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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 t

by RaSoJo 14y ago

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

derefr 14y ago
Instead of shorting high, they could have just bought a bunch of index funds right in the trough. When "everything" goes down, "everything" is going to go back up. Conveniently, you wouldn't have to hold any positions in advance, so you'd appear to just be a player who figured out the non-veracity of the news quickly and took advantage of it to beat the market. You'd also not have to sell right away--you could hold onto the positions indefinitely, if you liked. The only problem is predicting the exact inflection point of the drop (i.e. the best time to place the buy order)--but I have a feeling people might be "predictably irrational" in this, and fake-news stories about easy-to-verify facts might have a regular/well-known half-life. This is classic "insider trading", just applied to a whole market instead of an individual stock. The only advantage of shorting in this case, I think, is if you didn't have the capital to actually make the money you wanted--you could do the shorts naked.
- danielweber 14y ago
  That would only be a 1% gain, hardly worth jail time. You would need to be playing options to make a 1% swing worth it.
lutusp 14y ago
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 14y ago
  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.
  - lutusp 14y ago
    > 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. :)
- kasey_junk 14y ago
  In what possible way did this impact the "average investor" (whoever that is)? It seems to show a pretty stable market to me. Think of it this way, what would have happened before electronic trading if a fabricated wire release had made it into newspapers? It would have taken weeks to sort out and "average investors" would definitely taken a hit.
  - lutusp 14y ago
    > In what possible way did this impact the "average investor" (whoever that is)? The average investor, of which there are millions, can't react quickly to market changes. They're in a mutual fund or another similar investment that moves glacially if at all to market changes, and that's generally a good thing (on the premise that buy & hold is a good thing). So there really is an average investor. And he really can't exploit fast market changes. > It seems to show a pretty stable market to me. Yes, but if this scenario is true, it represents an exploitation of a weakness in market information (some people have information that others don't), so it's an undermining of the premise of an efficient market.
    - 14y ago

by RaSoJo 14y ago

derefr 14y ago

Instead of shorting high, they could have just bought a bunch of index funds right in the trough. When "everything" goes down, "everything" is going to go back up. Conveniently, you wouldn't have to hold any positions in advance, so you'd appear to just be a player who figured out the non-veracity of the news quickly and took advantage of it to beat the market. You'd also not have to sell right away--you could hold onto the positions indefinitely, if you liked. The only problem is predicting the exact inflection point of the drop (i.e. the best time to place the buy order)--but I have a feeling people might be "predictably irrational" in this, and fake-news stories about easy-to-verify facts might have a regular/well-known half-life. This is classic "insider trading", just applied to a whole market instead of an individual stock. The only advantage of shorting in this case, I think, is if you didn't have the capital to actually make the money you wanted--you could do the shorts naked.

danielweber 14y ago
That would only be a 1% gain, hardly worth jail time. You would need to be playing options to make a 1% swing worth it.

lutusp 14y ago

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 14y ago
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.
- lutusp 14y ago
  > 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. :)
kasey_junk 14y ago
In what possible way did this impact the "average investor" (whoever that is)? It seems to show a pretty stable market to me. Think of it this way, what would have happened before electronic trading if a fabricated wire release had made it into newspapers? It would have taken weeks to sort out and "average investors" would definitely taken a hit.
- lutusp 14y ago
  > In what possible way did this impact the "average investor" (whoever that is)? The average investor, of which there are millions, can't react quickly to market changes. They're in a mutual fund or another similar investment that moves glacially if at all to market changes, and that's generally a good thing (on the premise that buy & hold is a good thing). So there really is an average investor. And he really can't exploit fast market changes. > It seems to show a pretty stable market to me. Yes, but if this scenario is true, it represents an exploitation of a weakness in market information (some people have information that others don't), so it's an undermining of the premise of an efficient market.
  - 14y ago