Is Twitter A Market Manipulator’s Dream?

Jonathan Fields from CareerRenegade.com and JonathanFields.com (follow him at @jonathanfields) asks whether Twitter is a Market Manipulator’s Dream?

On The Drill Down on Friday, Andy, Mu, Reg and Lid had a great discussion about the speed with which the twitterspere can bring news to the world, often breaking stories before even the biggest mainstream news outlets could.

Joining the conversation was guest Daniel Honigman, Social Media Strategy Coordinator, Tribune Interactive who is the brains behind Colonel Tribune…the voice of the Tribune in social media.

The conversation began to make me wonder, how you handle the inevitable inaccuracies that pretty much necessarily come with twitter’s time-warp speed, especially when you’re the voice of a major, mainstream media outlet.

So, I asked, and, his answer was essentially that they try to correct it pretty quickly, if something wasn’t right.

But, here’s where it gets really squirrely.

What happens when the content of the original tweet was so sensitive that it literally moved markets or even the price of a single stock? A correction issued by tweet, even seconds later, might still not be enough to reverse the economic impact.

For example, let’s say someone who tweets/blogs about the markets with a substantial following or mainstream news creds decides to tweet “just heard Jobs isn’t keynoting Macworld.”

That then gets retweeted by 10% of that person’s followers and so on and so on. So, within 60 seconds, hundreds of thousands of people, if not millions get the “news.” And, they start to spread it beyond the twittersphere into the blogosphere, while simultaneously placing sell orders on Apple stock.

This creates a ripple effect and people begin to sell on the rumor, making the stock drop.

Ten minutes later, once the tweet rumor hits mainstream blogs and media, those with the contacts and resources begin to make calls. With some quick vetting, they discover and announce there was no truth to the original tweet. And, a correction in stock price follows, but what took seconds to drop takes a few weeks to rise. And, for those who sold near the false bottom and stayed out, they’ve just taken a financial hit.

Which all begs the question, is there some fuzzy line where those of us in the high-speed social media communication world take on an implied responsibility to vet before tweeting?

Trust me, as a “heavy user,” that’s certainly not my preference.

But as a former SEC enforcement attorney (waaaay former), it’s amazing how many windows I see to tap social media for the purposes of market manipulation.

The example I just shared above wasn’t about intentionally manipulating the markets. But…it could have been.

And, that scares me a bit. Just something I’m thinking about as twitter, in particular, starts to mature a bit and scream it’s way into the mainstream consciousness.

Curious, what do you think?

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Jonathan Fields is the author of Career Renegade: How To Make A Great Living Doing What You Love. He blogs at CareerRenegade.com and JonathanFields.com

Comments

  • January 20, 2009

    That’s why Twittcred is so important… Twitter Credibility if you know what I mean. Twitter has really changed the game and I totally agree it’s a dreamland. The scary thing is that there are so many fake gurus, marketting experts and coaches in the Twitterworld it’s almost funny.

  • January 20, 2009

    This reminds me about the Engadget story. When they posted a false rumor about Apple, they knocked a huge dent in Apple’s Stock. The stock recovered shortly after they announced their mistake.

    Now with Twitter, I think it has the potential to do more lasting damage for two reasons: 1)it can be hard to find out the source of the information, and 2) people tend to tweet bad news before good news.

  • January 20, 2009

    Just as with websites and blogs before it, Twitter is just another, easier way for people to communicate. And the easier it is to spread information, the easier it is to spread false information.

  • January 20, 2009

    I think it’s a valid concern, and I’m sure it’ll play out one of these days, but I don’t know that there’s much people could or should do about it.

    This isn’t exactly a new problem, rumour has existed as long as language, and it has always had the ability to do a great deal of damage, but how can it be stopped? Should people be forced to verify everything they say? I don’t know that that’s practical.

    I think it’s a problem we’re just going to have to live with.

  • January 20, 2009

    Great post. As a new twitter user I’m amazed at just how fast this is taking off. It won’t be long before legislators will be faced with these issues. Then look out… the next round of head-chopping will begin!

  • January 20, 2009

    I think this is the 21st century, on-steroids version of the old “repeat a whisper in a circle” game we played in grammar school. I also think you spelled “its” wrong. ;-) No apostrophe as a possessive.

  • January 20, 2009

    While the senario would require a bit of perfect timing, it could certainly happen. And, despite the current reputation of US securities regulators, NASDAQ’s market surveillance team would be on those trades in the same day, and start an investigation, and hopefully prosecute the person who intentionally started the rumor. Remember, Tweets are forever.

    I think it would be extremely difficult for anyone to intentionally move a market in any particular way. While I know that the social media geeks think they have great influence because they have 10,000 followers, they don’t have that much influence. I don’t know how seriously they are taken in the real world. I certainly wouldn’t buy a stock because Scobie or ChrisBrogan said to do so.

  • January 20, 2009

    In the future knowing who you trust becomes more important than ever.

    After all, “not everything you’ve heard (or read) online is true.”

    At the moment, there are millions of Twitter users, but not all of them online at the same time, so early adopters might learn something and then neutralize the “rumor” and help news users find the truth.

    Just that the rate of what’s happening becomes faster and faster. I check my news reader only once a day but TweetDeck at least every hour… but I’m still sure there are ways to keep this in balance. Otherwise people just won’t use this medium because of the reason you mentioned.

  • January 20, 2009

    While it’s a little bit dated, check out my blog post from May 2007 about how a single, erroneous blog post (about a delay in the iPhone and OS X Leopard) had a dramatic effect on Apple’s stock price.

    Ah – upon reviewing the other comments, it’s the story that Derek was referring to. Can only imagine that such behavior could be further amplified in the Twittersphere.

    http://www.wikinomics.com/blog/index.php/2007/05/18/blogging-and-stock-market-insanity/

  • January 20, 2009

    Twitter is also democratic though, and I think this can help weed out inaccurate information.
    If people repeatedly RT false rumors, the community will vet this by un-following and NOT retweeting those folks.
    (This is akin to the “Wisdom of Crowds” theory).
    Any media can fall victim to false information, but I think Twitter has the capacity to be more self correcting.
    -Josh

  • January 20, 2009

    You can imagine the implications for national security and foreign relations!! This is a very serious concern on the government side of things.

  • January 20, 2009

    That’s an interesting point about stock manipulation – I wonder how long it will be before we see the first arrest for insider dealing via Twitter?

  • January 20, 2009

    Jonathan – It is the speed at which news travels that makes it scary. There has always been a communication vector for rumors, fears and juicy news. These things, whether they are true or not, have a way of getting around, even if it is just by word of mouth. Twitter and the online community, in general, just seem to spread the word so much faster.

    It is important to check your facts before reacting to what you read anywhere!

    Very thought-provoking article!

  • January 20, 2009

    Great pots there we see how its really dangerous how juts one message on a media like twitter could affect some or other part or the life of other the fact its that not always you notice it because you are not in the direct effected medium.

    But its a good pots to sensibility doze that could do thing like give fake news and to make they think several times before spread a messenger like that one.

  • January 20, 2009

    Market manipulation? Plan on it. Plan for it. Can Twitter self correct better than previous technologies? Not yet.

  • January 20, 2009

    Jonathon,

    Excellent point. At work here is human nature, our natural desire for “fame”, which should be kept in check with our innate wisdom. If I get some really cool news that I think no one has, of course I want to be first. But I also don’t want to be the ass that started a market plunge.

    Check and re-check – and then maybe retweet.

    John

  • January 20, 2009

    If you’re trading twitter posts and you’re an effective day trader I would contend that you probably wouldn’t be hurt too badly. If you’re not an effective day trader you shouldn’t be trading twitter posts.

  • January 20, 2009

    Yep, you’re right, in that information has a much greater velocity today. But it is no different than dissecting “facts” from any media source. Do you remember the Jared from Subway died tweet that flew around Twitterville? I did as I always do before passing on information, searched Scopes and Google for confirmation, and found a refutation.

    Josh is on point; the market will sort out credible from non-credible sources over time, and anyone who seeks to profit on information without confirming its validity will learn a valuable lesson over the long term. Isn’t this the future that William Gibson has been imagining for us?

  • January 20, 2009

    Like it or not, this is the way the world is going. Hyperconnectivity means that messages will travel as fast as the internet can carry them, and what was local is now global.

    What I think will temper this, will be a series of hoaxes that will turn Twitter into another place on the internet that must be taken as a grain of salt. In the beginning all social groups start out as Utopian ideals, but human intervention in the form of vandalism, propaganda and general misinformation will introduce cynicism to what is currently a fairly clean feed.

    Believe half of what you see will apply to Twitter soon enough.

  • January 21, 2009

    Thanks for mentioning that podcast, and for raising the question.

    You’re absolutely right. Journalists are trained to not only get the facts right, but to introduce error. On the social Web, however, if a mistake is made, I believe your best move is to:

    1. Admit you made a mistake.
    2. Correct the mistake.
    3. Thank the person or people who pointed out the mistake.
    4. Respond personally, if necessary.

    I remember a story from NPR’s “On the Media” a couple of years ago about Wikipedia, and there was a stat along these lines: For every 1,000 facts introduced, the Britannica introduced three errors. For every 1,000 facts introduced on Wikipedia, there were only four. And the good thing is that the facts are changed quickly.

    With Twitter, especially if you’re a news organization, you’ll get called out. But if you have a solid following, you’ll get corrected quickly. Plus, I trust my reporters and editors to double-check their facts and headlines so that we don’t mislead anyone.

  • January 21, 2009

    To be honest, I wish I had the influence of having hundreds and hundreds of people re-Tweet me.

    But let me flip this on you: How many times have you blindly re-Tweeted someone without checking to see if the story was true? Nobody’s immune to this. During Hurricane Gustav, one of my reporters, James Janega, caught wind of a rumor that was spreading like wildfire via Twitter that folks without IDs — homeless people — weren’t being allowed to evacuate. James called some people and found out that the rumor wasn’t true. (Check about halfway down the page.) He used his instincts as a journalist to try to confirm something, and he correct a fact that was floating around.

    If James let that go, his credibility as @GustavReporter and his credibility in the newsroom would’ve taken a hit. And he would’ve done his followers — and others following the Gustav happenings — a disservice.

  • January 24, 2009

    I think Daniel is right – there is the potential for even more credibility on Twitter. I have been corrected a few times by my followers, and they’ve always been right. I’ve quickly sent out a clarification or even a correction if needed. Having hundreds (or even thousands) of people looking at your posts in 140 characters is better than having a good copy editor vetting your posts – by far. Sure, it’s after the fact, but you can correct quickly.

    That being said, since there’s no real way to delete a tweet and no way to edit one, you should take a deep breath before you post a tweet, especially one about a sensitive topic.

    A hoax perpetrated on Twitter is not much different than a hoax on any other medium.

  • January 24, 2009

    Excuse me, James corrected an error. (See, I corrected myself.)

  • January 24, 2009

    I see Twitter manipulating the media more than a market. I have seen it with natural disasters, political campaigns and planes landing on the Hudson River. If Twitter had a big impact on the market I would be trying to recover the money I lost in my 401k by tweeting.
    Great post. (Found it on Twitter.)

  • January 24, 2009

    @ Daniel – Agreed, nobody is immune and it sounds, from your experience, like those who have both mainstream press credentials and an active social media platform may even feel a stronger burden to vet their higher-speed social media communications that those who don’t have those credentials.

    My guess is traditional journalists may also be better trained in “how” to vet than most others and be more aware of the potential fallout. My thoughts weren’t intended to be a rip on mainstream media who also have substantial social media profiles, but, rather a question about the responsibility of everyone to spend more time vetting stories.

    And, reality is, it probably goes beyond the potential for market manipulation to things like defamation. What if you retreat something that intentionally defames a non-public person, without ever checking to see if it was true…or even reading a post linked to in the original tweet? Does your inadvertent RT make you a party to that defamation? Dunno?

    Tough questions all around and, honestly, right now, I have more questions than I have answers. But, they’re questions I think are worth exploring as we all work to develop the social media rules of the road and understand how they intersect with the laws of the land. :-)

  • January 24, 2009

    I agree with Daniel, and this should be a lesson to novices. It’s very easy and tempting to post quickly without thinking. It’s part of what makes Twitter so great, and part of what makes it dangerous.

  • April 9, 2009

    Yep, twitter has some major consequences of breaking out bad and/or false information. I think what these people should innovate is some sort of credibility mark or status, and yes, the idea that people should be more critical about what they tweet, read, and do…

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