The tweet’s report of explosions Tuesday afternoon at the White House was quickly corrected, but only after the Dow Jones industrial average dropped about 1 percent. Hackers calling themselves the Syrian Electronic Army asserted responsibility.
The episode, while lasting only several minutes, has drawn scrutiny from the FBI and a bevy of regulators while also highlighting the hair-trigger nature of today’s markets, where the demand for greater speed clashes with the occasional reality of misinformation.
A new generation of analytical software sifts through hundreds of millions of tweets and other forms of social media for early warnings about news that may move markets, and, in some cases, the programs order trades automatically, without human involvement. In a world where an edge of milliseconds can mean the difference between profit and loss, this software has quietly begun shaping decisions that affect billions of dollars in assets, say traders and Wall Street analysts.
The market snapped back Tuesday just as quickly as it had fallen. Yet experts say the incident may be an early indicator of the increasing dependency of traders on social-media platforms perhaps better known for their diet of celebrity musings, silly pictures and short-form social commentary.
“There are firms set up solely for the purpose of investing based on social media,” said Gary King, a Harvard social scientist who has developed a program to analyze tweets that is drawing interest from Wall Street. “I don’t know that they’re making any money, but they’re out there.”
Automated high-speed trading accounts for about half of daily stock market volume, and while few traders admit to having their algorithms make decisions based on a single tweet, several said the use of social media is growing. This kind of computerized trading tends to exacerbate market fluctuation, especially during sudden drops in prices, critics say.
High-profile Twitter accounts have been the subject of embarrassing hacks in recent months, including in February when hackers took control of the Burger King account, replacing its logo with the golden arches of rival McDonald’s.
Officials at Twitter did not respond to queries by The Washington Post on Wednesday, but Wired magazine’s Web site reported that the social-media site is preparing to roll out a security measure called two-step authentication. The move would mark a response to concerns that Twitter accounts too easily allow hackers to access them and send fake tweets.
It’s not clear whether Tuesday’s market drop was caused by fast-fingered humans or computers seeing the words “explosions” and “White House” in a tweet from a trusted source and ordering sales of stocks.