140 characters, or about the length of two sentences. That was all it took for a Twitter hoax to momentarily rock the market last week.
A Twitter hoax last week claimed that President Obama was injured in an explosion at the White House. The tweet caused the Dow Jones industrial average to drop temporarily by 150 points, essentially erasing $136 billion in market value. While the markets recovered in minutes, the episode has heightened concern among regulators about the combination of social media and high-frequency trading.
While the tweet was refuted in minutes, the damage was done. More importantly, the potential effects were shown. High-frequency trading systems make trades based on keywords within milliseconds. The episode raises concerns about allowing social media on the trading floor.
The latest large-scale financial reform bill, Dodd-Frank, doesn’t even mention high-speed trading technology- it’s a new field that is continually evolving. The incident has raised a discussion of whether there should be increased safeguards in place to protect against the effects of social media.
The use of algorithms to sort through millions of sources of blogs and social media to analyze and execute trades is becoming more widespread. It’s a great new tool and alternative avenue of information, but it also is particularly susceptible to hacking.
What changes do you think need to be put in place to protect against the whims of social media? We’d love to hear from you.
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