RE: RE: TSXV IS BROKEN, HERES HOW TO FIX IT I cleaned up my post a bit:
Increasing share value in markets comes from the earnings that companies make, but what has happened is that high frequency trading (HFT) algorithms microsecond by microsecond all day long pull all the value out. Real human traders are trading against computers. HFT tout they provided liquidity but that liquidity is risk free or low risk relative to other monies invested. We saw that yesterday. High frequency trading systems pulled from the market in the blink of an eye at a sense of danger leaving less responsive risk money holding the bag. A fake twitter message revealed that yesterday when there was a mini crash on stock exchanges. That is why people do not want to put up risk money any longer on the venture exchange. People have learned the system is rigged and are getting out.
Here is a news release on what happened yesterday:
https://www.marketwatch.com/story/twitter-trading-influence-laid-bare-by-fake-tweet-2013-04-23?dist=tcountdown
Twitter trading influence laid bare by fake tweet
High-frequency trading compounds damage, traders say
By Wallace Witkowski, MarketWatch , Sital S. Patel
SAN FRANCISCO (MarketWatch) — It was the tweet heard around the markets, and for about four minutes it sent everything crashing.
Shortly after 1 p.m. Eastern on Tuesday, a breaking-news tweet surfaced on the Associated Press’s main account, @AP, reporting that two explosions had gone off at the White House and that U.S. President Barack Obama had been injured.
In the blink of an eye, the Dow Jones Industrial Average DJIA +1.05% , the S&P 500 Index SPX +1.04% , the Nasdaq Composite Index COMP +1.11% , and crude oil CLM3 +0.53% all dropped 1%. The yield on the 10-year Treasury note 10_YEAR +0.06% fell 4 basis points and the CBOE Volatility Index VIX -6.32% , the so-called fear index, spiked 10%. Markets then raced back to their pre-tweet levels roughly four minutes later after the account was suspended and it was revealed that the tweet was a hoax.
The Associated Press said its main Twitter account had been compromised and that the attack had been preceded by a phishing attempt on AP’s corporate network.
And, of course, the Twittersphere was all atwitter about the breach. The company told MarketWatch it had no comment on the @AP hack.
But the deep, sudden impact of the tweet—the Dow went from a nearly 140 point-gain to a 13-point drop in a time span reminiscent of the May 2010 “flash crash”—confirmed that the microblogging site has evolved into an influential yet problematic tool for traders, particularly those that use computer trading programs.
“In many respects, Twitter is the latest news wire of Wall Street. Investors have come to rely on the social medium for minute-by-minute news and opinion,” Jack Ablin, chief investment officer at BMO Private Bank, said in emailed comments. “False reports due to the account hacking undermine Twitter’s credibility is some respects. We have to recognize Twitter for what it is, a social media site, and an unfiltered news source.”
NYSE floor trader Benedict Willis said the reaction said much about the role of high-frequency trading in today’s market.
“It is however a commentary on high frequency trading’s ability to demonstrate they are not liquidity providers, and that this market is vulnerable to a computer generated turbulence,” Willis said in emailed comments. “There were no bids to hit, that makes you question how many real buyers, if any, were represented.”
Social media is becoming a more legitimate source for information now that the SEC has given companies explicit permission to use sites such as Twitter, Facebook Inc. FB +0.04% and LinkedIn Corp. LNKD +5.02% to make announcements.
In some ways, that has made social media a double-edged sword when those accounts are hacked. Hackers have not only tried to break into computers at Apple Inc. AAPL +1.87% and Facebook, they’ve broken into Twitter pages maintained by Burger King and Chrysler’s Jeep brand. Even the BBC’s weather service Twitter account has been hacked.
As with any new information technology used by markets, managers and traders need to realize false market-moving news is always a risk that needs to be dealt with, especially in the volatile world of high-frequency trading, according to Philip Pearlman, executive editor at StockTwits a social-media site focused on stocks.
Stocks resume rally after fake tweet
U.S. stocks rose on Tuesday, recouping after an erroneous tweet pushed equities down 1% in seconds. Kaitlyn Kiernan breaks down the big moves of the day on The News Hub.
Plus, Pearlman added, the Dow plunge only lasted a few minutes before the index recovered to near its earlier levels. It ended up 152 points, near its highs of the day.
“In a way, that’s a really healthy thing: The dissemination that it was a hoax went out just as quickly, and the latency was very, very brief,” Pearlman said. “People are not focusing on the resiliency of the market and the self-corrective aspects of social media.”
Indeed, the action illustrated how investors, at least those with a short-term horizon, are prone to knee-jerk reactions.
“I think it’s a sad comment of trading these days where a tweet, a simple tweet, can have that sort of an impact when not verified by other sources,” said David Ader at CRT Capital Group in emailed comments. Ader said the reaction shows how jittery trading is these days and how headline news is having greater influence than fundamentals.
Sal Arnuk, co-owner and partner at Themis Trading, said Tuesday’s events demonstrate the extent to which Twitter is used by high-frequency traders in today’s fast paced marketplace.
“Everyone realizes that this [Twitter] is the Wild West in terms of news content delivery and consumption nowadays,” he said. “The real issue is that we all have to realize how quickly the markets can react because of the automated nature of the markets to information, good or bad.”
He added that the SEC will have a difficult time monitoring and catching individuals who hack tweets and move markets, because of the global nature of the markets. The SEC declined to comment on whether or not it will be investigating the market impact of the trade.
“I imagine there will be additional trading safeguards that will need to be enacted, as there were following the insider-trading scandals,” said Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors, in emailed comments.
“It could also be an emerging form of terrorism, one based upon disrupting financial institutions along with destroying public faith in those institutions,” Sorrentino said.
“It isn’t a prank and it isn’t funny,” said Edward Skyler, executive vice president for global public affairs at Citi, in emailed comments. “I imagine that if the Secret Service can identify these clowns, they won’t be laughing either.”
But really, it does ultimately boil down to confirming any market-moving information with other sources before acting, said Garrett Nenner, managing director at Rosenblatt Securities, in emailed comments.
“We’ve seen issues like this occur in the past more than once,” he said. “Relying on a single source of information is dangerous.”
The market gyrations highlight how a high-frequency trading algorithm can “read” a tweet, and press the sell button in a microsecond, which is what likely happened with the fake tweet about events at the White House.
“The algorithm or processor put those words together and then related it to the U.S. markets as a national event that would negatively affect all stocks,” Nenner said.
Wallace Witkowski is a MarketWatch news editor in San Francisco. Follow him on Twitter @wmwitkowski. Sital Patel covers Wall Street and the financial services industry from New York. You can follow her on Twitter at @Sital. Ron Orol in Washington D.C. and Saumya Vaishampayan in New York contributed to this report.