Bitcoin Forum

EDIT:

The poll hasn't ended yet. But we have started a trial. Unless the poll results reverse, we will keep this change.

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Public Proposal: Change of Leverage Options.

Due to recent volatility, a lot of traders were forced liquidated and caused a snowball effect: forced liquidation causes more forced liquidations due to excessive market movements.

Also, we want to make sure that Bitcoinica always has reserves for traders. We hope the asterisk will not appear frequently in the future.

Therefore, I propose a solution to such problems. Since this solution may negatively impact some of our customers, we want to hear the voice of the public. This is how the implementation will be decided:

If Agree > Disagree, we will implement this change. If Disagree > Agree, we will not implement this change and we will consider other options.
Neutral votes will be ignored at the moment.

If you have better ideas, please voice out and we will consider.

So what's the change?
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If your margin balance is less than $2,000 (inc.), you can set leverage to 10:1, 5:1, 2.5:1 and 1:1.

If your margin balance is between $2,000 (exc.) and $20,000 (inc.), you can set leverage to 5:1, 2.5:1 and 1:1.

If your margin balance is greater than $20,000 (exc.), you can set leverage to 2.5:1 and 1:1.

This is to protect our customers' interest and maintain market volatility at low levels by preventing huge forced liquidations as much as possible. Also, less funds will be used up by large clients so we will have more available reserves.

Now, please vote!

One word: sockpuppets.

It is still possible to game this by creating multiple accounts and doing a coordinated trade.

Bitcoinica is doomed.

We allow that. At least that will split forced liquidation to multiple orders at different prices.

If someone deliberately do a coordinated trade to maintain identical base prices, then it's their choice. We just want to make losing money a bit harder and less impactful even when it happens.

Strongly disagree.

You should take voices into account according to margin ballance.
So you should rerun poll at your site.

Most successful parasite species avoid sucking their host completely dry. Good call on the tiered leverage.

This all adds up to 5 to 1 on avg for everyone..


I fail to see how this will help volatility.

Is not a delayed liquidation one way to go ? albeit hard

The liquidations happen because of the faux liquid market you are building here..

On further thought, its more like 4 to 1 levy for everyone

gotta keep the zombies alive.

I believe that people with large accounts will generally vote for "disagree" since they are the impacted ones.

However, we hope everyone can understand for each other, even at the free market. We will revise the threshold amount when our reserves are larger. (We will lift the threshold to $5,000 and $50,000 when our reserves reach $1 million, and we can hopefully reach there in 6 months.)

Currently, even 2.5:1 for a huge account is a lot of leverage! $20,000 will get you $50,000 tradable balance.

Overall loss in recent 24 hours: less than 20%.

I made some adjustments.  This works better.

So they should read your proposition as following:
"I, Zhoutong, decide to take money from your current positions
under the cover of "democracy" label"

a lot..

put $20,000 into real fx on oanda.com and you'll get a million-dollar tradeable balance.

i say increase leverage, or leave it alone.

edit: i see pirate likes the idea of 50:1 also :)

Liquidations happen because irrational people overleverage.  There is a big warning about this when they sign up.  I was long 100 BTC during the drop, but I still had enough margin to buy 50@$5.15 before it recovered.  I'm back in the green already.

If you don't like bitcoinica, fine, but let those of us who use it communicate with Zhoutong instead of slinging insults.

Oh! How noble of the great zoutong! "For each other" and "free market" in the same sentence. Still trying to parse.

I dunno, personally I think things like leverage and usury are not really "for each other". Also, how about leverage being based on how much capital you ACTUALLY hold in reserve? Seems like the heritage of bitcoin is not keen on fractional reserve.

Exactly.  Don't change the system because people don't know what they are doing.  We all are aware of the risks and this should be a lesson to those that overextended themselves. Unless this is something Bitcoinica needs to do to be profitable, leave it alone or move up and onward.

lower max trade to 10BTC and raise leverage to 100:1. You just want gamblers not institutional traders.

1.  There is no interest on loans... thus no usery.
2.  Allowing others people to take responsibility for as much risk as they want is very "free market".  Restricting this when it's possible is not.

I trade on leverage, I was long, I didn't get liquidated.  I've taken big losses before and I'm willing to accept losses again if I make a bad call.

if you don't trade on Bitcoinica please leave this discussion to those who do.

Big clients are using the reserves all the time, and it's definitely unfair if we don't have the money to back their trading potential. If just 2% of the customers were limited to 2.5:1 we wouldn't have to see the asterisk.

Im not slinging insults, I made a modest 3 bitcoins from this mess, no complaints..

But I see a bigger issue here, you should open your eyes..

Even, if you will go this way, new limits should not affect old orders and positions (because it will be violation of contract).

I like the proposal as on its face it addresses the limited reserves issue which seems key to me.

However, the use of multiple accounts for coordinated trades would only require a bit of bot work for those so inclined to implement it. There's someone both prepared to do so and chomping at the bit to try it, any other assumption would likely be wrong in a day or two anyway. It could be done with computer-directed meat-based mouse actuators sort of like one of those CAPTCHA-breaking type operations, but going the bot route would be easier to manage and cheaper for what would likely be a "what works today" effort, particularly if it eventually kills the host organism  :(

The leverage Bitcoinica can handle is its problem to decide. Perhaps you need to cap everyone at 2.5:1 or 5:1 until you can grow the reserves more. I imagine that how that affects your profitability would also be part of striking a balance.

EDIT:
I am "neutral". If Bitcoinica continues to bite off more than it can chew, I would expect it to fail.

Getting rid of the asterisk would be useful.  I'm not sure how I'd vote.

Active orders may be affected due to decrease of tradable balance (but you're allowed to place a 1000000 BTC order regardless of tradable balance anyway). But existing positions won't be cut off, definitely.

We never do that anyway.

My eyes are open, thanks.... I understand quite well how bitcoinica works.  If you don't like it don't use it.  I anticipated the possibility of a huge squeeze, and traded accordingly.  Others overextended themselves and lost big.  Anyway, this is off topic, so if you feel the need to respond, please PM me.

This is not a complete truth. With changing reserve level you will increase zhoutong price for existing long positions,
and this may lead to premature liquidation of these existing positions
(and to losses which should not occur under current reserve level).

I think the real solution is a combination of disclaimers and customer service.  Bitcoinica users control their own leverage -- they make their own wins / losses based on how they gamble.  Honestly, they are largely responsible for their own actions on Bitcoinica and cannot be protected from themselves.

That said, the most prudent path for a professional business to take is to provide quality customer service.  (apologies, offers of consolation when dissatisfied, etc.)

I am "neutral", but I do not believe Bitcoinica is doomed.

EDIT:  I voted "disagree".

I think more important than anything is that the asterisk goes away.  It gives away to much information, and restricts the market.

What happened today is a result of people exploiting this information.

You should keep your customer's positions, and even the aggregate information of their positions, confidential.

If lowering the leverage for large accounts allows you to avoid the asterisk then do it,  at least until you build up more reserves.

No. It's the same 4%. I won't change.

I agree with this.  Zhou, I think this is important -- I understand you want to be as honest as possible, but there is a such thing as being "honest to a fault".

I agree that. Most of our profits come from 2:5 traders and 5:1 traders. Not only 10:1 traders lost a lot themselves during volatile periods, we lost a lot due to market slippage as well.

you mean you don't like the Bullseye?

We can't hide it anyway. If we don't have reserve, we will become a bucket shop if we don't tell our customers to stop buying/selling. So after all the only way is to distribute the trading power evenly to everyone.

Bullseye == TMI  XD

at least you admit what i've been warning about.  i wish you luck.

I wonder what Forex brokers do when they run out of reserves?  Does that happen?  I have research to do...
Anyone who knows a lot about Forex, don't hesitate to provide clarity for me on this point.

I thought I just read...Aren't you the one who's going to be writing the documentation for Bitcoinica when it comes to their Forex-based trading ?

They have access to large, short-term loans.

Almost 4 trillion dollars turns over each day in forex

Todays volume is maybe 2 million?

A lot of people have enough cash to take a bit hit into 2 million dollars of volume.

Nobody has enough money to effect 4 trillion dollars.

LOL.  Blind leading the blind.

I mean, I'm all for hiring others to do work for you...but I mean...this just kinda disturbed me a little LOL.

My job has become to provide documentation on how Bitcoinica works.

This will include:
-- A basic tutorial of what to expect when pressing the various buttons / placing orders at Bitcoinica.
-- A very basic comparison of Bitcoinica to Forex, pointing out the most basic similarities / dissimilarities.

It might include other things.

What it will NOT include:
-- Professional trading advice
-- Any general information whatsoever on trading Forex (aside from comparing / contrasting it with Bitcoinica).

EDIT:  My experience with Bitcoinica and customer service is what makes me suitable for this position.

I'll rephrase: Lower the maximums to the point where bitcoinica can no longer move market 2$ a day. The purpose of bitcoinica from zhou's perspective is to make money, not deal with endless hassles and react to charges of manipulation and skulduggery. And yes I use bitcoinica to try and earn some money back off my devaluing bitcoins, but am only a small timer.


edit

Well looks like the proposal actually has this effect.

I'm fine with this. I check Rails API docs all the time when I code.

Thank you... you're rephrase is 1000x more informative of your opinion and relevant.

+1

I strongly agree...


Also: While I was trading at 2.5:1 I was only having profits... As soon as I switched to 5:1 ...


:(

For the record, I disagree.  Personally, my account is set to 10:1, but I rarely go above 3:1, including my BTC margin.  Just because you have "tradable balance" doesn't mean you should trade.

This may help it appear less often, but it can't eliminate it.  I actually like the *, but I love any additional information I can get.

What about the greedy bastard variable?

What about it?  Greedy bastards get liquidated, simple as that.  I don't mind the market seizing a little to shake them out, and I trade with low leverage.

Which begs the question as to why you are offering 10:1 leverage for small accounts under your new proposal? The proposal is a step in the right direction; however given the volatility of Bitcoin I would suggest at most 2.5:1 leverage for everyone regardless of account size. I am not a Bitcoinica customer by the way.

I think this is great!

I have felt for the last few months that bitcoin has too little market depth in general to justify large margins on large positions.
Resolving positions results in very big swings.

I believe the comma is *not* being used as a decimal point in this context. I could be mistaken. It's a good thing the word "billion" doesn't appear here, otherwise we might have to ask if 10^9 or 10^12 is meant  :)

I'm glad to see most voters have some sense. This proposal is critical in many ways, it's the only good way to reduce the issue of the Bitcoinica "asterisk". The bigger players have to be limited somehow until Bitcoinica has enough money to back it up. They can always change it back later when they have more reserves.

More than anything this was a learning process for everyone involved. But it was undoubtedly caused by the fact that people had too much information. It wasn't an issue of guessing or having a hunch, everyone knew people went long big time because Bitcoinica's reserves were low. Without this indicator it would've been more difficult and a much bigger risk to do what was done.

I hope this is implemented asap.

I have 10:1 leverage (or at least I did until it got pulled & then I searched the forum for why as I didn't see any explanation where the leverages available on Bitcoinica show), I rarely use though more than 2:1 with plenty of margin to account for just the sort of large price change that's happened & I'm personally fine if peeps want to make those swings using 10:1 leverage or whatever, if it can happen it will & though it's sad to be on the wrong side of these swings (which I have been sometimes) it quickly helps to teach one about leverage, volatility & risk tolerance & one can arrange a very low risk strategy for taking advantage of these - I voted no changes because I like the kinda Wild West anarchy of these relatively early BTC days, once it gets high & stable with large market cap then we will maybe even look back fondly to the Khoutonging era, anyway I don't know enough about Bitcoinica to state for sure that it wouldn't be better to implement these lower limits & if it helps keep Bitcoinica afloat then I'm all for that, whether it can be enforced I doubt but as Khou lost money by it being the way it was then he's every right to adapt the rules of his house in order to keep it profitable, trying to protect newbs & incautious/unlucky players from being Khoutonged is just folly in my opinion & a red herring

How about you just untie yourself from MtGox.  You've become a dog wagging tail and while I personally find nothing wrong with it, so long as you advertise very clearly your lack of funds when people deposit money (rather than when they attempt to liquidate), if you want to make people here happy, you're going to need to operate more like a dark pool.

Im glad im not the only one that sees this need..

I will launch a poll about that.

It wont be easy, but if you care about the community as a whole, mtgox needs competition, they are getting fat and lazy from your site, and its still a single point of failure..  Your the only one that has the potential volume!

Great! This could be huge! (In a good way!)

You ignore the fact that it's highly unlikely that we would've ever gone to $4.6 in the first place if we didn't have the asterisk issue that made it too easy for big players to exploit the situation.

I can't wait! maybe you should talk to intersango, this one seems pretty stable and more professionally run.