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. 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.
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.
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.
Experts say the fake tweet seemed designed to catch a computer's attention.
- 'Llama drama' owners say USDA draws line...
- Sen. Harry Reid's retirement recalls his...
- Wyoming ranked third in US in percentage of...
- 'A marvellous work and a wonder': A look back...
- Hundreds rally against Indiana law, say it's...
- Move over 'Phantom,' Coldplay getting air...
- Painstaking recovery mission at treacherous...
- Deliberate crash of German plane highlights...
- 'A marvellous work and a wonder': A... 63
- 'Maternal feminists' defend motherhood... 54
- Rep. Trey Gowdy: Hillary Clinton wiped... 48
- Sen. Harry Reid's retirement recalls... 36
- Senate's Harry Reid announces he won't... 34
- Alone at controls, Germanwings co-pilot... 27
- Preparing for 2016 campaign, Hillary... 17
- Military: Bowe Bergdahl may face life... 17