Computers on autopilot trading rattle Dow Jones
Source: Agencies |
April 26, 2013, Friday
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Print Edition
Print Edition
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 selling - eventually unloading US$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 showed the danger of handing control to the machines.
Just how exactly the trading unfolded on 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 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.
Others, like Saluzzi, think computers may have sold on the tweet itself. That's possible because computer trading programs are increasingly written to read, and react to, news from social media outlets like Twitter.
Rich Brown, head of Elektron Analytics, a Thomson-Reuters unit that sells news feeds that computers can read, said that the words "explosions" or "Obama" alone wouldn't have triggered selling. But add "White House," and it's a combination even the slowest computer couldn't miss.
Brown said his service doesn't include Twitter in its feeds because there's too much useless "noise" in the deluge of tweets and, given the 140-character limit to tweets, often too little context.
Before the fake tweet appeared on Tuesday, it looked like any other good day on Wall Street. Unexpectedly strong earnings reports sent stocks in the Dow Jones industrial average up 1 percent to 14,697 with three hours to go in the trading day.
Then, at 1:08pm local time, a tweet appeared on the hacked AP Twitter account stating that two explosions at the White House had injured President Barack Obama. Stocks immediately started falling and tumbled for two minutes.
The Dow dropped from 14,697 to 14,554, losing 143 points, or 1 percent. In the frenzied selling, oil prices fell, gold rose, the dollar rallied and the price of Treasury notes, seen by many investors as a hiding spot, shot higher, briefly knocking yields to their lowest level of the year.
The AP quickly said its account had been hijacked and the report was false. The Dow recovered all its losses by 1:18pm.
No sooner did hackers send a false Associated Press tweet reporting explosions at the White House on Tuesday than investors started selling - eventually unloading US$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 showed the danger of handing control to the machines.
Just how exactly the trading unfolded on 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 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.
Others, like Saluzzi, think computers may have sold on the tweet itself. That's possible because computer trading programs are increasingly written to read, and react to, news from social media outlets like Twitter.
Rich Brown, head of Elektron Analytics, a Thomson-Reuters unit that sells news feeds that computers can read, said that the words "explosions" or "Obama" alone wouldn't have triggered selling. But add "White House," and it's a combination even the slowest computer couldn't miss.
Brown said his service doesn't include Twitter in its feeds because there's too much useless "noise" in the deluge of tweets and, given the 140-character limit to tweets, often too little context.
Before the fake tweet appeared on Tuesday, it looked like any other good day on Wall Street. Unexpectedly strong earnings reports sent stocks in the Dow Jones industrial average up 1 percent to 14,697 with three hours to go in the trading day.
Then, at 1:08pm local time, a tweet appeared on the hacked AP Twitter account stating that two explosions at the White House had injured President Barack Obama. Stocks immediately started falling and tumbled for two minutes.
The Dow dropped from 14,697 to 14,554, losing 143 points, or 1 percent. In the frenzied selling, oil prices fell, gold rose, the dollar rallied and the price of Treasury notes, seen by many investors as a hiding spot, shot higher, briefly knocking yields to their lowest level of the year.
The AP quickly said its account had been hijacked and the report was false. The Dow recovered all its losses by 1:18pm.
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