Fake Tweet And Algorithmically Twitchy Financial Markets Lead To Market Swing; But Is That So Bad?
from the how-to-create-momentary-financial-havoc dept
Lots of people have been rightfully concerned about just how much of the trading in the financial markets is done algorithmically via high frequency trading systems that execute trades faster than any of us can comprehend, based on various algorithms, trying to shave little bits and pieces of profit. The key worry, of course, is that these algorithms can get into something of an infinite loop problem that spins the markets out of control. We've had momentary blips, at times, that happened so quickly it wasn't even clear why they happened. And now we have a case where overreacting to a fake tweet may have briefly cost the financial markets $136 billion (yes, with a b).The story is that the Associated Press's twitter feed was hacked and a bogus tweet was posted, reading: "Breaking: Two Explosions in the White House and Barack Obama is injured."
For those who think this is a problem, the bigger question might just be: and, so, what do you do about it? I'm just as worried as the next guy about the problems of such inter-connected, algorithmic trading systems spinning out of control, but I can't think of any way to prevent it that doesn't also lead to great collateral damage for more efficient or reasonable markets. That doesn't necessarily mean there isn't an answer, but it doesn't appear that there's an obvious response, seeing as no one has introduced any. In the end, it may be that this is just a fact of life. People are always going to seek out ways to beat the market by being first. And many times that will lead to great profits. But sometimes, when a story like this comes out, you get burned. Maybe that's perfectly reasonable.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Companies: associated press, twitter
Reader Comments
Subscribe: RSS
View by: Time | Thread
[ link to this | view in chronology ]
Re:
[ link to this | view in chronology ]
Re: Re:
We are the first with this accurate news as our reporter was able to read to nearly the end of the techdirt article at this point.
[ link to this | view in chronology ]
Re: Re: Re:
[ link to this | view in chronology ]
Re: Re: Re: Re:
[ link to this | view in chronology ]
Re: Re: Re: Re: Re:
[ link to this | view in chronology ]
Re: Re: Re: Re: Re: Re:
[ link to this | view in chronology ]
Re: Re: Re: Re:
[ link to this | view in chronology ]
Re: Re: Re: Re: Re:
[ link to this | view in chronology ]
Based on rumors
We're living in a world where everyone wants all of the rewards but none of the risk involved. It's called 'entitlement', and people and/or corporations feel they're entitled to all of the money in the world (or at least a good sized chunk of it) without any risks. Politicians are bribed to pass laws to help decrease or completely do away with risks. That's how our world works now.
So it makes perfect sense that one little (or big) rumor can move the markets since people have fear of risk and losing everything.
[ link to this | view in chronology ]
Oooh, I've an easy FIX, Mike!
You're some economist, aincha? No opinion on nothin'.
Take a loopy tour of Techdirt.com! You always end up same place!
http://techdirt.com/
Where Mike daily proves the value of an economics degree.
11:31:30[m-962-3]
[ link to this | view in chronology ]
Re: Oooh, I've an easy FIX, Mike!
[ link to this | view in chronology ]
Untrustworthy markets
These sudden swings, no matter what triggers them, don't reassure average investors that stocks are the place for them to be.
So is it a problem? It depends on whether you want widespread participation in the market or whether you just want a narrow sector of the population trading back and forth. It's another indication that the 1% make their money differently than other people.
[ link to this | view in chronology ]
Re: Untrustworthy markets
[ link to this | view in chronology ]
Re: Re: Untrustworthy markets
[ link to this | view in chronology ]
Re: Untrustworthy markets
[ link to this | view in chronology ]
Deliberate manipulation
[ link to this | view in chronology ]
Re: Deliberate manipulation
But with the rapid trades now, it is increasingly a sucker's game unless you have ultra-fast computers. It's sad that some of the best minds in the country have been used to create computer programs to shuffle money around rather than actually doing something to help humanity.
[ link to this | view in chronology ]
Re: Deliberate manipulation
[ link to this | view in chronology ]
Re: Re: Deliberate manipulation
[ link to this | view in chronology ]
Re: Re: Deliberate manipulation
[ link to this | view in chronology ]
Re: Re: Deliberate manipulation
And it is wrong to exploit stupid people. A fool and has money may well be quickly parted but when it comes to investment markets at least there are all sorts of rules about what you can and can't do and say. See insider trading, ponzi schemes, pump and dump, etc
[ link to this | view in chronology ]
Re: Re: Deliberate manipulation
[ link to this | view in chronology ]
There is no cyber war
I learned this from reading Techdirt.
[ link to this | view in chronology ]
Re: There is no cyber war
[ link to this | view in chronology ]
Re: Re: There is no cyber war
Zeig Heil!
[ link to this | view in chronology ]
Re: Re: Re: There is no cyber war
[ link to this | view in chronology ]
Re: Re: Re: Re: There is no cyber war
Imagine the Chinese or other enemies of the US using a similar, but more coordinated attack to play the media into falsely reporting a nuclear attack. If the guys doing it for the lulz can pull it off, imagine what someone with a real plan could do.
Techdirt repeatedly denies the existence of cyber warfare and it's potential effects on the US. It's a fine example of where Techdirt is entirely wrong.
[ link to this | view in chronology ]
Re: Re: Re: Re: Re: There is no cyber war
http://en.wikipedia.org/wiki/The_War_of_the_Worlds_(radio_drama)#Public_reaction
[ link to this | view in chronology ]
Re: Re: Re: There is no cyber war
No, when Techdirt gets it wrong you should, in a constructive adult fashion, point that out and explain why. In this case though , I see no reason at all to believe TD got it wrong and your comment was a mile away from being constructive or adult, and was just trollish. So shut up.
And if this is what you think amounts to cyber way, I say bring it on. Some over-paid gamblers lost some money and some other over-paid gamblers made some, and the net result was not much of anything. Beats a real war any day.
[ link to this | view in chronology ]
Re: Re: Re: Re: There is no cyber war
[ link to this | view in chronology ]
Re: Re: Re: Re: Re: There is no cyber war
[ link to this | view in chronology ]
Re: There is no cyber war
[ link to this | view in chronology ]
Algorithmic control and fast trading
All it would take is to slow the allowable trades from any source to a specific minimum between trades. Now this has its own problems ensuring this, but averaging the transaction times is one way to force a slow down.
I have spent various amounts of time paper trading (which is a recommended must before using actual funds to trade) to see what happens and I have found that as long as there is some level of being able to see buy/sell trends then the momentum pushing in any direction is lessoned. That is only my view and YMMV.
Every training course I have ever been on in relation to share markets and the various means of trading has always emphasised that it is a form of gambling, there are risks involved. So only use what you can afford, learn before you put money down, and if you find a method that works for you while paper trading then make NO changes to your method when you do lay money down (any changes made will almost certainly guarantee that you will lose your money). And lastly, if the volatility in the market is too much, don't trade, wait for another day.
And as the cover of "The Hitch Hikers Guide to the Galaxy" says "Don't Panic"
[ link to this | view in chronology ]
Re: Algorithmic control and fast trading
What happened to a lot of Baby Boomers is that they were saving for retirement and then saw their portfolios take major hits several times since 2000. Now they really can't afford to take more risks and don't want to get back into the market.
There aren't really any great investments right now, particularly safe ones, but at least if you hang on to cash, given the low inflation rate, you won't lose that.
The people who have money to lose, have money (which they are throwing into property, the market, art, and angel investing). A lot of other people don't any money to lose. As income inequality increases, the participation in the market will likely continue to shrink.
The stock market no longer has an aura as a place to improve your lot in life.
[ link to this | view in chronology ]
Re: Re: Algorithmic control and fast trading
[ link to this | view in chronology ]
Re: Re: Algorithmic control and fast trading
also, invest for the long-term. Assuming a company isn't in serious financial trouble, it'll likely survive for a while. The general recommendation is that you shouldn't invest in the stock market with money you will need in the next 3-5 years. Why? because over that length of time, stocks tend to rise. (plus, if you know the company is stable, a price collapse is often a good opportunity to buy. why? because long-term, the price will rise up again, and you bought shares on the cheap. That, and it results in a higher dividend yield. ( if the share normally has a dividend yield of $5, with a price of $100, you would normally get a 5% dividend yield ( which is a decent yield) if the price drops to $50, then you buy, you can get a 10% yield. Plus, when the price goes back up, you double your money.
[ link to this | view in chronology ]
Re: Re: Re: Algorithmic control and fast trading
I was talking about someone approaching 65. Yes, if you are young enough and have you enough years ahead of you, then putting money into the S&P 500 is a good idea. But if you are approaching retirement, there are fewer safe places to put your money. Either they are volatile or don't pay much in the way of a return.
[ link to this | view in chronology ]
Re: Re: Re: Re: Algorithmic control and fast trading
Between the change in the world economy (growth is much less assured now) and the changing nature of investments, that range of investment opportunities just isn't there anymore. And if you look at who is making money, it isn't the majority of people in the country. They are treading water at best. The population as a whole isn't reaping any rewards from whatever investment opportunities there are.
[ link to this | view in chronology ]
when you look around the stock market for the mark...
it is YOU, my fine feathered sheeple...
the stock market USED to be what -in effect- kickstarter, etc is today: a means of raising capital for REAL business purposes...
now ? a rigged game for the uber-rich to milk the masses even more; and algo/millisecond trading is simply another tool to do that...
it has NOTHING to do with actually funding businesses on the stock market... when your average algo trade is held for all of 11 seconds, that has NOTHING to do with 'real' markets and 'real' money...
nope, it is ALL a means of separating the peasants from the few shekels they have left...
art guerrilla
aka ann archy
eof
[ link to this | view in chronology ]
Re: when you look around the stock market for the mark...
now ? a rigged game for the uber-rich to milk the masses even more; and algo/millisecond trading is simply another tool to do that...
I'd say that's how lots of people view it today. Decades ago people formed investment clubs and did their own research and invested in companies that they felt had long term potential.
Now, with trades happening so quickly and for reasons that often have nothing to do with the quality of the corporations, why would people want to put their hard earned cash into the market?
And further, when you see CEOs rewarded even though their companies are doing badly, how much faith should one have in the entire financial system? And of course, there have been the financial bailouts. How many people believe Wall Street knows what it is doing?
[ link to this | view in chronology ]
Here's a good piece
Solutions Remain Elusive After Financial Crisis - NYTimes.com
[ link to this | view in chronology ]
Swing Trading
[ link to this | view in chronology ]
Design market
gloucester printing
[ link to this | view in chronology ]