Did Twitter Crash The Stock Market?

One fake tweet caused a “flash crash” freak-out in the market. What does this tell about the fickle nature of high-frequency trading and the power of social media?

The pen may be mightier than the sword, but Twitter is, evidently, more powerful than the free market.

A fake tweet published at 1:07 p.m. Tuesday by someone who hacked an Associated Press Twitter handle announcing an attack on the White House singlehandedly sent stocks careening to a dramatic low. AP immediately corrected the blip, the market recovered from its 143-point plunge and we all starting asking questions about the fickle antics of high-frequency trading.

So what gives?

Well, NPR broadcase a riveting explanation on how seemingly innocuous Twit-chat could fall like a heavy ripple-inducing rock into the murky algorithmic pond that is Wall Street.

Turns out, it’s the robots’ fault.

Radio host Audie Cornish explains: “So basically, what you have are these algo[rithms] that are constantly monitoring social networks such as Twitter or Facebook or corporate websites and they’re constantly pinging those sites for new information. On Twitter, as I understand it, what they’re looking for are trends. So if there’s a keyword that keeps popping up that’s linked to a company, like company X plus bankruptcy, and that keeps popping up, that might be a sign that something bad is going to on.”

In other words: computers buying and selling stocks by the nanosecond comb through the Interwebz for keywords and react to particularly dramatic language like “attack” and “Barack Obama is injured.” They’re programmed to get the job done faster than the speed of humans, sure–buying and trading millions of small trades per second to add up to collectively massive profits. But they’re equally prone to freaking out a hell of a lot faster than a living, breathing person.

So the market recovered within about two minutes. We’re fine, all’s well. But “flash crash” incidents like the one this week definitely underscore the vulnerability of automated trading.

This certainly wasn’t the first time social media left a mark on the market, as Business Insider illustrates.

Since this is apparently a recurring trend, a New York Times blogger asked readers to name the phenomenon. What do you think fits? “Hash crash?” “Hash drag?” The “terror error?”

Or how about something Tom Petty-inspired, like “Twee-fallin’?”

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