor says the captain of the South Korean ferry that sank two days ago has been arrested.

    April 18, 2014 1 Photo

More Resources from The Herald Bulletin
AP Video
Raw: Greeks Celebrate Easter With "Rocket War" Police Question Captain, Crew on Ferry Disaster Raw: Orthodox Christians Observe Easter Rite Ceremony Marks 19th Anniversary of OKC Bombing Raw: Four French Journalists Freed From Syria Raw: Massive 7.2 Earthquake Rocks Mexico Captain of Sunken SKorean Ferry Arrested Raw: Fire Destroys 3 N.J. Beachfront Homes Raw: Pope Presides Over Good Friday Mass Raw: Space X Launches to Space Station Superheroes Descend on Capitol Mall Man Charged in Kansas City Highway Shootings Obama Awards Navy Football Trophy Anti-semitic Leaflets Posted in Eastern Ukraine Raw: Magnitude-7.2 Earthquake Shakes Mexico City Ceremony at MIT Remembers One of Boston's Finest Raw: Students Hurt in Colo. School Bus Crash Raw: Church Tries for Record With Chalk Jesus Raw: Faithful Celebrate Good Friday Worldwide Deadly Avalanche Sweeps Slopes of Mount Everest
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Helium debate
Helium