

Stocks Plunge, Quickly Recover, on Fake Tweet - uptown
http://blogs.wsj.com/moneybeat/2013/04/23/stocks-plunge-quickly-recover-on-fake-tweet/

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ChuckMcM
So that is a better hacking strategy than ddos'ing mt. Gox. Clearly if you can
make the DOW drop 127 pts on demand you can figure out a way to profit
handsomely from that. The simplest being to short a basket of stocks that are
going to be affected and cover the shorts with buy orders. Harder to track
than a 'one stock shock' as they say since by their nature DOW stocks are
heavily traded and people are guessing all the time if they are going to go up
and down. Spread $15 - $20M in shorts across the basket, cover them on a 15%
net gain in proceeds and then shoot the canary.

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chollida1
I work at a fund and we discuss this Ad nauseam:)

There are a few problems with this.

1) Forget execution and settlement risk, assuming you can get away with it,
can you really make enough to make it worth your while.

You only get one shot at this, how many times can you anonymously crater the
market?, and if you get caught you'll never trade again so you need to make
retirement levels of money on this one "trade".

2) Execution risk. Assuming you've got your short butterfly setup so that no
one will know you now need to unwind your trade in a matter of milliseconds
while making it look like you are reacting, rather than knowing this event was
coming.

Part of this is that like you said you'd do this over a basket of stocks.
Looking at a butterfly option layout in wikipedia it seems pretty simple.
Trying to get out of 30 or so of these trades in under 100 milliseconds isn't.

3) Settlement risk... You'd' be trading across multiple exchanges all with
different timings and liquidity. There is a good chance that your trade gets
busted by some but not all exchanges which means you go partial fills all over
the place and you might end up partially short and long when all the
accounting is done:(

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em70
I know of at least 5 firms who would have the means to make a big profit in a
rather stealth way and all of the infrastructure needed to minimize execution
risk (to the point that it may be negligible)... Just because you cannot do it
or that it is hard for you, do not assume it cannot be done or that it is (as)
hard for everybody...

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kasey_junk
I do to, and all 5 of them make more money as part of the regular operation of
the markets than they would as part of some Jerry Bruckheimer movie plot.

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chaz
Yet another reason why Twitter needs two-factor authentication.

    
    
      The tweet, which said that there had been two explosions at the
      White House and President Barack Obama was injured, came
      after hackers made repeated attempts to steal the passwords of
      AP journalists.
    

<https://www.facebook.com/APNews/posts/10151407898286623>

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betterunix
...or maybe we should not be relying on Twitter when we make financial
decisions?

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devcpp
If people with large pockets are dedicated enough to monitor Twitter, it must
probably have proven efficient enough to justify doing it. I don't expect them
to stop doing so until the fake tweets situation goes very big. And I'm sure
Twitter will react with stronger authentication before it gets that bad.

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error54
I think that any journalists that retweeted this should be unequivocally
fired. After all the jumping to conclusions the news outlets did last week
about the boston bombers and the subsequent apologizing for accusing innocent
people, there's really no excuse for this.

~~~
endersshadow
Good lord, fired? For re-tweeting an AP tweet? You may want to do independent
verfication, but hell, it's the AP. It's not like somebody set up an a AD
account and tweeted it as a fake AP. I don't blame anybody for re-tweeting
that.

What is with people and wanting people's jobs over every little thing these
days? In the land of Twitter and Facebook, you're not allowed to make an
occasional honest mistake any more.

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error54
An honest mistake is misspelling someones name. Retweeting that the President
of the United States has been injured without taking 10 seconds to establish
the veracity of story is just inexcusable and lazy journalism which could
someday get people hurt.

~~~
endersshadow
Oh, get over yourself. If they re-tweeted it immediately, then went to get
more info on it, found out that it was false, and then apologized/deleted it,
who cares? It came from a particularly reputable source, so simply clicking
one "re-tweet" button does not a fire-able offense make.

I'm glad to know that you've never made an assumption based on authority, a
minor mistake, or even taken a shortcut in your career, though.

~~~
error54
Calm down friend. I'm merely stating that my belief that as journalist, one is
in a trusted position of power to disseminate news to the masses and with that
power (excuse the cliche) comes responsibility. Blindly retweeting
sensationalist things without fact checking is no better than shouting "Fire!"
in a crowded building.

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runevault
Would be interesting to know how much of this reaction came from people
reacting, and how much from the High Frequency apps reacting to the people
reacting. I don't know if they have any way of figuring that out, but it would
be interesting to learn.

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pnathan
I am writing a tool to scrape social media and do sentiment analysis on that
to provide a signal to make stock recommendations. I plan to feed it into an
actual trading system at some point.

So the tweet would be integrated into the system, as would any reporting of
it. :-/

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chollida1
How would having twitter integrated into your trading system help you in this
instance?

My suspicion is that by the time other people start re-tweeting this the and
you can get any sort of twitter sentiment determination the market will have
corrected.

Are you taking the other side of this and hypothesizing that you can determine
twitter sentiment before the market reacts? If so please mail me, I write in
house trading systems for a living and I'd love to chat.

~~~
pnathan
> How would having twitter integrated into your trading system help you in
> this instance?

(1) In this instance, I'm pretty sure I don't know how to solve the problem
naively. It went onto a theoretically legit account. I would have to cross-
correlate with a couple other sources of information. At any rate, it points
out to me that I need to encode a 'reliability' measure of the information.

(2) Not really. I don't have the capital to operate at low-latency levels. My
hypothesis is the obvious one: markets are emotional and I should be able to
construct a predictor for certain industries based on emotions emitted on
accounts & news snippets relating to those industries.

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cube13
The "Plunge" was a 1% drop in the DJI average.

Concerning, sure, but not nearly as huge as the graphs make it out to be.

~~~
Rimpinths
It was a pretty big deal. I ran some queries against some intraday data of a
proprietary market index (kind of a cross between the S&P 500 and Russell
2000) and it was the biggest one minute drop (at -0.56%) that I found within
the past year.

For comparison, here are the top 5 that I found since 4/23/12:

(1) 4/23/13 @ 13:10: -0.56% (2) 8/1/12 @ 14:14: -0.45% (3) 11/29/12 @ 11:41:
-0.44% (4) 6/20/12 @ 12:33: -0.38% (5) 12/31/12 @ 13:47: -0.35%

As best as I can tell from the news on those days, (2) and (4) were related to
Fed announcements and (3) and (5) were related to the fiscal cliff.

~~~
cube13
I agree that it's a big deal. But I think a lot of people are reacting to the
images of the graphs, not to the actual numbers that the graphs represent.

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RaSoJo
Are these so called high frequency trading algorithms being fed Twitter/Soc
Med information? Not sure if pure human intervention could cause such a large
drop in so short a time period.

In which case, hacking multiple _relatively_ smaller information sources,
rather than larger govt. or banking sites could provide very high upsides with
much lower risks.

~~~
john_b
That is my hunch as well. HFT algorithms do exist which trade primarily on
news feeds, and given the relative ease of harvesting Twitter data, there has
to be more than just a few HFT bots that reacted to this.

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davesque
Interesting to think that having access to the twitter account for a major
news source is like having a "big red button". I wonder if people won't be
trying harder to gain access to things like this from this point forward.

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lutusp
This isn't just a hacker stunt, it's a great way to make money:

1\. Acquire a large hedging position that cashes in if the market should fall.

2\. Hack AP's Twitter account and post an alarming bogus news item.

3\. Wait 15 minutes.

4\. Sell your position.

Now -- who can say this isn't the real reason behind the hack?

~~~
RaSoJo
The perpetrators would have had to have short the entire Dow to make a profit
on this piece of news as it did not focus on any particular stock or sector.
And they would have needed to exit really fast to make their bundle. It could
have been an HF app designed to act purely on this kind of situation though

~~~
lutusp
Yes but shorting the entire market isn't difficult at all. And buying and
selling a position in a matter of minutes also isn't difficult in modern
times.

It's the modern equities market -- lightning fast, and not to the benefit of
market stability or the average investor.

~~~
RaSoJo
Agree. But was trying to understand if an individual hacker was behind this or
an actual big financial organisation.

I was of the opinion that an individual hacker would still be classified as an
average investor. He/she might not have had the tools to benefit from the end
result. _not sure_

A big organisation, on the other hand, would be much better placed to exit a
position based on custom algos and deeper integration into the markets to buy
and sell positions.

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lutusp
> I was of the opinion that an individual hacker would still be classified as
> an average investor.

Reasonable people may differ, but to me, someone who shorts the market, then
hacks AP and plants a false story, is not an average investor. :)

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enjo
If you're interested in how this works from a behavioral standpoint, this is a
very interesting study:

[http://digital.library.unt.edu/ark:/67531/metadc5130/m2/1/hi...](http://digital.library.unt.edu/ark:/67531/metadc5130/m2/1/high_res_d/dissertation.pdf)

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seeingfurther
We posted a chart of what the sentiment reaction and recovery looks like on
our twitter feed. <https://twitter.com/KredStreet/status/326758648737038338>

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freehunter
Is that really an infographic? Seems to me to just be a regular graph with
callouts.

~~~
seeingfurther
Yes you are correct. Edited the text. Not sure where my brain is this morning.
It's still pretty cool to see the data, no?

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kmfrk
It was the Syrian Electronic Army who dun it:
<https://twitter.com/Official_SEA6/status/326746641451327488>.

~~~
ceejayoz
Anyone can claim responsibility. Doesn't mean they actually were the ones to
do it.

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abarringer
fascinating charts here documenting the incident.
<http://www.nanex.net/aqck2/4176.html>

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chatmasta
Some script kiddy just made a lot of money.

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AznHisoka
How is investing in stocks not a glorified form of gambling?

When you buy a stock, and it goes down in price a few months later, the
experts tell you to buy more of it as it goes down, because it'll probably go
up in the future.

When you gamble $5 on a blackjack hand, Martingale experts will tell you to
gamble $10 on the next hand, and then $20 on the next hand again if you lose
the $10 hand.

Both are gambling.

~~~
AnIrishDuck
Not sure if serious. Investing long in e.g. the DJIA isn't gambling by any
stretch of the imagination.

That's not to say there aren't plenty of other transactions that may blur the
line a little more. Hell, entire options markets exist to make a commodity out
of risk.

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vikram360
Could this be the effect of some kind of automated opinion/sentiment based
trading?

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snptrader
That was awesome.. I trade S&P Futures and just got 30 points in 5 mins on
that.

