The market was gripped by four minutes of panic last Tuesday afternoon when a false tweet from the Associated Press reported explosions at the White House. The Twitter alert came out at 1:07pm, and the market took an immediate and dramatic plunge. In the sell-off, something like 2.2 million trades occurred on around 8,000 stocks. In just two minutes, $136 billion was wiped from the S&P 500. By 1:11pm, the market had recovered after the AP announced that its feed had been hacked and the tweet was false.
It was all over in less than five minutes. But the speed and severity of the decline highlights Twitter’s influence over the market, and the role of computers and high frequency trading.
The ‘hack attack’ is an example of what happens when those two forces collide. The fake tweet was retweeted 1,800 times in a matter of a minute or two. And automated high-speed trading programs that scan news streams placed sell orders in a fraction of an instant. The ‘hack attack’ is what can happen when computer trading programs and social media interact with each other with no humans in between.
If you blinked you would have missed the crash. But no matter how quickly it ended, it is a reminder that in a wired world, where information moves instantly through markets with a hair-trigger reaction, misinformation can be expensive.