You may be wondering why the hacking of the Associated Press’s Twitter account is worth discussing in a financial column. It seems like a pretty trivial deal.

For those of you who didn’t follow the story; what happened was someone hacked the AP’s Twitter account and sent out a false tweet about the White House getting bombed and that the president had been injured.

The stock market had an immediate reaction. The Dow Jones Industrial Average fell over 145 points in a matter of minutes and rebounded — the whole 145 point drop and recovery lasted less than 10 minutes.

---

---

Mark Cuban, the owner of the NBA’s Dallas Mavericks, was quoted as saying, “140 characters and … $200 billion in market cap just disappeared … what’s going to happen when there’s a real event?”

That’s a great point because if it had been real who knows how furious the market sell-off would have been.

---

---

Right now a group called the Syrian Electronic Army has taken credit for the hack, and it does open up a real concern and that is what if fraudsters took market positions, then hacked a news organization’s account and sent out some false news just for the sake of profiting?

It could be a new form of financial fraud, in an already fraud filled market. The SEC and the CFTC are investigating to see if anyone profited from unusual trades. The FBI has also been called in on the investigation and hopefully, they’ll get to the bottom of it.

It’s been kind of alarming for investors to see how much impact one tweet can have on stocks.

Today, news travels around the globe faster than ever and trades get executed with amazing speed. With a quick sell-off like that, there were thousands of protective stop orders triggered, resulting in losses for the investors and traders who had placed them.

Long term investors weren’t impacted much, because most weren’t aware that it was happening and just held through the rapid bounce without a loss.

Mark Cuban brings up a good point, though — the sell-off could have been very rapid had the news been real and investors who need protection must use some type of hedge, like owning put options on their portfolio, to ensure that they don’t suffer an irreversible loss due to some unforeseen event like this happening and turning out to be true.

The impact of social media today is very real and is likely here to stay.

Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at his blog at http://www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.