Bitcoin Forum

Economy => Speculation => Topic started by: Mushoz on December 29, 2011, 08:55:14 AM



Title: Bitcoinica: How it works
Post by: Mushoz on December 29, 2011, 08:55:14 AM
Okay, so the recent liquidity problem Bitcoinica had, was unacceptable for anyone with a short position, as they weren't able to liquidate in a clearly rising market. But that's not what this post is going to be about. I've read the thread in which Zhoutong explained what happened, and some users which clearly have no idea how leverage works are throwing around false accusations, so I think it is time for someone to explain exactly how Bitcoinica operates. To make my examples easy to understand, I won't take the spreads into the calculations, which are basically the way Bitcoinica charges a fee on every trade that is made. Also I'll be using a leverage of 1:1 to make my examples as easy as possible. When there are 2 users, and one goes long and the other one goes short for the same amount, they cancel each other out. But what happens when there are more longs or more shorts? Let's explain this thing called "Hedging"!

So lets define a few variables for these examples.

Variables
Leverage we're going to use: 1:1
Bitcoinica's USD balance: 100$
Bitcoinica's BTC balance: 50BTC
Customer's USD balance: 10$
Customer's BTC balance: 0BTC
BTC/USD price: 2$

Long scenario
Now let's consider the customer is going to long for 5BTC at 2$ per Bitcoin. What happens is that Bitcoinica buys 5BTC for 2$ each at Mtgox. Their balance is now as follows:

Bitcoinica's USD balance: 100-10 = 90$
Bitcoinica's BTC balance: 50+5 = 55BTC

Now there's two things that can happen: The BTC/USD price rises, or the BTC/USD prices falls. Let's see what happens in either scenario.

BTC/USD falls with a long position
Let's say the BTC/USD price falls to 1$ each and scared to lose more, the customer decides to liquidate his position. What happens is that Bitcoinica sells those 5BTC they previously bought on Mtgox for 1$ each. So what's Bitcoinica's balance going to look like after this happens?

Bitcoinica's USD balance: 90+5 = 95$
Bitcoinica's BTC balance: 55-5 = 50BTC

They've lost money! Wrong. That's where the balance of the customer comes in. The customer lost money by taking a losing long position, and lost half of his balance, because BTC/USD prices fell to 1/2 of their former value and he was using 1:1 leverage.

Customer's balance: 10-5 = 5$
Bitcoinica's balanace: 95+5 = 100$

And Bitcoinica's balance is back to were they started, as we would expect! Now in real life it would have ended slightly higher, due to them profiting on the spreads, but as I've said earlier, we're not going to take spreads into account as they will complicate the calculations without explaining what I want to explain.

BTC/USD rises with a long position
Let's say the BTC/USD price rises to 3$ each and happy with his profit, the customer decides to liquidate his position. What happens is that Bitcoinica sells those 5BTC they previously bought on Mtgox for 3$ each. So what's Bitcoinica's balance going to look like after this happens?

Bitcoinica's USD balance: 90+15 = 105$
Bitcoinica's BTC balance: 55-5 = 50BTC

They've won money! Wrong. That's where the balance of the customer comes in. The customer won money by taking a winning long position, and won an extra 50% of his initial balance, because BTC/USD prices rose to 150% of their former value and he was using 1:1 leverage.

Customer's balance: 10+5 = 15$
Bitcoinica's balanace: 105-5 = 100$

And Bitcoinica's balance is back to were they started, as we would expect!



Short scenario
Now let's consider the customer is going to short for 5BTC at 2$ per Bitcoin. What happens is that Bitcoinica sells 5BTC for 2$ each at Mtgox. Their balance is now as follows:

Bitcoinica's USD balance: 100+10 = 110$
Bitcoinica's BTC balance: 50-5 = 45BTC

Now there's two things that can happen: The BTC/USD price rises, or the BTC/USD prices falls. Let's see what happens in either scenario.

BTC/USD falls with a short position
Let's say the BTC/USD price falls to 1$ each and happy with his profit, the customer decides to liquidate his position. What happens is that Bitcoinica buys those 5BTC they previously sold on Mtgox for 1$ each. So what's Bitcoinica's balance going to look like after this happens?

Bitcoinica's USD balance: 110-5 = 105$
Bitcoinica's BTC balance: 45+5 = 50BTC

They've won money! Wrong. That's where the balance of the customer comes in. The customer won money by taking a winning short position, and won an additional 50% of his balance, because BTC/USD prices fell to 1/2 of their former value and he was using 1:1 leverage.

Customer's balance: 10+5 = 15$
Bitcoinica's balanace: 105-5 = 100$

And Bitcoinica's balance is back to were they started, as we would expect!

BTC/USD rises with a short position
Let's say the BTC/USD price rises to 3$ each and scared to lose more, the customer decides to liquidate his position. What happens is that Bitcoinica buys those 5BTC they previously sold on Mtgox for 3$ each. So what's Bitcoinica's balance going to look like after this happens?

Bitcoinica's USD balance: 110-15 = 95$
Bitcoinica's BTC balance: 45+5 = 50BTC

They've lost money! Wrong. That's where the balance of the customer comes in. The customer lost money by taking a losing short position, and lost half his balance, because BTC/USD prices rose to 150% of their former value and he was using 1:1 leverage.

Customer's balance: 10-5 = 5$
Bitcoinica's balanace: 95+5 = 100$

And Bitcoinica's balance is back to were they started, as we would expect!



Why am I explaining this?
Well first of all, because it's probably a good idea more people understand how Bitcoinica works. Second of all, some people that have no idea how this concept works, were accusing Zhoutong of shady things, because they thought it was weird people couldn't liquidate their shorts, even though Bitcoinica had plenty of BTC. I understand that it indeed sounds weird, but hopefully the examples posted here will help people understand why liquidating a short position requires buying BTC, and hence USD. Still, it is good that we have skeptics on this board so I'm not blaming anyone for the confusion.

Advice to Zhoutong
Please give people that have open short positions higher priority on buying BTC. It is simply unacceptable people were unable to liquidate their positions for several hours because of USD liquidity problems. Stop allowing more long positions _before_ you run out of USD, so that there's enough USD left for people with shorts to liquidate them. Of course the same should be true the other way around. Give people with long positions a higher priority on selling BTC. Stop allowing more short positions _before_ you run out of BTC, so that there is enough BTC left for people with longs to liquidate them.

Thanks for reading everyone! If you have any questions just ask! And please notify me if you find any errors in my explanations, as I might have messed up somewhere ^^


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 29, 2011, 09:26:42 AM
Thank you so much for taking time to write this long post to explain how Bitcoinica works. Please PM me your Bitcoin address or Bitcoinica username so that I can send you a 3.14159265 BTC bounty. I really appreciate your effort!

I will take your advice and start tweaking the circuit breaker algorithm today. It was triggered several times before, but at very minor scale and mainly due to excessive withdrawals instead of major trading activities like today. In the future, we will implement two levels of restrictions: no-opening (soft buy/sell redflag) and no-closing (hard buy/sell redflag), and leave some gap between them depending on total amount of open positions.

Your advice really makes sense because we may have forced liquidations when the market is moving, and we have to leave some reserve for them to happen as well.


Title: Re: Bitcoinica: How it works
Post by: Bigpiggy01 on December 29, 2011, 09:32:09 AM
Op great explanation.

However:

Quote
Advice to Zhoutong
Please give people that have open short positions higher priority on buying BTC. It is simply unacceptable people were unable to liquidate their positions for several hours because of USD liquidity problems. Stop allowing more long positions _before_ you run out of USD, so that there's enough USD left for people with shorts to liquidate them.

Is a load of.... unless you're advocating the same in a reverse situation. Otherwise this is just fucking up a market that already has issues.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 29, 2011, 09:37:23 AM
Thank you so much for taking time to write this long post to explain how Bitcoinica works. Please PM me your Bitcoin address or Bitcoinica username so that I can send you a 3.14159265 BTC bounty. I really appreciate your effort!

I will take your advice and start tweaking the circuit breaker algorithm today. It was triggered several times before, but at very minor scale and mainly due to excessive withdrawals instead of major trading activities like today. In the future, we will implement two levels of restrictions: no-opening (soft buy/sell redflag) and no-closing (hard buy/sell redflag), and leave some gap between them depending on total amount of open positions.

Your advice really makes sense because we may have forced liquidations when the market is moving, and we have to leave some reserve for them to happen as well.

Thank you very much for your kind words :) That indeed sounds like an excellent plan to prevent people from being stuck with potentially unwanted positions. It's great to see a talented person like you offer such a great service and to see you problems being dealt with in such a timely manner. Let's hope Bitcoinica continues to grow! I'll PM you my Bitcoinica username. Thanks again!


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 29, 2011, 09:38:49 AM
Op great explanation.

However:

Quote
Advice to Zhoutong
Please give people that have open short positions higher priority on buying BTC. It is simply unacceptable people were unable to liquidate their positions for several hours because of USD liquidity problems. Stop allowing more long positions _before_ you run out of USD, so that there's enough USD left for people with shorts to liquidate them.

Is a load of.... unless you're advocating the same in a reverse situation. Otherwise this is just fucking up a market that already has issues.

Yes, that is correct. People with long positions should also get priority on selling. Thanks for the advice, I'll edit the post in a moment.

Edit: Done. Thanks again for the tip!


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 29, 2011, 09:40:41 AM
Op great explanation.

However:

Quote
Advice to Zhoutong
Please give people that have open short positions higher priority on buying BTC. It is simply unacceptable people were unable to liquidate their positions for several hours because of USD liquidity problems. Stop allowing more long positions _before_ you run out of USD, so that there's enough USD left for people with shorts to liquidate them.

Is a load of.... unless you're advocating the same in a reverse situation. Otherwise this is just fucking up a market that already has issues.

Yes, that is correct. People with long positions should also get priority on selling. Thanks for the advice, I'll edit the post in a moment.

When I actually implement it, I will definitely consider both directions. Our redflag can be triggered when we are out of BTC too.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 29, 2011, 12:59:22 PM
Do you think it would be a good idea to sticky this thread?


Title: Re: Bitcoinica: How it works
Post by: caveden on December 29, 2011, 01:50:38 PM
Interested newbie here...

Thank you for this topic, the "reserve problem" one was blowing my mind. I mean, I know what a call option or a put option is, but all that vocabulary of "covering his shorted coins slipping under his long leveraged position blablabla" is Greek to me.

If I understood correctly, the costumer always has to have a balance capable of paying off the risks he's running, is that it?
So, in the end, actual leverage (investing more money than you own) isn't yet possible in the bitcoin world, as I suspected?

And what changes if that 1:1 constant in your example isn't 1:1 anymore?

Thank you for the explanations.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 29, 2011, 02:09:25 PM
Interested newbie here...

Thank you for this topic, the "reserve problem" one was blowing my mind. I mean, I know what a call option or a put option is, but all that vocabulary of "covering his shorted coins slipping under his long leveraged position blablabla" is Greek to me.

If I understood correctly, the costumer always has to have a balance capable of paying off the risks he's running, is that it?
So, in the end, actual leverage (investing more money than you own) isn't yet possible in the bitcoin world, as I suspected?

And what changes if that 1:1 constant in your example isn't 1:1 anymore?

Thank you for the explanations.

Yes, you can actually invest more money than you own. Let's say I deposit 100$ into my bitcoinica account and the price of BTC/USD is 2$. If I set my maximum leverage to say 10:1, I can actually buy 10 times as many BTC as I would be able to buy on Mtgox. So in this case instead of 50BTC, I'm allowed to buy 500 (!) BTC with just 100$. The thing is, now that I have so many BTC, if the price drops by just 20 cents, I'm losing 500 * 0.20 = 100 dollars on that price movement, so I no longer have any cash left in Bitcoinica, so my position is forced liquidated, leaving me with neither Dollars nor BTC.

So in a formula:

When going long, using X:1 leverage, the bitcoin prices are allowed to drop by 100 / X % before I'm liquidated.
Now here's the kicker: You actually have to subtract another 4% from that number, because that's how Bitcoinica protects themselves against sudden price swings. Because if they liquidate your position too late because the swing was too sudden, you would end up with a negative balance.

So for the different leverages, this is how much the BTC/USD is allowed to drop before you are forced liquidated:

1.0 : 1    100/1 - 4 = 96%
2.5 : 1    100/2.5 - 4 = 36%
5.0 : 1    100/5 - 4 = 16%
10.0 : 1    100/10 - 4 = 6%

Hope this clears it up for you!


Title: Re: Bitcoinica: How it works
Post by: caveden on December 29, 2011, 02:44:30 PM
Yes, thank you, that's what I was imagining that would happen, as soon as the losses "touch" the total balance (including fees and protections etc), they would force the liquidation of your position, even if it's not expired yet.
The thing is, if right after the liquidation, but still before the expiration of your order, the prices swing on the other direction, you're still screwed in spite of having been "right on your bet"...

Is that how leverage is done on conventional financial markets as well? You always have to provide some guarantees before hand? For example, if I write a call option to someone, must I always prove before hand that I actually have what I would need to sell in case that option is exercised? I imagined such requirements were laxer on "non-anonymous scenarios", and that eventually people who lose too much would go bankrupt, with police going after them to seize their belongings and all that thing. Anyway, I thought you could go really bankrupt and remain owing people money by playing wrongly in these markets, instead of "at most losing your reserves".


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 29, 2011, 02:52:01 PM
Yes, thank you, that's what I was imagining that would happen, as soon as the losses "touch" the total balance (including fees and protections etc), they would force the liquidation of your position, even if it's not expired yet.
The thing is, if right after the liquidation, but still before the expiration of your order, the prices swing on the other direction, you're still screwed in spite of having been "right on your bet"...

Is that how leverage is done on conventional financial markets as well? You always have to provide some guarantees before hand? For example, if I write a call option to someone, must I always prove before hand that I actually have what I would need to sell in case that option is exercised? I imagined such requirements were laxer on "non-anonymous scenarios", and that eventually people who lose too much would go bankrupt, with police going after them to seize their belongings and all that thing. Anyway, I thought you could go really bankrupt and remain owing people money by playing wrongly in these markets, instead of "at most losing your reserves".

That is correct. But then again, your bet was wrong on how much leverage to use. It's a risk vs reward calculation you have to do for yourself. Taking higher risks, and you are able to profit more, but there's less room for error.

No idea how it works on regular markets. I *think* you are allowed to have negative balances on some of them, but it would require all kinds of verification procedures, so that they can be relatively sure you will fill up negative balances to zero or positive later. But then again, I have no experience at all with any financial markets. This is the first time I've spent time learning how these kinds of systems work. By studying Mtgox, Bitcoinica and financial articles.


Title: Re: Bitcoinica: How it works
Post by: Ferroh on December 29, 2011, 03:56:53 PM
This does not do much to explain the common case at bitcoinica, as you conveniently choose scenarios where Bitcoinica always has a higher balance than the customer's trade, (and the customer uses 1:1 margin).

For example:
If Bitcoinica has a $1000 balance, and the customer executes a $1000 trade at 10:1 margin (which Bitcoinica allows), then bitcoinica does not have the funds available to fully equalize this trade against mtgox.
The trade would then require $10000 but bitcoinica only has $1000. If that trade is very profitable, Bitcoinica will have to pay the customer his earnings, or prevent him from liquidating his position until it is either not profitable, or until another customer opens an opposing position.

In all of your scenarios you say "Bitcoinica has lost money! Wrong!". It is in fact very possible for Bitcoinica to lose money -- the fact that you conveniently avoid this scenario is rather suspect.


Title: Re: Bitcoinica: How it works
Post by: finway on December 29, 2011, 04:05:28 PM
Thank you for your explanations of hedging basics.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 29, 2011, 04:06:50 PM
This does not do much to explain the common case at bitcoinica, as you conveniently choose scenarios where Bitcoinica always has a higher balance than the customer's trade, (and the customer uses 1:1 margin).

For example:
If Bitcoinica has a $1000 balance, and the customer executes a $1000 trade at 10:1 margin (which Bitcoinica allows), then bitcoinica does not have the funds available to fully equalize this trade against mtgox.
The trade would then require $10000 but bitcoinica only has $1000. If that trade is very profitable, Bitcoinica will have to pay the customer his earnings, or prevent him from liquidating his position until it is either not profitable, or until another customer opens an opposing position.

In all of your scenarios you say "Bitcoinica has lost money! Wrong!". It is in fact very possible for Bitcoinica to lose money -- the fact that you conveniently avoid this scenario is rather suspect.

precisely.

which brings up another objection; for those with accts at Bitcoinica and who were not privy to Zhou's "alert" last nite about his internal market imbalance and his "recommendation" to sell or go short, how is that favorable to them?

giving a select group "insider" information is wrong.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 29, 2011, 04:14:41 PM
Zhou has already told us that his USD reserves amounted to somewhere around $100-200K IIRC.  correct me if i'm wrong about this.

this is peanuts compared to where the customer balances are i would bet so Ferroh is correct.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 29, 2011, 05:49:52 PM
the other scenario Mushoz's simplistic argument ignores is what i've been calling slippage.

the grossest example of this is when Zhou lost his Yubikey and thus his connection to gox.  for example:

let say you sell or short 5 BTC at Bitcoinica for $4 in a downtrending market like we had a coupla months back.  he loses his connection to gox for whatever reason.  in the meantime the price decreases further to $3.80.  he then sells 5 BTC @ $3.80 only recovering $19 instead of $20.  this begins to erode his USD balance or reserves.  now we begin to understand where all the USD went.

even assuming he has his maximum connectivity in place, the fact that he's one step removed from gox still results in slippage as he can never execute (hedge) at the same price as his customers did on his site.  multiply that by thousands of orders each week.

now you will argue his algorithm takes this into acct through the spread.  i argue its impossible to predict the violent swings and ignores the fact that there is constant complaining from customers to reduce that spread and thus his protection.  it appears that he may in fact not have been charging enough via the spread given what has happened.

Ferroh:  assuming that Bitcoinica does indeed acct for 1/3-1/2 of gox's trading, what do you think about leveraged shorting and its effect on the USD/BTC price?  it seems to me that it has caused an asymmetric artificial overshoot to the downside but will not contribute to an overshoot to the upside due to his lack of USD reserve to continuously feed an upward spiral.

on the way down, when there were few to no buyers, he was able to easily step in as a market maker with his USD reserves to buy up the selling/shorting pressure b/c the price was so low.  this may not work to the same degree with higher prices to the upside though as we're witnessing.

in this sense Bitcoinica has been destructive to the price and perhaps arguably to the economy.  am i missing something?


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 29, 2011, 08:11:29 PM
This does not do much to explain the common case at bitcoinica, as you conveniently choose scenarios where Bitcoinica always has a higher balance than the customer's trade, (and the customer uses 1:1 margin).

For example:
If Bitcoinica has a $1000 balance, and the customer executes a $1000 trade at 10:1 margin (which Bitcoinica allows), then bitcoinica does not have the funds available to fully equalize this trade against mtgox.
The trade would then require $10000 but bitcoinica only has $1000. If that trade is very profitable, Bitcoinica will have to pay the customer his earnings, or prevent him from liquidating his position until it is either not profitable, or until another customer opens an opposing position.

In all of your scenarios you say "Bitcoinica has lost money! Wrong!". It is in fact very possible for Bitcoinica to lose money -- the fact that you conveniently avoid this scenario is rather suspect.

At this moment, the reserve is larger than top three accounts combined times 10. Your reasoning might be valid at the earlier days, but definitely not now.

That's why we may occasionally halt one direction trading when we don't have money. Didn't you know what happened yesterday?


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 29, 2011, 08:28:26 PM
the other scenario Mushoz's simplistic argument ignores is what i've been calling slippage.

the grossest example of this is when Zhou lost his Yubikey and thus his connection to gox.  for example:

let say you sell or short 5 BTC at Bitcoinica for $4 in a downtrending market like we had a coupla months back.  he loses his connection to gox for whatever reason.  in the meantime the price decreases further to $3.80.  he then sells 5 BTC @ $3.80 only recovering $19 instead of $20.  this begins to erode his USD balance or reserves.  now we begin to understand where all the USD went.

even assuming he has his maximum connectivity in place, the fact that he's one step removed from gox still results in slippage as he can never execute (hedge) at the same price as his customers did on his site.  multiply that by thousands of orders each week.

now you will argue his algorithm takes this into acct through the spread.  i argue its impossible to predict the violent swings and ignores the fact that there is constant complaining from customers to reduce that spread and thus his protection.  it appears that he may in fact not have been charging enough via the spread given what has happened.

Ferroh:  assuming that Bitcoinica does indeed acct for 1/3-1/2 of gox's trading, what do you think about leveraged shorting and its effect on the USD/BTC price?  it seems to me that it has caused an asymmetric artificial overshoot to the downside but will not contribute to an overshoot to the upside due to his lack of USD reserve to continuously feed an upward spiral.

on the way down, when there were few to no buyers, he was able to easily step in as a market maker with his USD reserves to buy up the selling/shorting pressure b/c the price was so low.  this may not work to the same degree with higher prices to the upside though as we're witnessing.

in this sense Bitcoinica has been destructive to the price and perhaps arguably to the economy.  am i missing something?

Solution to the slippage problem:

Rule #1: Always consider market depth, not last price.

At 0 second, Bitcoinica shows a price of $4, at the same time, Mt. Gox price is rising to $4.5. A customer sends a market buy order.
At 1 second, Bitcoinica gets a new price based on algorithm, gives a price of $4.55.
At 1.01 second, Bitcoinica hedged and executed the order.

This ensures that no one is able to take advantage of sudden price movements. Price first, trade later.

If there's no adverse selection problem (deliberate attempt to cheat when opportunities arrive), trades are evenly distributed across the timeframe, and chances of further slippage is minimal.

Rule #2: Bitcoinica processes 50 ฿ at a time. No customer can take advantage of buying 10,000 Bitcoins and then enjoy the massive slippage on Bitcoinica.

Also, we have the thing called API, and we don't plug the Yubikey in the server.

For shorting issues, you don't understand Bitcoinica at all. What Bitcoinica did over the months was dumping a few thousands coins, buying back, and dumping again, and buying back,...

Bitcoinica can never short unless someone bought some coins and sent to us at the first place. Bitcoinica don't create paper assets to short the market. We just provide a pool of resources to Bitcoiners to borrow by placing either currency as collateral.

Thank you for your imagination. If I were you, I would stop polluting the thread that helps people to really understand.


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 29, 2011, 08:35:47 PM
Zhou has already told us that his USD reserves amounted to somewhere around $100-200K IIRC.  correct me if i'm wrong about this.

this is peanuts compared to where the customer balances are i would bet so Ferroh is correct.


The reserve is the total of all customer deposits plus 50% of our historical profits.

It's simply impossible to trade beyond Bitcoinica's means.

Also, don't worry about profitability for us. We have been very profitable. If you want to argue against this fact, then continue trolling...


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 29, 2011, 09:20:19 PM
the other scenario Mushoz's simplistic argument ignores is what i've been calling slippage.

My post wasn't an argument. I wanted to explain how Bitcoinica works and how they hedge. Clearly in the other thread you said it was weird Bitcoinica said they had loads of BTC, but no USD, and that people couldn't buy BTC to go long or buy BTC to liquidate their shorts. All I wanted to do with my post is explain why liquidating shorts or going long requires Bitcoinica to have USD, and _not_ BTC. This "simplistic scenario" was clearly needed, because without it you failed to understand how hedging works, yet you were arguing about it like you did know how it works.

I agree 100% with you that people getting stuck with shorts and being unable to liquidate them is unacceptable. And that's what my suggestion to Zhoutong was for. He already said he is going to implement such a function, so that's good to prevent a similar situation in the future. In the mean time he already said he was going to pay out of his own pocket for the risk of others. I simply can't think of a way he could have handled this situation better.

Quote
the grossest example of this is when Zhou lost his Yubikey and thus his connection to gox.  for example:

Of course they are using the API, and not a Yubikey...

Quote
let say you sell or short 5 BTC at Bitcoinica for $4 in a downtrending market like we had a coupla months back.  he loses his connection to gox for whatever reason.  in the meantime the price decreases further to $3.80.  he then sells 5 BTC @ $3.80 only recovering $19 instead of $20.  this begins to erode his USD balance or reserves.  now we begin to understand where all the USD went.

And that's why the trade on Bitcoinica doesn't go through before they hedged the position on Mtgox. The situation you're describing simply isn't possible. They try to hedge for 4$. When that isn't possible due to whatever situation you can come up with, and the price falls to 3,80, that's the price the costumer is going to get. Unfair? That's the risk of market orders. If the customer used a limit order instead, which he should if he cares about the risk, and places the limit order at 4$, the trade simply wouldn't go through, because Bitcoinica is unable to hedge at 4$ as the price already fell to 3,80$.

Quote
even assuming he has his maximum connectivity in place, the fact that he's one step removed from gox still results in slippage as he can never execute (hedge) at the same price as his customers did on his site.  multiply that by thousands of orders each week.

Again, read the response to the quote above.

Quote
now you will argue his algorithm takes this into acct through the spread.  i argue its impossible to predict the violent swings and ignores the fact that there is constant complaining from customers to reduce that spread and thus his protection.  it appears that he may in fact not have been charging enough via the spread given what has happened.

It's impossible to know exactly how much the risk is going to be. That's why they overestimate the risk in their spreads. Unfair? Not at all. As you understand they need to protect themselves against the risk, and of course they need to profit as well. That's why the spread is bigger than required. Both as an extra buffer against the risk and for profit.

Quote
Ferroh:  assuming that Bitcoinica does indeed acct for 1/3-1/2 of gox's trading, what do you think about leveraged shorting and its effect on the USD/BTC price?  it seems to me that it has caused an asymmetric artificial overshoot to the downside but will not contribute to an overshoot to the upside due to his lack of USD reserve to continuously feed an upward spiral.

Do you know what's required on Bitcoinica to short? BTC. Do you know how they get BTC? That's correct. They buy BTC. So for every BTC that was shorted, a BTC was bought. Actually, there's _more_ BTC bought by Bitcoinica than there was sold through shorting. Do you know why? Because they need reserves.

Quote
on the way down, when there were few to no buyers, he was able to easily step in as a market maker with his USD reserves to buy up the selling/shorting pressure b/c the price was so low.  this may not work to the same degree with higher prices to the upside though as we're witnessing.

How do you know how Bitcoinica's balance is doing? AFAIK they have some pretty big investors, and turning in some nice profits. Why do you have to come up with stories how they might be running out of USD because of losses, when you have no idea how they are doing? Could it maybe be, that there are actually too many people long for their reserves to handle? I mean, look at the last month. It's been an extremely Bullish market. It isn't weird that a lot of people are long currently.

Quote
in this sense Bitcoinica has been destructive to the price and perhaps arguably to the economy.  am i missing something?

Yes, a lot. Honestly no offense, it's good to have skeptics as well. But please don't try to present things as facts and use them as arguments, when so many things are clearly wrong in your reasoning. If you think something might be bad for the market, Bitcoinica or anything else, but you are not sure how it works, just ask others, instead of stating it as facts. It would prevent a lot of FUD spreading through these forums.

Thanks for reading!


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 29, 2011, 09:20:59 PM
This does not do much to explain the common case at bitcoinica, as you conveniently choose scenarios where Bitcoinica always has a higher balance than the customer's trade, (and the customer uses 1:1 margin).

For example:
If Bitcoinica has a $1000 balance, and the customer executes a $1000 trade at 10:1 margin (which Bitcoinica allows), then bitcoinica does not have the funds available to fully equalize this trade against mtgox.
The trade would then require $10000 but bitcoinica only has $1000. If that trade is very profitable, Bitcoinica will have to pay the customer his earnings, or prevent him from liquidating his position until it is either not profitable, or until another customer opens an opposing position.

In all of your scenarios you say "Bitcoinica has lost money! Wrong!". It is in fact very possible for Bitcoinica to lose money -- the fact that you conveniently avoid this scenario is rather suspect.

At this moment, the reserve is larger than top three accounts combined times 10. Your reasoning might be valid at the earlier days, but definitely not now.

That's why we may occasionally halt one direction trading when we don't have money. Didn't you know what happened yesterday?

if the shorts had USD's in their accts yesterday from their shorting activity, why couldn't you let them use those USD's to cover their positions by buying on gox?


Title: Re: Bitcoinica: How it works
Post by: smickles on December 29, 2011, 09:36:41 PM
This does not do much to explain the common case at bitcoinica, as you conveniently choose scenarios where Bitcoinica always has a higher balance than the customer's trade, (and the customer uses 1:1 margin).

For example:
If Bitcoinica has a $1000 balance, and the customer executes a $1000 trade at 10:1 margin (which Bitcoinica allows), then bitcoinica does not have the funds available to fully equalize this trade against mtgox.
The trade would then require $10000 but bitcoinica only has $1000. If that trade is very profitable, Bitcoinica will have to pay the customer his earnings, or prevent him from liquidating his position until it is either not profitable, or until another customer opens an opposing position.

In all of your scenarios you say "Bitcoinica has lost money! Wrong!". It is in fact very possible for Bitcoinica to lose money -- the fact that you conveniently avoid this scenario is rather suspect.

At this moment, the reserve is larger than top three accounts combined times 10. Your reasoning might be valid at the earlier days, but definitely not now.

That's why we may occasionally halt one direction trading when we don't have money. Didn't you know what happened yesterday?

if the shorts had USD's in their accts yesterday from their shorting activity, why couldn't you let them use those USD's to cover their positions by buying on gox?
Wouldn't that be equivalent to theft?


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 12:59:40 AM

And that's why the trade on Bitcoinica doesn't go through before they hedged the position on Mtgox. The situation you're describing simply isn't possible. They try to hedge for 4$. When that isn't possible due to whatever situation you can come up with, and the price falls to 3,80, that's the price the costumer is going to get. Unfair? That's the risk of market orders. If the customer used a limit order instead, which he should if he cares about the risk, and places the limit order at 4$, the trade simply wouldn't go through, because Bitcoinica is unable to hedge at 4$ as the price already fell to 3,80$.


this part can't be correct.  the way i understand it is that the customer gets his order executed before Zhou has a chance to hedge on mtgox.  this is why the spreads are higher on Bitcoinica to acct for slippage or his increased risk of letting you fill first.  example:

if mtgox bid:ask is $4:$4.10 then
Bitcoinica might be $3.80:$4.30 thus

you, as a customer of Bitcoinica, can short at the ask of $3.80 with a limit order and you will get it filled immediately.  the $0.20 difference is what Zhou's algorithm has figured to be a safe cushion to give him time to hedge on mtgox and sell his btc at or somewhere btwn $3.80 and $4 so he doesn't lose money.

in your example, you state that even if you short at the ask price of $3.80 it won't be filled until and if Zhou is able to sell a corresponding amt of btc on mtgox at $3.80.  if that was the case then his spreads should never be higher than mtgox's since he doesn't assume any risk.

correct me if i'm wrong.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 30, 2011, 01:06:05 AM

And that's why the trade on Bitcoinica doesn't go through before they hedged the position on Mtgox. The situation you're describing simply isn't possible. They try to hedge for 4$. When that isn't possible due to whatever situation you can come up with, and the price falls to 3,80, that's the price the costumer is going to get. Unfair? That's the risk of market orders. If the customer used a limit order instead, which he should if he cares about the risk, and places the limit order at 4$, the trade simply wouldn't go through, because Bitcoinica is unable to hedge at 4$ as the price already fell to 3,80$.


this part can't be correct.  the way i understand it is that the customer gets his order executed before Zhou has a chance to hedge on mtgox.  this is why the spreads are higher on Bitcoinica to acct for slippage or his increased risk of doing it this way.  example:

if mtgox bid:ask is $4:$4.10 then
Bitcoinica might be $3.80:$4.30 thus

you, as a customer of Bitcoinica, can short at the ask of $3.80 with a limit order and you will get it filled immediately.  the $0.20 difference is what Zhou's algorithm has figured to be a safe cushion to give him time to hedge on mtgox and sell his btc at or somewhere btwn $3.80 and $4 so he doesn't lose money.

in your example, you state that even if you short at the ask price of $3.80 it won't be filled until and if Zhou is able to sell a corresponding amt of btc on mtgox at $3.80.  if that was the case then his spreads should never be higher than mtgox's since he doesn't assume any risk.

correct me if i'm wrong.

They have those spreads to protect against slippage when people get forced liquidated. When there's a sudden movement, a lot of positions might have to be liquidated. If they can't hedge against those liquidations they _still_ have to liquidate those positions, because they are forced after all. That's what the spread is for. (And for profit of course)


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 01:08:43 AM

And that's why the trade on Bitcoinica doesn't go through before they hedged the position on Mtgox. The situation you're describing simply isn't possible. They try to hedge for 4$. When that isn't possible due to whatever situation you can come up with, and the price falls to 3,80, that's the price the costumer is going to get. Unfair? That's the risk of market orders. If the customer used a limit order instead, which he should if he cares about the risk, and places the limit order at 4$, the trade simply wouldn't go through, because Bitcoinica is unable to hedge at 4$ as the price already fell to 3,80$.


this part can't be correct.  the way i understand it is that the customer gets his order executed before Zhou has a chance to hedge on mtgox.  this is why the spreads are higher on Bitcoinica to acct for slippage or his increased risk of doing it this way.  example:

if mtgox bid:ask is $4:$4.10 then
Bitcoinica might be $3.80:$4.30 thus

you, as a customer of Bitcoinica, can short at the ask of $3.80 with a limit order and you will get it filled immediately.  the $0.20 difference is what Zhou's algorithm has figured to be a safe cushion to give him time to hedge on mtgox and sell his btc at or somewhere btwn $3.80 and $4 so he doesn't lose money.

in your example, you state that even if you short at the ask price of $3.80 it won't be filled until and if Zhou is able to sell a corresponding amt of btc on mtgox at $3.80.  if that was the case then his spreads should never be higher than mtgox's since he doesn't assume any risk.

correct me if i'm wrong.

They have those spreads to protect against slippage when people get forced liquidated. When there's a sudden movement, a lot of positions might have to be liquidated. If they can't hedge against those liquidations they _still_ have to liquidate those positions, because they are forced after all. That's what the spread is for. (And for profit of course)

so you are sure Zhou fills the sell hedge on mtgox first before he fills your short order?  that doesn't make alot of sense.  why display an bid price at all if thats the case?


Title: Re: Bitcoinica: How it works
Post by: smickles on December 30, 2011, 01:09:03 AM

And that's why the trade on Bitcoinica doesn't go through before they hedged the position on Mtgox. The situation you're describing simply isn't possible. They try to hedge for 4$. When that isn't possible due to whatever situation you can come up with, and the price falls to 3,80, that's the price the costumer is going to get. Unfair? That's the risk of market orders. If the customer used a limit order instead, which he should if he cares about the risk, and places the limit order at 4$, the trade simply wouldn't go through, because Bitcoinica is unable to hedge at 4$ as the price already fell to 3,80$.


this part can't be correct.  the way i understand it is that the customer gets his order executed before Zhou has a chance to hedge on mtgox.  this is why the spreads are higher on Bitcoinica to acct for slippage or his increased risk of letting you fill first.  example:

if mtgox bid:ask is $4:$4.10 then
Bitcoinica might be $3.80:$4.30 thus

you, as a customer of Bitcoinica, can short at the ask of $3.80 with a limit order and you will get it filled immediately.  the $0.20 difference is what Zhou's algorithm has figured to be a safe cushion to give him time to hedge on mtgox and sell his btc at or somewhere btwn $3.80 and $4 so he doesn't lose money.

in your example, you state that even if you short at the ask price of $3.80 it won't be filled until and if Zhou is able to sell a corresponding amt of btc on mtgox at $3.80.  if that was the case then his spreads should never be higher than mtgox's since he doesn't assume any risk.

correct me if i'm wrong.
you don't actually use bitcoinica, do you? if there is rapid price change, and you use a market order, you might not actually get that number which is displayed.

Just another reason why you shouldn't use market orders.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 01:10:57 AM

And that's why the trade on Bitcoinica doesn't go through before they hedged the position on Mtgox. The situation you're describing simply isn't possible. They try to hedge for 4$. When that isn't possible due to whatever situation you can come up with, and the price falls to 3,80, that's the price the costumer is going to get. Unfair? That's the risk of market orders. If the customer used a limit order instead, which he should if he cares about the risk, and places the limit order at 4$, the trade simply wouldn't go through, because Bitcoinica is unable to hedge at 4$ as the price already fell to 3,80$.


this part can't be correct.  the way i understand it is that the customer gets his order executed before Zhou has a chance to hedge on mtgox.  this is why the spreads are higher on Bitcoinica to acct for slippage or his increased risk of letting you fill first.  example:

if mtgox bid:ask is $4:$4.10 then
Bitcoinica might be $3.80:$4.30 thus

you, as a customer of Bitcoinica, can short at the ask of $3.80 with a limit order and you will get it filled immediately.  the $0.20 difference is what Zhou's algorithm has figured to be a safe cushion to give him time to hedge on mtgox and sell his btc at or somewhere btwn $3.80 and $4 so he doesn't lose money.

in your example, you state that even if you short at the ask price of $3.80 it won't be filled until and if Zhou is able to sell a corresponding amt of btc on mtgox at $3.80.  if that was the case then his spreads should never be higher than mtgox's since he doesn't assume any risk.

correct me if i'm wrong.
you don't actually use bitcoinica, do you? if there is rapid price change, and you use a market order, you might not actually get that number which is displayed.

Just another reason why you shouldn't use market orders.

no i don't so i am trying to understand.  i'm not talking about market orders, i'm asking about limit short orders that try to hit the bid exactly.


Title: Re: Bitcoinica: How it works
Post by: Red Emerald on December 30, 2011, 01:11:31 AM
This was a nice and simple explanation.  I'm not interested in playing the market and prefer to work on services, but thanks for the refresher.  It's been a while since my last econ class.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 01:17:06 AM
i'm waiting for an answer...who gets executed first?


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 30, 2011, 01:17:45 AM
This does not do much to explain the common case at bitcoinica, as you conveniently choose scenarios where Bitcoinica always has a higher balance than the customer's trade, (and the customer uses 1:1 margin).

For example:
If Bitcoinica has a $1000 balance, and the customer executes a $1000 trade at 10:1 margin (which Bitcoinica allows), then bitcoinica does not have the funds available to fully equalize this trade against mtgox.
The trade would then require $10000 but bitcoinica only has $1000. If that trade is very profitable, Bitcoinica will have to pay the customer his earnings, or prevent him from liquidating his position until it is either not profitable, or until another customer opens an opposing position.

In all of your scenarios you say "Bitcoinica has lost money! Wrong!". It is in fact very possible for Bitcoinica to lose money -- the fact that you conveniently avoid this scenario is rather suspect.

At this moment, the reserve is larger than top three accounts combined times 10. Your reasoning might be valid at the earlier days, but definitely not now.

That's why we may occasionally halt one direction trading when we don't have money. Didn't you know what happened yesterday?

if the shorts had USD's in their accts yesterday from their shorting activity, why couldn't you let them use those USD's to cover their positions by buying on gox?

Obviously the money has been used up to purchase Bitcoins for the longs.

You have money in Bitcoinica account doesn't mean it's 100% in reserves, it can be borrowed by someone else to buy/sell Bitcoins. At any point, Bitcoinica is a:

- Full reserve in BTC and fractional reserve in USD, or
- Full reserve in USD and fractional reserve in BTC.

(Yesterday, we had a full reserve in BTC, and a depleted reserve in USD. Users couldn't withdraw USD until the situation was resolved.)

This is how hedging exactly works to ensure that we ourselves and our customers are always having almost the same profits (or we call it internally, rate of change of asset value with respect to market price).


Title: Re: Bitcoinica: How it works
Post by: smickles on December 30, 2011, 01:21:08 AM

no i don't so i am trying to understand.  i'm not talking about market orders, i'm asking about limit short orders that try to hit the bid exactly.
Wait a sec. You've been slinging all this (let's just politely say) mud about bitcoinica and you haven't even used the service? You have a funny way of trying to understand things.


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 30, 2011, 01:25:56 AM

And that's why the trade on Bitcoinica doesn't go through before they hedged the position on Mtgox. The situation you're describing simply isn't possible. They try to hedge for 4$. When that isn't possible due to whatever situation you can come up with, and the price falls to 3,80, that's the price the costumer is going to get. Unfair? That's the risk of market orders. If the customer used a limit order instead, which he should if he cares about the risk, and places the limit order at 4$, the trade simply wouldn't go through, because Bitcoinica is unable to hedge at 4$ as the price already fell to 3,80$.


this part can't be correct.  the way i understand it is that the customer gets his order executed before Zhou has a chance to hedge on mtgox.  this is why the spreads are higher on Bitcoinica to acct for slippage or his increased risk of letting you fill first.  example:

if mtgox bid:ask is $4:$4.10 then
Bitcoinica might be $3.80:$4.30 thus

you, as a customer of Bitcoinica, can short at the ask of $3.80 with a limit order and you will get it filled immediately.  the $0.20 difference is what Zhou's algorithm has figured to be a safe cushion to give him time to hedge on mtgox and sell his btc at or somewhere btwn $3.80 and $4 so he doesn't lose money.

in your example, you state that even if you short at the ask price of $3.80 it won't be filled until and if Zhou is able to sell a corresponding amt of btc on mtgox at $3.80.  if that was the case then his spreads should never be higher than mtgox's since he doesn't assume any risk.

correct me if i'm wrong.

Well, the system hedges right after the order execution, and that's why we call it "guaranteed liquidity". And also, the system has to figure out whether it's necessary to hedge at all.

Bitcoinica is not a Mt. Gox interface because we want to be as independent as possible.

We don't have to ensure profits and accuracy on every single trade. But much more than 99% of the time, we can hedge at exact prices that we aim to. If we can ensure these:

- Slippage is highly concentrated in a few seconds of a day
- Customers' orders are distributed across all times

We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Your theory of "hedging erosion" never happens in our experience. During 9/11, we lost about $10 due to slippage when the price suddenly spikes 50%. And we made 100x back later. It's peanut right?

A clear-minded person won't question the business model of the one of the most successful Bitcoin businesses ever.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 01:27:54 AM

no i don't so i am trying to understand.  i'm not talking about market orders, i'm asking about limit short orders that try to hit the bid exactly.
Wait a sec. You've been slinging all this (let's just politely say) mud about bitcoinica and you haven't even used the service? You have a funny way of trying to understand things.

hey, i don't have to trade on Bitcoinica to bring up valid concerns that nobody seems to want to address.

first of all, i short sell all the time with Fidelity and i've never been prevented from covering my shorts.  this is unheard of.  Zhou also admits that longs may not be able to sell if everyone gets short.
second, a market maker/brokerage/whatever Zhou wants to call himself should never be giving out trading advice to ppl here on the forum. what about all the longs on Bitcoinica who weren't logged in yesterday when he advised selling?
third i haven't heard a response to Ferroh's argument above
fourth, if the customers get executed first before Zhou has a chance to hedge that does indeed put Bitcoinica and customers at some risk depending on how fast mtgox is moving.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 01:31:20 AM

And that's why the trade on Bitcoinica doesn't go through before they hedged the position on Mtgox. The situation you're describing simply isn't possible. They try to hedge for 4$. When that isn't possible due to whatever situation you can come up with, and the price falls to 3,80, that's the price the costumer is going to get. Unfair? That's the risk of market orders. If the customer used a limit order instead, which he should if he cares about the risk, and places the limit order at 4$, the trade simply wouldn't go through, because Bitcoinica is unable to hedge at 4$ as the price already fell to 3,80$.


this part can't be correct.  the way i understand it is that the customer gets his order executed before Zhou has a chance to hedge on mtgox.  this is why the spreads are higher on Bitcoinica to acct for slippage or his increased risk of letting you fill first.  example:

if mtgox bid:ask is $4:$4.10 then
Bitcoinica might be $3.80:$4.30 thus

you, as a customer of Bitcoinica, can short at the ask of $3.80 with a limit order and you will get it filled immediately.  the $0.20 difference is what Zhou's algorithm has figured to be a safe cushion to give him time to hedge on mtgox and sell his btc at or somewhere btwn $3.80 and $4 so he doesn't lose money.

in your example, you state that even if you short at the ask price of $3.80 it won't be filled until and if Zhou is able to sell a corresponding amt of btc on mtgox at $3.80.  if that was the case then his spreads should never be higher than mtgox's since he doesn't assume any risk.

correct me if i'm wrong.

Well, the system hedges right after the order execution, and that's why we call it "guaranteed liquidity". And also, the system has to figure out whether it's necessary to hedge at all.

Bitcoinica is not a Mt. Gox interface because we want to be as independent as possible.

We don't have to ensure profits and accuracy on every single trade. But much more than 99% of the time, we can hedge at exact prices that we aim to. If we can ensure these:

- Slippage is highly concentrated in a few seconds of a day
- Customers' orders are distributed across all times

We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Your theory of "hedging erosion" never happens in our experience. During 9/11, we lost about $10 due to slippage when the price suddenly spikes 50%. And we made 100x back later. It's peanut right?

A clear-minded person won't question the business model of the one of the most successful Bitcoin businesses ever.

ah, so i was right and Mushoz's example is wrong.  he thinks customer orders don't get filled until you've already hedged.  there IS risk when you let the customer go first.

and now you admit that you might not even hedge.  there's alot of judgement that goes into those algorithms that could be wrong in a violent market.

Zhou, how do you respond to Ferroh's argument above?


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 30, 2011, 01:37:47 AM

no i don't so i am trying to understand.  i'm not talking about market orders, i'm asking about limit short orders that try to hit the bid exactly.
Wait a sec. You've been slinging all this (let's just politely say) mud about bitcoinica and you haven't even used the service? You have a funny way of trying to understand things.

hey, i don't have to trade on Bitcoinica to bring up valid concerns that nobody seems to want to address.

first of all, i short sell all the time with Fidelity and i've never been prevented from covering my shorts.  this is unheard of.  Zhou also admits that longs may not be able to sell if everyone gets short.
second, a market maker/brokerage/whatever Zhou wants to call himself should never be giving out trading advice to ppl here on the forum. what about all the longs on Bitcoinica who weren't logged in yesterday when he advised selling?
third i haven't heard a response to Ferroh's argument above
fourth, if the customers get executed first before Zhou has a chance to hedge that does indeed put Bitcoinica and customers at some risk depending on how fast mtgox is moving.

First, this problem has been resolved and will be prevented in the future. I have already explained how everything works and why there's a problem. I don't have access to money markets like Fidelity and I heavily rely on customer deposits to maintain reserves.

Second, I didn't advise anything. I said it was an opportunity to long squeeze, because everyone with capital knows and I just want to address the possibility. Apparently it didn't happened. I have plenty of Bitcoins and advise people to sell? If I have sold myself I can make a lot of evil profits, but instead I just want to be transparent so I shared everything.

Third, I posted already.

Fourth, please calculate the average 5-second move of Mt. Gox during the day. It's almost zero. We don't shoot 10,000 BTC buy orders when prices are spiking to infinity. The maximum we have done is like 50, 100 or 150 BTC, except for the forced liquidations which are confirmed risks already.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 01:38:50 AM
if the market went to $5 today and you were short yesterday and wanted to cover but couldn't b/c Zhou is under reserved in USD's, your entire acct would have been liquidated.


Title: Re: Bitcoinica: How it works
Post by: smickles on December 30, 2011, 01:41:08 AM

no i don't so i am trying to understand.  i'm not talking about market orders, i'm asking about limit short orders that try to hit the bid exactly.
Wait a sec. You've been slinging all this (let's just politely say) mud about bitcoinica and you haven't even used the service? You have a funny way of trying to understand things.

hey, i don't have to trade on Bitcoinica to bring up valid concerns that nobody seems to want to address.

first of all, i short sell all the time with Fidelity and i've never been prevented from covering my shorts.  this is unheard of.  Zhou also admits that longs may not be able to sell if everyone gets short.
second, a market maker/brokerage/whatever Zhou wants to call himself should never be giving out trading advice to ppl here on the forum. what about all the longs on Bitcoinica who weren't logged in yesterday when he advised selling?
third i haven't heard a response to Ferroh's argument above
fourth, if the customers get executed first before Zhou has a chance to hedge that does indeed put Bitcoinica and customers at some risk depending on how fast mtgox is moving.
I can only really address you first point right now. It may be unheard of in markets where, I'm sure, the market makers are regulated to have a line of credit -at a government defined level of sufficiency- to prevent the sort of thing that happened earlier. Without that line of credit, which is likely to be difficult, if not impossible for Zhou to get because his business involves bitcoins, there are two ways I know to deal with it.
One, do what Z did.
Two, steal money (BTC or USD) from the accounts of his customers to allow others to cover.

Personally, I think theft is simply wrong and think that Zhou had a system set up to do the right thing in such a situation. Hindsight being what it is, I bet that there is a more efficient way to set up the system, and it sound like Zhou is working on it from some of his earlier posts.


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 30, 2011, 01:41:40 AM

And that's why the trade on Bitcoinica doesn't go through before they hedged the position on Mtgox. The situation you're describing simply isn't possible. They try to hedge for 4$. When that isn't possible due to whatever situation you can come up with, and the price falls to 3,80, that's the price the costumer is going to get. Unfair? That's the risk of market orders. If the customer used a limit order instead, which he should if he cares about the risk, and places the limit order at 4$, the trade simply wouldn't go through, because Bitcoinica is unable to hedge at 4$ as the price already fell to 3,80$.


this part can't be correct.  the way i understand it is that the customer gets his order executed before Zhou has a chance to hedge on mtgox.  this is why the spreads are higher on Bitcoinica to acct for slippage or his increased risk of letting you fill first.  example:

if mtgox bid:ask is $4:$4.10 then
Bitcoinica might be $3.80:$4.30 thus

you, as a customer of Bitcoinica, can short at the ask of $3.80 with a limit order and you will get it filled immediately.  the $0.20 difference is what Zhou's algorithm has figured to be a safe cushion to give him time to hedge on mtgox and sell his btc at or somewhere btwn $3.80 and $4 so he doesn't lose money.

in your example, you state that even if you short at the ask price of $3.80 it won't be filled until and if Zhou is able to sell a corresponding amt of btc on mtgox at $3.80.  if that was the case then his spreads should never be higher than mtgox's since he doesn't assume any risk.

correct me if i'm wrong.

Well, the system hedges right after the order execution, and that's why we call it "guaranteed liquidity". And also, the system has to figure out whether it's necessary to hedge at all.

Bitcoinica is not a Mt. Gox interface because we want to be as independent as possible.

We don't have to ensure profits and accuracy on every single trade. But much more than 99% of the time, we can hedge at exact prices that we aim to. If we can ensure these:

- Slippage is highly concentrated in a few seconds of a day
- Customers' orders are distributed across all times

We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Your theory of "hedging erosion" never happens in our experience. During 9/11, we lost about $10 due to slippage when the price suddenly spikes 50%. And we made 100x back later. It's peanut right?

A clear-minded person won't question the business model of the one of the most successful Bitcoin businesses ever.

ah, so i was right and Mushoz's example is wrong.  he thinks customer orders don't get filled until you've already hedged.  there IS risk when you let the customer go first.

and now you admit that you might not even hedge.  there's alot of judgement that goes into those algorithms that could be wrong in a violent market.

Zhou, how do you respond to Ferroh's argument above?

Have you ever been to Bitcoinica's home page even?

We display publicly how much we hedge during the last 24 hours. Some orders are matched internally.

Yes, we take risk, but I did a lot of experiment to simulate the worse situations possible. If you were a partner you would see a screenshot of BTC/USD rocketing to $9648.84556 when I tried to make things funny.

We execute orders in 50 BTC blocks. We always update prices globally for every 50 BTC executed. The maximum we can lose is 50 BTC times amount of slippage.


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 30, 2011, 01:43:37 AM
if the market went to $5 today and you were short yesterday and wanted to cover but couldn't b/c Zhou is under reserved in USD's, your entire acct would have been liquidated.

This will not happen in the future.

We will only restrict new positions, not existing positions in the future.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 01:44:24 AM

Two, steal money (BTC or USD) from the accounts of his customers to allow others to cover.


he just said that the USD accumulated in short sellers accts was already used to buy bitcoins.  did i get that right, Zhou?  so what do you call that Smickles?


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 30, 2011, 01:45:49 AM

Two, steal money (BTC or USD) from the accounts of his customers to allow others to cover.


he just said that the USD accumulated in short sellers accts was already used to buy bitcoins.  did i get that right, Zhou?  so what do you call that Smickles?

Well, we don't really have the second way. Unless Mt. Gox gives us line of credit like real-world exchanges do. But very unlikely.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 01:49:01 AM
if the market went to $5 today and you were short yesterday and wanted to cover but couldn't b/c Zhou is under reserved in USD's, your entire acct would have been liquidated.

This will not happen in the future.

We will only restrict new positions, not existing positions in the future.

see there are problems that you're admitting to.  and you're calling me a troll?


Title: Re: Bitcoinica: How it works
Post by: smickles on December 30, 2011, 01:51:10 AM

Two, steal money (BTC or USD) from the accounts of his customers to allow others to cover.


he just said that the USD accumulated in short sellers accts was already used to buy bitcoins.  did i get that right, Zhou?  so what do you call that Smickles?
I think I missed that one, where did he say that?


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 01:53:18 AM
This does not do much to explain the common case at bitcoinica, as you conveniently choose scenarios where Bitcoinica always has a higher balance than the customer's trade, (and the customer uses 1:1 margin).

For example:
If Bitcoinica has a $1000 balance, and the customer executes a $1000 trade at 10:1 margin (which Bitcoinica allows), then bitcoinica does not have the funds available to fully equalize this trade against mtgox.
The trade would then require $10000 but bitcoinica only has $1000. If that trade is very profitable, Bitcoinica will have to pay the customer his earnings, or prevent him from liquidating his position until it is either not profitable, or until another customer opens an opposing position.

In all of your scenarios you say "Bitcoinica has lost money! Wrong!". It is in fact very possible for Bitcoinica to lose money -- the fact that you conveniently avoid this scenario is rather suspect.

At this moment, the reserve is larger than top three accounts combined times 10. Your reasoning might be valid at the earlier days, but definitely not now.

That's why we may occasionally halt one direction trading when we don't have money. Didn't you know what happened yesterday?

if the shorts had USD's in their accts yesterday from their shorting activity, why couldn't you let them use those USD's to cover their positions by buying on gox?

Obviously the money has been used up to purchase Bitcoins for the longs.

You have money in Bitcoinica account doesn't mean it's 100% in reserves, it can be borrowed by someone else to buy/sell Bitcoins. At any point, Bitcoinica is a:

- Full reserve in BTC and fractional reserve in USD, or
- Full reserve in USD and fractional reserve in BTC.

(Yesterday, we had a full reserve in BTC, and a depleted reserve in USD. Users couldn't withdraw USD until the situation was resolved.)

This is how hedging exactly works to ensure that we ourselves and our customers are always having almost the same profits (or we call it internally, rate of change of asset value with respect to market price).

right here.


Title: Re: Bitcoinica: How it works
Post by: smickles on December 30, 2011, 02:04:52 AM
<snip>

right here.
so the shorts borrow bitcoin to sell to the longs and you think that's what I meant? There's a cost to borrowing that bitcoin. But you did get me to question myself there. good job.


Title: Re: Bitcoinica: How it works
Post by: notme on December 30, 2011, 02:13:06 AM

Two, steal money (BTC or USD) from the accounts of his customers to allow others to cover.


he just said that the USD accumulated in short sellers accts was already used to buy bitcoins.  did i get that right, Zhou?  so what do you call that Smickles?

Well, we don't really have the second way. Unless Mt. Gox gives us line of credit like real-world exchanges do. But very unlikely.

The other option is to have much larger reserves or trade much less.  You could have reserves, and when a customer takes a position the funds they supposedly hold are not considered reserves as they are now.  Once all the reserves are moved to positions there can be no new positions until you make profits to add to your reserve or some deleverages/closes their position.  But for this to work you need X times customer funds, where X is the weighted average leverage factor of all accounts.  As it stands now, if it had dipped when the shorts had their USD borrowed by the longs, but not enough to force a sale, and no one sold for whatever reason, bitcoinica would be looking at a loss.  Of course it's doubtful all the longs would hold steady, but it is possible they would and you wouldn't have a profit from them accepting a loss to cover your loss due to the profits you owe the shorts you borrowed USD from.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 02:15:27 AM
<snip>

right here.
so the shorts borrow bitcoin to sell to the longs and you think that's what I meant? There's a cost to borrowing that bitcoin. But you did get me to question myself there. good job.

huh?  if you want to short btc, you borrow those btc from someone else on Bitcoinica and sell them to a long for USD's which then get credited to your acct.

in order for you to close the position (cover), you need those USD's to buy those btc back from a seller or another short.  if those USD's are removed from your acct by Zhou to buy btc from mtgox to sell to other longs, where are the USD's going to come from so you can you cover?


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 02:17:18 AM

Two, steal money (BTC or USD) from the accounts of his customers to allow others to cover.


he just said that the USD accumulated in short sellers accts was already used to buy bitcoins.  did i get that right, Zhou?  so what do you call that Smickles?

Well, we don't really have the second way. Unless Mt. Gox gives us line of credit like real-world exchanges do. But very unlikely.

The other option is to have much larger reserves or trade much less.  You could have reserves, and when a customer takes a position the funds they supposedly hold are not considered reserves as they are now.  Once all the reserves are moved to positions there can be no new positions until you make profits to add to your reserve or some deleverages/closes their position.  But for this to work you need X times customer funds, where X is the weighted average leverage factor of all accounts.  As it stands now, if it had dipped when the shorts had their USD borrowed by the longs, but not enough to force a sale, and no one sold for whatever reason, bitcoinica would be looking at a loss.  Of course it's doubtful all the longs would hold steady, but it is possible they would and you wouldn't have a profit from them to cover you loss due to the shorts you borrowed USD from.

this was Ferroh's point.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 02:22:45 AM
if Zhou ran out of USD reserves yesterday, where did all the USD's come from to allow the longs to sell their btc?  an avalanche of new customer deposits?

if so, why does that sound like a Ponzi?


Title: Re: Bitcoinica: How it works
Post by: notme on December 30, 2011, 02:23:21 AM
"We can't fix this without credit" is a disgusting attitude that has infected our global economy.  It seems few understand the idea of working within your means instead of using credit to create artificial growth.  As a 25 year old I am disgusted by the mess being left for my generation to deal with. [/rant]


Title: Re: Bitcoinica: How it works
Post by: notme on December 30, 2011, 02:24:32 AM
if Zhou ran out of USD reserves yesterday, where did all the USD's come from to allow the longs to sell their btc?  an avalanche of new customer deposits?


That makes no sense cypher... Why would they need USD for the longs to sell.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 02:25:29 AM
if Zhou ran out of USD reserves yesterday, where did all the USD's come from to allow the longs to sell their btc?  an avalanche of new customer deposits?


That makes no sense cypher... Why would they need USD for the longs to sell.

the longs liquidate their btc for USD's, no?


Title: Re: Bitcoinica: How it works
Post by: smickles on December 30, 2011, 02:25:49 AM
<snip>

right here.
so the shorts borrow bitcoin to sell to the longs and you think that's what I meant? There's a cost to borrowing that bitcoin. But you did get me to question myself there. good job.

huh?  if you want to short btc, you borrow those btc from someone else on Bitcoinica and sell them to a long for USD's which then get credited to your acct.

in order for you to close the position (cover), you need those USD's to buy those btc back from a seller or another short.  if those USD's are removed from your acct by Zhou to buy btc from mtgox to sell to other longs, where are the USD's going to come from so you can you cover?
Wasn't that explained earlier?
My point can basically be reduced to:
Zhou didn't steal peoples money, so obviously, because of the reserve situation, people had to wait until opposing positions to occurred to be able to cover.


Title: Re: Bitcoinica: How it works
Post by: smickles on December 30, 2011, 02:27:30 AM
"We can't fix this without credit" is a disgusting attitude that has infected our global economy.  It seems few understand the idea of working within your means instead of using credit to create artificial growth.  As a 25 year old I am disgusted by the mess being left for my generation to deal with. [/rant]
I hope I'm not coming off as supporting the line of credit idea. I don't want that to happen.


Title: Re: Bitcoinica: How it works
Post by: smickles on December 30, 2011, 02:30:20 AM
if Zhou ran out of USD reserves yesterday, where did all the USD's come from to allow the longs to sell their btc?  an avalanche of new customer deposits?


That makes no sense cypher... Why would they need USD for the longs to sell.

the longs liquidate their btc for USD's, no?
which can come from Z selling those BTC on MtGox?


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 30, 2011, 02:30:55 AM
if Zhou ran out of USD reserves yesterday, where did all the USD's come from to allow the longs to sell their btc?  an avalanche of new customer deposits?


That makes no sense cypher... Why would they need USD for the longs to sell.

the longs liquidate their btc for USD's, no?

When the longs liquidate, we sell Bitcoins for them. Then we have USD to give to them.

You don't understand Bitcoinica accounts at all. The account balance is just a number fully or partially backed by the Bitcoinica reserve. The market maker never has to send money to his users' accounts.


Title: Re: Bitcoinica: How it works
Post by: notme on December 30, 2011, 02:31:54 AM
if Zhou ran out of USD reserves yesterday, where did all the USD's come from to allow the longs to sell their btc?  an avalanche of new customer deposits?


That makes no sense cypher... Why would they need USD for the longs to sell.

the longs liquidate their btc for USD's, no?

Sure... The USDs came from selling BTC on MtGox.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 02:39:17 AM
Sorry, my bad.  I'm heading out to dinner so I'll be back later


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 07:08:41 AM

Two, steal money (BTC or USD) from the accounts of his customers to allow others to cover.


he just said that the USD accumulated in short sellers accts was already used to buy bitcoins.  did i get that right, Zhou?  so what do you call that Smickles?

Well, we don't really have the second way. Unless Mt. Gox gives us line of credit like real-world exchanges do. But very unlikely.

The other option is to have much larger reserves or trade much less.  You could have reserves, and when a customer takes a position the funds they supposedly hold are not considered reserves as they are now.  Once all the reserves are moved to positions there can be no new positions until you make profits to add to your reserve or some deleverages/closes their position.  But for this to work you need X times customer funds, where X is the weighted average leverage factor of all accounts.  As it stands now, if it had dipped when the shorts had their USD borrowed by the longs, but not enough to force a sale, and no one sold for whatever reason, bitcoinica would be looking at a loss.  Of course it's doubtful all the longs would hold steady, but it is possible they would and you wouldn't have a profit from them accepting a loss to cover your loss due to the profits you owe the shorts you borrowed USD from.

this is actually a good suggestion and helps me understand what Bitcoinica does much better than i did.

phew, as much as i've short sold over the years, i've never had to bother with the mechanics of how brokerages provide the liquidity for me to perform this activity.  its bad enough trying to predict the swings and directions of markets.

thanks for helping me understand.

having said that i still think there are some potential problems identified above but it sounds like Zhou is now aware of these and will try to make things better.


Title: Re: Bitcoinica: How it works
Post by: minorman on December 30, 2011, 10:39:09 AM
I think credit instruments in Bitcoin should be avoided like the plague.
Getting away from the bankster-issued, debt-backed funnymoney is imho the *prime* benefit of Bitcoin.
For the same reason, am I very apprehensive about leveraged trading, since this is conventionally done with "margin"="credit"=debt/paper money.
Clearly, you can't (and thus don't) sell "paper" Bitcoins on mtGox - yet, so for now it might be ok, but what if credit (promise-to-pay) Bitcoin starts appearing for real within Bitcoin?? I think mtGox credits are a step in that dangerous direction.

 Please people - never forget the difference between real Bitcoin and promisary notes! That leads to the dark side  ;)

-practical question: Does Bitcoinica follow the uptic-rule? If not, why not?


Title: Re: Bitcoinica: How it works
Post by: mjcmurfy on December 30, 2011, 11:04:10 AM
I think credit instruments in Bitcoin should be avoided like the plague.
Getting away from the bankster-issued, debt-backed funnymoney is imho the *prime* benefit of Bitcoin.
For the same reason, am I very apprehensive about leveraged trading, since this is conventionally done with "margin"="credit"=debt/paper money.
Clearly, you can't (and thus don't) sell "paper" Bitcoins on mtGox - yet, so for now it might be ok, but what if credit (promise-to-pay) Bitcoin starts appearing for real within Bitcoin?? I think mtGox credits are a step in that dangerous direction.

 Please people - never forget the difference between real Bitcoin and promisary notes! That leads to the dark side  ;)

-practical question: Does Bitcoinica follow the uptic-rule? If not, why not?

+111


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 30, 2011, 12:50:05 PM
I think credit instruments in Bitcoin should be avoided like the plague.
Getting away from the bankster-issued, debt-backed funnymoney is imho the *prime* benefit of Bitcoin.
For the same reason, am I very apprehensive about leveraged trading, since this is conventionally done with "margin"="credit"=debt/paper money.
Clearly, you can't (and thus don't) sell "paper" Bitcoins on mtGox - yet, so for now it might be ok, but what if credit (promise-to-pay) Bitcoin starts appearing for real within Bitcoin?? I think mtGox credits are a step in that dangerous direction.

 Please people - never forget the difference between real Bitcoin and promisary notes! That leads to the dark side  ;)

-practical question: Does Bitcoinica follow the uptic-rule? If not, why not?

Basically no one can really control the outcome. The free market chooses the better option in case of different needs. If there are people willing to pay for margin trading, it could exist for the common good. (Unless you argue about the potential negative externalities of margin trading, which will be a totally different thing.)

Margin trading should exist in the Bitcoin world, because either
- it's good for everyone, or
- it's tragedy of the commons.

Either way, we can do nothing about it.

To me, the most appealing feature of Bitcoin is the deregulation of money. Uptick rule is a typical regulation to protect some investors' interest while causing unintended consequences which are against the free market spirit. Also, in mature markets, research has found very insignificant link between rate of price decline and imposition of uptick rule. (I wanted to find citations for this, but SSRN is not available at the moment. FYI, Alexander, Gordon J.; Mark A. Peterson (2006-03-15). (How) Does the Uptick Rule Constrain Short Selling?. Social Science Research Network. SSRN 891478. Working Paper Series)


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 30, 2011, 01:44:15 PM
My apologies. I guess I was wrong on the "hedge before trade" part. Looking back, it does make sense now, as Bitcoinica is guaranteeing liquidity up to 50BTC, which would be impossible if they indeed used a "Hedge before trade" system. I must have misinterpreted Zhoutong's post on the first page. This indeed makes cypherdoc's concerns on slippage valid, but thankfully Zhoutong seems to have solutions to greatly reduce those kind of risks.

The fist and best solution is what they have already implemented, which is to work with X BTC blocks (In their case 50BTC) max. Even with huge slippage their losses shouldn't be hard to cover because it's only going to be over one or a couple of 50BTC blocks on huge movements, instead of over potentially huge trades.

Their second solution is risk analysis using extreme simulations, to see at what kind of risks those extreme situation brings them. If they can cope even with the greatest movements, as they seem to have analyzed looking at Zhoutong's post (a spike to $9648.84556 BTC/USD prices), combined with 50BTC blocks max, we can be certain they can deal with the risks they are exposing themselves to. You have to remember it's not bad if Bitcoinica turns in a loss over a small time period due to the risks, as long as they turn in profits over the long run.

This leaves the slippage problem on forced liquidations, which could indeed be disastrous if all goes wrong. But thankfully this has already been discussed in this topic, and thankfully Zhoutong listened to my advice in the topic start. He is going to create a new algorithm which gives liquidating short positions priority over going long by preventing more longs _before_ they run out of USD reserves, so that they always have reserves left to allow people to liquidate. Of course the same is going to be true in reverse for liquidating long positions and going short. Prevent more shorts _before_ they run out of BTC, so that people can still liquidate their longs.

We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 30, 2011, 02:48:46 PM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 05:17:48 PM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Zhou:  i watch the stock mkt most days minute by minute and am able to witness most major moves.  Mushoz is right; just b/c you haven't seen it happen before with Bitcoin doesn't mean it won't ever happen.  its impossible to write the perfect algorithm.

for example, i predict that as the market becomes larger and bigger players enter the scene with larger and more powerful bots or servers, they will intentionally examine your protocols and try to exploit it with surprise attacks.  what would a 10 minute straight up move in the price do to your algorithm and your customers holding short?  i have seen straight up moves (with a few red candles thrown in btwn) for hours on end clearly designed to destroy shorts as well as the vice versa.

btw, remember 10 days ago when we broke out of the 3.20 range up to 3.70 and then started to drift back down to 3.50 as the sellers and shorts stepped back in?  it was me who jammed the price to 3.99 knowing that it would cause all the other bots and shorts to climb on board and take it up and through 4.00 due to the intensity of the move and the "double ramp".  i believe we topped just over 4.50 on gox with your algorithm spiking to 4.95 or something ridiculous wiping out "a lot, seriously" of leveraged traders (using your own words from the Zhoutonged thread).  i understand that you had to reverse alot of these trades. now this wasn't a target against you or your shorts but it was a consideration given that i saw we were breaking out yet again and i was in the process of accumulating.  and i'm just a guy with a laptop and some intuition.

so in a sense, i do have experience trading on Bitcoinica via watching the effects of what i do on your algorithm.  the lesson for you is, you will always be vulnerable to unpredictable situations.

edit:  no offense but you often come across as being so smart as to be able to write the perfect algorithm.  perhaps its b/c of your young age which i admire more than anything.  but think about it from an open source perspective.  you are one guy trying to outsmart the "market" which is essentially the entire world expressing its opinion of the price.  within that market are all sorts of smart competitors who will try to compete with you.  they will study you and design even better more powerful algorithms.  never take anything for granted.


Title: Re: Bitcoinica: How it works
Post by: smickles on December 30, 2011, 05:24:15 PM
I think credit instruments in Bitcoin should be avoided like the plague.
Getting away from the bankster-issued, debt-backed funnymoney is imho the *prime* benefit of Bitcoin.
For the same reason, am I very apprehensive about leveraged trading, since this is conventionally done with "margin"="credit"=debt/paper money.
Clearly, you can't (and thus don't) sell "paper" Bitcoins on mtGox - yet, so for now it might be ok, but what if credit (promise-to-pay) Bitcoin starts appearing for real within Bitcoin?? I think mtGox credits are a step in that dangerous direction.

 Please people - never forget the difference between real Bitcoin and promisary notes! That leads to the dark side  ;)

-practical question: Does Bitcoinica follow the uptic-rule? If not, why not?
What do you think about Bitcoin redeemable MtGox codes? those seem strikingly similar to "paper" bitcoins.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 30, 2011, 05:39:42 PM
I think credit instruments in Bitcoin should be avoided like the plague.
Getting away from the bankster-issued, debt-backed funnymoney is imho the *prime* benefit of Bitcoin.
For the same reason, am I very apprehensive about leveraged trading, since this is conventionally done with "margin"="credit"=debt/paper money.
Clearly, you can't (and thus don't) sell "paper" Bitcoins on mtGox - yet, so for now it might be ok, but what if credit (promise-to-pay) Bitcoin starts appearing for real within Bitcoin?? I think mtGox credits are a step in that dangerous direction.

 Please people - never forget the difference between real Bitcoin and promisary notes! That leads to the dark side  ;)

-practical question: Does Bitcoinica follow the uptic-rule? If not, why not?
What do you think about Bitcoin redeemable MtGox codes? those seem strikingly similar to "paper" bitcoins.

Those are 100% backed by Bitcoins though. Or in the case of USD redeemable codes 100% backed by USD.


Title: Re: Bitcoinica: How it works
Post by: smickles on December 30, 2011, 05:44:12 PM
I think credit instruments in Bitcoin should be avoided like the plague.
Getting away from the bankster-issued, debt-backed funnymoney is imho the *prime* benefit of Bitcoin.
For the same reason, am I very apprehensive about leveraged trading, since this is conventionally done with "margin"="credit"=debt/paper money.
Clearly, you can't (and thus don't) sell "paper" Bitcoins on mtGox - yet, so for now it might be ok, but what if credit (promise-to-pay) Bitcoin starts appearing for real within Bitcoin?? I think mtGox credits are a step in that dangerous direction.

 Please people - never forget the difference between real Bitcoin and promisary notes! That leads to the dark side  ;)

-practical question: Does Bitcoinica follow the uptic-rule? If not, why not?
What do you think about Bitcoin redeemable MtGox codes? those seem strikingly similar to "paper" bitcoins.

Those are 100% backed by Bitcoins though. Or in the case of USD redeemable codes 100% backed by USD.
didn't most paper money start out backed by one thing or another? It just seems to me that if you don't like "paper" money then you should't like the precursors to it either. Kinda the same way that if you want to quit smoking, it's a good idea to avoid places where you liked to smoke.


Title: Re: Bitcoinica: How it works
Post by: ineededausername on December 30, 2011, 06:01:58 PM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Zhou:  i watch the stock mkt most days minute by minute and am able to witness most major moves.  Mushoz is right; just b/c you haven't seen it happen before with Bitcoin doesn't mean it won't ever happen.  its impossible to write the perfect algorithm.

for example, i predict that as the market becomes larger and bigger players enter the scene with larger and more powerful bots or servers, they will intentionally examine your protocols and try to exploit it with surprise attacks.  what would a 10 minute straight up move in the price do to your algorithm and your customers holding short?  i have seen straight up moves (with a few red candles thrown in btwn) for hours on end clearly designed to destroy shorts as well as the vice versa.

btw, remember 10 days ago when we broke out of the 3.20 range up to 3.70 and then started to drift back down to 3.50 as the sellers and shorts stepped back in?  it was me who jammed the price to 3.99 knowing that it would cause all the other bots and shorts to climb on board and take it up and through 4.00 due to the intensity of the move and the "double ramp".  i believe we topped just over 4.50 on gox with your algorithm spiking to 4.95 or something ridiculous wiping out "a lot, seriously" of leveraged traders (using your own words from the Zhoutonged thread).  i understand that you had to reverse alot of these trades. now this wasn't a target against you or your shorts but it was a consideration given that i saw we were breaking out yet again and i was in the process of accumulating.  and i'm just a guy with a laptop and some intuition.

so in a sense, i do have experience trading on Bitcoinica via watching the effects of what i do on your algorithm.  the lesson for you is, you will always be vulnerable to unpredictable situations.

edit:  no offense but you often come across as being so smart as to be able to write the perfect algorithm.  perhaps its b/c of your young age which i admire more than anything.  but think about it from an open source perspective.  you are one guy trying to outsmart the "market" which is essentially the entire world expressing its opinion of the price.  within that market are all sorts of smart competitors who will try to compete with you.  they will study you and design even better more powerful algorithms.  never take anything for granted.

Oh wow, YOU caused that second spike.  Always wondered who it was. :)


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 30, 2011, 06:13:45 PM
I think credit instruments in Bitcoin should be avoided like the plague.
Getting away from the bankster-issued, debt-backed funnymoney is imho the *prime* benefit of Bitcoin.
For the same reason, am I very apprehensive about leveraged trading, since this is conventionally done with "margin"="credit"=debt/paper money.
Clearly, you can't (and thus don't) sell "paper" Bitcoins on mtGox - yet, so for now it might be ok, but what if credit (promise-to-pay) Bitcoin starts appearing for real within Bitcoin?? I think mtGox credits are a step in that dangerous direction.

 Please people - never forget the difference between real Bitcoin and promisary notes! That leads to the dark side  ;)

-practical question: Does Bitcoinica follow the uptic-rule? If not, why not?
What do you think about Bitcoin redeemable MtGox codes? those seem strikingly similar to "paper" bitcoins.

Those are 100% backed by Bitcoins though. Or in the case of USD redeemable codes 100% backed by USD.
didn't most paper money start out backed by one thing or another? It just seems to me that if you don't like "paper" money then you should't like the precursors to it either. Kinda the same way that if you want to quit smoking, it's a good idea to avoid places where you liked to smoke.

There's plenty of examples to think of where the precursor is a good thing. As long as it stays at the precursor (in this case, as long as it stays 100% backed), it's fine with me. It's a very convenient way to move funds instantly. I've used it a few times to move funds between Bitcoinica and Mtgox.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 30, 2011, 06:50:00 PM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Mushoz:  can u translate this?


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 31, 2011, 01:47:01 AM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Mushoz:  can u translate this?

It means he is protecting himself against slippage due to random moves by using spreads, but the biggest risk is people trying to exploit slippage. Let's say the price is at 4$ on Mtgox and suddenly a spikes causes it to go down to 3.60. Someone wanting to exploit slippage could quickly sell at Bitcoinica, where the prices wouldn't have been updated yet. That's what the 1-4 second order execution delay is for. It allows the price on Bitcoinica to catch up to the market price, so that people aren't able to exploit slippage.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 31, 2011, 02:40:37 AM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Mushoz:  can u translate this?

It means he is protecting himself against slippage due to random moves by using spreads, but the biggest risk is people trying to exploit slippage. Let's say the price is at 4$ on Mtgox and suddenly a spikes causes it to go down to 3.60. Someone wanting to exploit slippage could quickly sell at Bitcoinica, where the prices wouldn't have been updated yet. That's what the 1-4 second order execution delay is for. It allows the price on Bitcoinica to catch up to the market price, so that people aren't able to exploit slippage.

what if the spike comes at exactly 4 sec after the customer pushes his button?  what if a series of ramps occur?

i know, i know; he says he only executes 50 BTC at a time but in his explanation above he says 50, 100, sometimes 150 BTC.  which is it?


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 31, 2011, 04:04:21 AM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Mushoz:  can u translate this?

It means he is protecting himself against slippage due to random moves by using spreads, but the biggest risk is people trying to exploit slippage. Let's say the price is at 4$ on Mtgox and suddenly a spikes causes it to go down to 3.60. Someone wanting to exploit slippage could quickly sell at Bitcoinica, where the prices wouldn't have been updated yet. That's what the 1-4 second order execution delay is for. It allows the price on Bitcoinica to catch up to the market price, so that people aren't able to exploit slippage.

what if the spike comes at exactly 4 sec after the customer pushes his button?  what if a series of ramps occur?

i know, i know; he says he only executes 50 BTC at a time but in his explanation above he says 50, 100, sometimes 150 BTC.  which is it?

If the spike comes exactly 4 seconds after order placement, we can be sure that the customer was not intending to exploit the spike because no one actually knew.

So it can be 0, or 50.

100 and 150 are possibilities when multiple customers place order at the same time, and it's extremely rare.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 31, 2011, 04:22:18 AM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Mushoz:  can u translate this?

It means he is protecting himself against slippage due to random moves by using spreads, but the biggest risk is people trying to exploit slippage. Let's say the price is at 4$ on Mtgox and suddenly a spikes causes it to go down to 3.60. Someone wanting to exploit slippage could quickly sell at Bitcoinica, where the prices wouldn't have been updated yet. That's what the 1-4 second order execution delay is for. It allows the price on Bitcoinica to catch up to the market price, so that people aren't able to exploit slippage.

what if the spike comes at exactly 4 sec after the customer pushes his button?  what if a series of ramps occur?

i know, i know; he says he only executes 50 BTC at a time but in his explanation above he says 50, 100, sometimes 150 BTC.  which is it?

If the spike comes exactly 4 seconds after order placement, we can be sure that the customer was not intending to exploit the spike because no one actually knew.

So it can be 0, or 50.

100 and 150 are possibilities when multiple customers place order at the same time, and it's extremely rare.

what if i'm the one who pushes the button on Bitcoinica, counts off 4 sec, and pushes the button on mtgox creating the spike?


Title: Re: Bitcoinica: How it works
Post by: dree12 on December 31, 2011, 04:31:40 AM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Mushoz:  can u translate this?

It means he is protecting himself against slippage due to random moves by using spreads, but the biggest risk is people trying to exploit slippage. Let's say the price is at 4$ on Mtgox and suddenly a spikes causes it to go down to 3.60. Someone wanting to exploit slippage could quickly sell at Bitcoinica, where the prices wouldn't have been updated yet. That's what the 1-4 second order execution delay is for. It allows the price on Bitcoinica to catch up to the market price, so that people aren't able to exploit slippage.

what if the spike comes at exactly 4 sec after the customer pushes his button?  what if a series of ramps occur?

i know, i know; he says he only executes 50 BTC at a time but in his explanation above he says 50, 100, sometimes 150 BTC.  which is it?

If the spike comes exactly 4 seconds after order placement, we can be sure that the customer was not intending to exploit the spike because no one actually knew.

So it can be 0, or 50.

100 and 150 are possibilities when multiple customers place order at the same time, and it's extremely rare.

what if i'm the one who pushes the button on Bitcoinica, counts off 4 sec, and pushes the button on mtgox creating the spike?
Then you would have lost a lot of money creating a sizable spike, would you not?


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 31, 2011, 04:46:23 AM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Mushoz:  can u translate this?

It means he is protecting himself against slippage due to random moves by using spreads, but the biggest risk is people trying to exploit slippage. Let's say the price is at 4$ on Mtgox and suddenly a spikes causes it to go down to 3.60. Someone wanting to exploit slippage could quickly sell at Bitcoinica, where the prices wouldn't have been updated yet. That's what the 1-4 second order execution delay is for. It allows the price on Bitcoinica to catch up to the market price, so that people aren't able to exploit slippage.

what if the spike comes at exactly 4 sec after the customer pushes his button?  what if a series of ramps occur?

i know, i know; he says he only executes 50 BTC at a time but in his explanation above he says 50, 100, sometimes 150 BTC.  which is it?

If the spike comes exactly 4 seconds after order placement, we can be sure that the customer was not intending to exploit the spike because no one actually knew.

So it can be 0, or 50.

100 and 150 are possibilities when multiple customers place order at the same time, and it's extremely rare.

what if i'm the one who pushes the button on Bitcoinica, counts off 4 sec, and pushes the button on mtgox creating the spike?
Then you would have lost a lot of money creating a sizable spike, would you not?

not if at a given pt in time both gox and bitcoinica have respective asks say @ $4 and $4.10 due to low activity in the market.  example:

i have accts at both gox and bitcoinica.  i push the buy button at bitcoinica to buy say 100 btc, count off 4 sec to secure the buy @ $4.10, then push the mtgox buy button to buy whatever it takes to create a spike to $4.5 before bitcoinica has a chance to hedge @ $4.  once bitcoinica adjusts its bid to say $4.4 i then sell those same 100 btc on bitcoinica for $4.4


Title: Re: Bitcoinica: How it works
Post by: mjcmurfy on December 31, 2011, 04:47:13 AM
Then you would have lost a lot of money creating a sizable spike, would you not?

Those pesky spreads would widen like like his eyes when he realized that he wasn't able to exit at anywhere near the price he had spiked it to. Shucks. But actually, this worries me a lot. If he was somehow able to prevent the reflex movement by continuing to buy/sell, the spreads might indeed stabilize at an exit point that would be quite profitable for him.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 31, 2011, 05:01:58 AM
Then you would have lost a lot of money creating a sizable spike, would you not?

Those pesky spreads would widen like like his eyes when he realized that he wasn't able to exit at anywhere near the price he had spiked it to. Shucks. But actually, this worries me a lot. If he was somehow able to prevent the reflex movement by continuing to buy/sell, the spreads might indeed stabilize at an exit point that would be quite profitable for him.

in an uptrending market like we have now, that wouldn't be hard.


Title: Re: Bitcoinica: How it works
Post by: mjcmurfy on December 31, 2011, 05:08:07 AM
It wouldn't be that hard, true, but it would be very risky. The difficulty lies not in the execution, but in the fact that none of us here has the capital required in order to do it - or else we wouldn't be complaining about it in public.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 31, 2011, 05:12:33 AM
It wouldn't be that hard, true, but it would be very risky. The difficulty lies not in the execution, but in the fact that none of us here has the capital required in order to do it - or else we wouldn't be complaining about it in public.

hey, speak for yourself  :D


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 31, 2011, 05:13:42 AM
i guess i polluted this thread to the pt where Zhou has left  ;D


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 31, 2011, 05:18:46 AM
do you think he'll still let me setup an acct? :P


Title: Re: Bitcoinica: How it works
Post by: mjcmurfy on December 31, 2011, 05:22:59 AM
I wondered that myself after all the criticism I slung at him a few weeks back. Not bloody likely! Heh.

I'm almost convinced that he has blocked my IP range somehow. I can't access bitcoinica from my home ISP connection anymore, just get server not found errors. I have to go through a proxy to find out bitcoinica's daily volumes! :D

Just to be clear, I'm being facetious again. I'm not accusing zhou. But it is pretty weird.


Title: Re: Bitcoinica: How it works
Post by: ineededausername on December 31, 2011, 05:36:16 AM
I wondered that myself after all the criticism I slung at him a few weeks back. Not bloody likely! Heh.

I'm almost convinced that he has blocked my IP range somehow. I can't access bitcoinica from my home ISP connection anymore, just get server not found errors. I have to go through a proxy to find out bitcoinica's daily volumes! :D

Just to be clear, I'm being facetious again. I'm not accusing zhou. But it is pretty weird.

Hmmm interesting... didn't know zhou was blocking people from accessing Bitcoinica...


Title: Re: Bitcoinica: How it works
Post by: mjcmurfy on December 31, 2011, 05:44:56 AM
I wondered that myself after all the criticism I slung at him a few weeks back. Not bloody likely! Heh.

I'm almost convinced that he has blocked my IP range somehow. I can't access bitcoinica from my home ISP connection anymore, just get server not found errors. I have to go through a proxy to find out bitcoinica's daily volumes! :D

Just to be clear, I'm being facetious again. I'm not accusing zhou. But it is pretty weird.

Hmmm interesting... didn't know zhou was blocking people from accessing Bitcoinica...

LOL. Yep, very suspicious. Maybe you should withdraw all your bitcoins and send them to me for safekeeping!
And before I forget, did you hear that panerai is supposedly a hermaphrodite? Tell EVERYone.   ;D


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 31, 2011, 06:58:20 AM
do you think he'll still let me setup an acct? :P

Sure, you can try that.

But in order for your to sell your 100 BTC to Bitcoinica at a profitable price (at least $4.4), you have to meet the following criteria:

- Have a few sizable bids over $4.4
- Maintain them for at least 8 seconds (two 50 BTC blocks)
- Not being eaten by major market players

Since the launch day, there were a lot of people speculating about the possibility of a financial attack, but so far only one guy has done it successfully (due to a bug in the algorithm in the early days).

You can try anything you want. But please be aware of the potential risk.


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 31, 2011, 07:00:27 AM
I wondered that myself after all the criticism I slung at him a few weeks back. Not bloody likely! Heh.

I'm almost convinced that he has blocked my IP range somehow. I can't access bitcoinica from my home ISP connection anymore, just get server not found errors. I have to go through a proxy to find out bitcoinica's daily volumes! :D

Just to be clear, I'm being facetious again. I'm not accusing zhou. But it is pretty weird.

I'm not sure what happened, but several people reported this to me. (I never block anyone from accessing Bitcoinica.)

You can use Google DNS 8.8.8.8 / 8.8.4.4 to get domain resolution correct. It's your ISP DNS problem.

I guess it's because of our Anycast DNS not working properly, and I will try to fix that.


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 31, 2011, 03:51:59 PM
Update on the OP's suggestion

Now whenever Bitcoinica is out of reserves (either USD or BTC), everyone can expect:

- Free to close any previous positions regardless of direction and order type (until the critical quantity, which should almost never happen).
- Not able to establish new positions (or increase existing positions) in certain direction until the reserve has been re-established (by others' deposit, or opposite trading).
- The price will show like *4.70594 (with the asterisk) to indicate trading restrictions.
- All pending orders are shown as "No reserve" and they will be "Active" again once the reserve has been re-established.

It's highly recommended to place limit orders when trading restrictions are imposed, so that there won't be surprise execution prices after the removal of restrictions.

Now you can safely place stop loss orders because any trade restrictions will have no effect on these orders!


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 31, 2011, 03:54:25 PM
Just tested it! Working great! Thanks for implementing this  :)


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 31, 2011, 03:59:49 PM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Mushoz:  can u translate this?

It means he is protecting himself against slippage due to random moves by using spreads, but the biggest risk is people trying to exploit slippage. Let's say the price is at 4$ on Mtgox and suddenly a spikes causes it to go down to 3.60. Someone wanting to exploit slippage could quickly sell at Bitcoinica, where the prices wouldn't have been updated yet. That's what the 1-4 second order execution delay is for. It allows the price on Bitcoinica to catch up to the market price, so that people aren't able to exploit slippage.

what if the spike comes at exactly 4 sec after the customer pushes his button?  what if a series of ramps occur?

i know, i know; he says he only executes 50 BTC at a time but in his explanation above he says 50, 100, sometimes 150 BTC.  which is it?

If the spike comes exactly 4 seconds after order placement, we can be sure that the customer was not intending to exploit the spike because no one actually knew.

So it can be 0, or 50.

100 and 150 are possibilities when multiple customers place order at the same time, and it's extremely rare.

what if i'm the one who pushes the button on Bitcoinica, counts off 4 sec, and pushes the button on mtgox creating the spike?
Then you would have lost a lot of money creating a sizable spike, would you not?

not if at a given pt in time both gox and bitcoinica have respective asks say @ $4 and $4.10 due to low activity in the market.  example:

i have accts at both gox and bitcoinica.  i push the buy button at bitcoinica to buy say 100 btc, count off 4 sec to secure the buy @ $4.10, then push the mtgox buy button to buy whatever it takes to create a spike to $4.5 before bitcoinica has a chance to hedge @ $4.  once bitcoinica adjusts its bid to say $4.4 i then sell those same 100 btc on bitcoinica for $4.4

In that case, with perfect execution you will profit 30 cents per BTC times 100BTC, which will net you 30$. The USD required to create such a spike is _far_ more and it is far too risky to try and profit 30$. It would only be possible if the depth was very shallow, weren't it for the fact in that case the spread is a lot bigger to compensate for the shallowness of the orderbook.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 31, 2011, 04:08:15 PM

In that case, with perfect execution you will profit 30 cents per BTC times 100BTC, which will net you 30$. The USD required to create such a spike is _far_ more and it is far too risky to try and profit 30$. It would only be possible if the depth was very shallow, weren't it for the fact in that case the spread is a lot bigger to compensate for the shallowness of the orderbook.

the numbers were made up.  my pt was to demonstrate that just b/c you delay the customers buy order by 4 sec doesn't solve the slippage problem as a motivated attacker with a decent size acct at both places could still game the system knowing that the 4 sec rule was in place.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 31, 2011, 04:11:33 PM

In that case, with perfect execution you will profit 30 cents per BTC times 100BTC, which will net you 30$. The USD required to create such a spike is _far_ more and it is far too risky to try and profit 30$. It would only be possible if the depth was very shallow, weren't it for the fact in that case the spread is a lot bigger to compensate for the shallowness of the orderbook.

the numbers were made up.  my pt was to demonstrate that just b/c you delay the customers buy order by 4 sec doesn't solve the slippage problem as a motivated attacker with a decent size acct at both places could still game the system knowing that the 4 sec rule was in place.

That's what the 50BTC blocks are for. You aren't going to turn in that profit over more than 2-3 perhaps 4 blocks. The profits will pale in comparison to the funds needed to create that spike in the first place.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 31, 2011, 04:13:23 PM

In that case, with perfect execution you will profit 30 cents per BTC times 100BTC, which will net you 30$. The USD required to create such a spike is _far_ more and it is far too risky to try and profit 30$. It would only be possible if the depth was very shallow, weren't it for the fact in that case the spread is a lot bigger to compensate for the shallowness of the orderbook.

the numbers were made up.  my pt was to demonstrate that just b/c you delay the customers buy order by 4 sec doesn't solve the slippage problem as a motivated attacker with a decent size acct at both places could still game the system knowing that the 4 sec rule was in place.

That's what the 50BTC blocks are for. You aren't going to turn in that profit over more than 2-3 perhaps 4 blocks. The profits will pale in comparison to the funds needed to create that spike in the first place.

not in an uptrending market like this.


Title: Re: Bitcoinica: How it works
Post by: sgbett on December 31, 2011, 04:16:49 PM
plz explain ... now 11mins... i see no restriction on the sell side why so long to execute....

http://i.imgur.com/Yr82T.png


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on December 31, 2011, 04:20:57 PM
plz explain ... now 11mins... i see no restriction on the sell side why so long to execute....

http://i.imgur.com/Yr82T.png

i thought it was supposed to be 4 sec?


Title: Re: Bitcoinica: How it works
Post by: sgbett on December 31, 2011, 04:26:50 PM
I am used to it taking 5 or 10 secs, and for bigger orders to take a while to go through as they get chipped away at in blocks of 50, but this is doing my head in. The quoted price was above my order price for at least 15 mins. Its now gone below again.

I'm also starting to wonder, given the 'USD Shortage' whether that means I'l be able to get USD's out, because if this flakiness continues I am pulling everything.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 31, 2011, 04:32:34 PM
A bug in the algorithm could be preventing orders on both sides? Hmm this is not good. Zhoutong, could you have a look please if everything is working as it should? There's no * next to the sell price, yet some people seem to be unable to sell...


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 31, 2011, 04:47:19 PM
Update

Just now our clock server went down when I was pushing updates when the message queue was just emptied. It turned out to take a much longer time than usual. So all price ticking and order matching were paused.

I apologize for the issue.

Now everything is working fine!


Title: Re: Bitcoinica: How it works
Post by: sgbett on December 31, 2011, 04:54:06 PM
Order completed ...

112445   BTCUSD   Limit   -50.0   $4.6500   18 minutes ago   Executed @ 4.6674

thx xx


Title: Re: Bitcoinica: How it works
Post by: notme on December 31, 2011, 05:35:34 PM
- Free to close any previous positions regardless of direction and order type (until the critical quantity, which should almost never happen).

Can you please describe what this is so I can make my own decision as to the robustness?  All positions are backed unless we go critical isn't very comforting.  How do you differ from the full setting aside of every position I have described and you continue to ignore?  I honestly would like to come back to bitcoinica as I have been profitable with it, but first I need my concerns addressed.


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 31, 2011, 05:55:59 PM
- Free to close any previous positions regardless of direction and order type (until the critical quantity, which should almost never happen).

Can you please describe what this is so I can make my own decision as to the robustness?  All positions are backed unless we go critical isn't very comforting.  How do you differ from the full setting aside of every position I have described and you continue to ignore?  I honestly would like to come back to bitcoinica as I have been profitable with it, but first I need my concerns addressed.

Well, you can completely ignore this at the moment. We are confident enough to eat all the risk beyond this point.

We set our reserves based on all open positions, but they are not backed. So we basically hook up with our hedging system to efficiently manage all positions. Just like the guaranteed liquidity stuff - we take neutral risk.


Title: Re: Bitcoinica: How it works
Post by: notme on December 31, 2011, 06:02:15 PM
- Free to close any previous positions regardless of direction and order type (until the critical quantity, which should almost never happen).

Can you please describe what this is so I can make my own decision as to the robustness?  All positions are backed unless we go critical isn't very comforting.  How do you differ from the full setting aside of every position I have described and you continue to ignore?  I honestly would like to come back to bitcoinica as I have been profitable with it, but first I need my concerns addressed.

Well, you can completely ignore this at the moment. We are confident enough to eat all the risk beyond this point.

We set our reserves based on all open positions, but they are not backed. So we basically hook up with our hedging system to efficiently manage all positions. Just like the guaranteed liquidity stuff - we take neutral risk.

So positions are not fully backed by funds, but that's okay because they are backed by your word?  Seriously though, saying I can pretend they are backed because you think it's unlikely does not answer my concern.  You didn't see a problem with the way it was before, why should I trust you now? <- rhetorical.  In what situation would closing a position be restricted?


Title: Re: Bitcoinica: How it works
Post by: Mushoz on December 31, 2011, 06:12:02 PM
- Free to close any previous positions regardless of direction and order type (until the critical quantity, which should almost never happen).

Can you please describe what this is so I can make my own decision as to the robustness?  All positions are backed unless we go critical isn't very comforting.  How do you differ from the full setting aside of every position I have described and you continue to ignore?  I honestly would like to come back to bitcoinica as I have been profitable with it, but first I need my concerns addressed.

Well, you can completely ignore this at the moment. We are confident enough to eat all the risk beyond this point.

We set our reserves based on all open positions, but they are not backed. So we basically hook up with our hedging system to efficiently manage all positions. Just like the guaranteed liquidity stuff - we take neutral risk.

So positions are not fully backed by funds, but that's okay because they are backed by your word?  Seriously though, saying I can pretend they are backed because you think it's unlikely does not answer my concern.  You didn't see a problem with the way it was before, why should I trust you now? <- rhetorical.  In what situation would closing a position be restricted?

Let's use the situation that happened previously as an example. Because too many people went long, their USD was depleted, so people weren't able to liquidate their shorts. People that were negatively affected have been repaid out of Bitcoinica's pocket as far as I understand Zhoutong. The thing that changed, is that Bitcoinica will prevent people going long before they run out of USD in the future. This will ensure there is enough USD left for people to liquidate their shorts. There is a _very_ slim chance too many people liquidate their shorts all at once, causing the USD reserved for liquidating to be depleted as well. In the very small chance that this happens, Zhoutong just said they will eat the losses, so in that sense those losses are fully backed by Bitcoinica's funds.

Remember, for this to happen, lots of people will have to liquidate their shorts, and because of that, not many people will be left with open short positions, so the losses for the few people that are affected who still have open shorts, will be trivial for Bitcoinica to repay. Whether or not Bitcoinica has enough funds to cover those losses is anyone's guess, so we'll have to take their word on this matter. The only way to prove they do, would be a full 3rd party audit, but AFAIK Mtgox hasn't had one either, so if you think that is a risk too severe to take, you shouldn't be using Mtgox either. (Please correct me if I'm wrong, I'm not 100% sure Mtgox hasn't had a 3rd party audit.)


Title: Re: Bitcoinica: How it works
Post by: notme on December 31, 2011, 06:16:22 PM
Thanks for not adding anything to my understanding... Only Zhoutong can tell me what I want to know. Essentially it boils down to what percentage of positions are able to liquidate?  Is this percentage constant, or does it vary?  If it varies, how is it calculated?


Title: Re: Bitcoinica: How it works
Post by: netrin on December 31, 2011, 06:24:38 PM
(Please correct me if I'm wrong, I'm not 100% sure Mtgox hasn't had a 3rd party audit.)

As I remember, Mt. Gox' auditor indirectly published the names, email addresses, and hashed passwords of all of Mt. Gox' customer base.


Title: Re: Bitcoinica: How it works
Post by: notme on December 31, 2011, 06:27:41 PM
(Please correct me if I'm wrong, I'm not 100% sure Mtgox hasn't had a 3rd party audit.)

As I remember, Mt. Gox' auditor indirectly published the names, email addresses, and hashed passwords of all of Mt. Gox' customer base.

To be clear, I trust what Zhoutong says in regards to Bitcoinica, just not that he is smart enough to foresee all possible problems.  Zhoutong, please answer my question regarding what portion of positions are covered.


Title: Re: Bitcoinica: How it works
Post by: zhoutong on December 31, 2011, 11:52:34 PM
Thanks for not adding anything to my understanding... Only Zhoutong can tell me what I want to know. Essentially it boils down to what percentage of positions are able to liquidate?  Is this percentage constant, or does it vary?  If it varies, how is it calculated?

It's a constant percentage of open positions in a certain direction with an absolute minimum threshold. There are variations such as withdrawals and currency conversions, but I have tested the feature against past data to ensure effectiveness.

The risk is actually very minimal, but we won't publish the exact numbers in order to prevent abuse.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 01, 2012, 01:01:09 AM
We have virtually no risk.

The market doesn't slip every 5 seconds. And during most of the violent moves previously, we received no or only a few orders. The high volume was always generated after the violent moves.

Now thankfully, Zhoutong, you seem to have the risks of slippage covered as explained above this quote, but your reasoning in this quote is flawed. Never _ever_ think something is not going to happen because it hasn't happened before. Always expect the worst and then some. This applies to anything, not just slippage risks. If you haven't made simulations in which there was heavy trading _during_ price movements, you should!

Even though I don't have any practical experience to prove this (because it never happened before), I do have theoretical consideration.

The main problem of any system with guaranteed liquidity is adverse selection. We are exposed to the systematic risk of customers trading only when they have opportunities to take advantage of price differences.

A similar example is exchange quotation. TradeHill gives users 5 seconds to confirm a Instant trade quotation. But since there's no cost to get a quotation, theoretically there's one possibility: a user gets a quote every 5 seconds, and confirm only when there's huge slippage.

What I have done here is to delay all order execution by 1-4 seconds. This makes sure that when you click Buy/Sell button exactly during the slippage, the actual execution will happen after the major price move.

And this is still considered as "guaranteed liquidity" because we update prices globally, not just for individual pending orders.

Mushoz:  can u translate this?

It means he is protecting himself against slippage due to random moves by using spreads, but the biggest risk is people trying to exploit slippage. Let's say the price is at 4$ on Mtgox and suddenly a spikes causes it to go down to 3.60. Someone wanting to exploit slippage could quickly sell at Bitcoinica, where the prices wouldn't have been updated yet. That's what the 1-4 second order execution delay is for. It allows the price on Bitcoinica to catch up to the market price, so that people aren't able to exploit slippage.

the corollary way to look at this is that it punishes the majority of ethical users who sometimes need to use market orders to get out of a bad situation fast. example:

ethical user sees ask displayed @ $4.70.  he's already lost significant money from a short executed @ $4.30.  the market continues to grind higher like its doing now.  he's terrified of a continued climb and wants to cover now but he's even more terrified to place a market order buy to cover b/c of the 4 sec delay rule which may subject him to a vicious spike.  he shouldn't have to continuously place limit orders at the ask which could fail to execute multiple times as the Bitcoinica ask price changes to catch up to gox leaving the customer behind.

is the 4 sec delay implemented more to protect Bitcoinica from slippage exploits at the expense of the avg ethical user who should be able to use market orders when he feels necessary?

edit:  in regards to limit orders:  correct me if i've made a mistake here.  i may be misunderstanding something.  Mushoz in his example above states the 4 sec rule "allows Bitcoinica to catch up to the market price" in the event of a spike thus preventing exploits.  to me this means that a limit order @ the ask may not be executed 4 sec after i push the button if the ask on Bitcoinica is forced to update to a higher price.

OTOH, Zhou has said they guarantee liquidity up to 50 BTC but with the 4 sec delay which implies that a limit order should be executed @ the original displayed ask after 4 sec no matter if there is a spike and a change in the ask as Bitcoinica catches up to gox.

this appears to be an inconsistency.


Title: Re: Bitcoinica: How it works
Post by: notme on January 01, 2012, 01:14:05 AM
Thanks for not adding anything to my understanding... Only Zhoutong can tell me what I want to know. Essentially it boils down to what percentage of positions are able to liquidate?  Is this percentage constant, or does it vary?  If it varies, how is it calculated?

It's a constant percentage of open positions in a certain direction with an absolute minimum threshold. There are variations such as withdrawals and currency conversions, but I have tested the feature against past data to ensure effectiveness.

The risk is actually very minimal, but we won't publish the exact numbers in order to prevent abuse.

Thank you for you answer Zhoutong.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 01, 2012, 02:47:12 PM
Amateur Hour Revisited:

since i'm not getting any answers to my last question, let me ask some more, or better yet, let me issue some warnings.

Update on the OP's suggestion

Now whenever Bitcoinica is out of reserves (either USD or BTC), everyone can expect:

- Free to close any previous positions regardless of direction and order type (until the critical quantity, which should almost never happen).

its already happened twice in how many days?  this is the effect of allowing too much leverage with inadequate reserves.

Quote
- Not able to establish new positions (or increase existing positions) in certain direction until the reserve has been re-established (by others' deposit, or opposite trading).
- The price will show like *4.70594 (with the asterisk) to indicate trading restrictions.

have you ever heard of painting a Big Red Bullseye on one's own forehead?  when "someone" sees this little "*", that someone is gonna jam the market higher with a spike and "execute" all the shorts.  even if they have a stop loss order in place, in a thin market such as this, they might not get that exact price in a vicious spike and you'll be back to issuing alot of refunds trying to revive the zombies or just let them die at their own expense.  and then i'm confident new updates will be uploaded with yet another pause in trading capabilities.

Quote

- All pending orders are shown as "No reserve" and they will be "Active" again once the reserve has been re-established.

"Please Shoot Me"

Quote
It's highly recommended to place limit orders when trading restrictions are imposed, so that there won't be surprise execution prices after the removal of restrictions.

again, ethical customers should have the freedom to issue market orders w/o a 4 sec delay w/o the fear of being terrorized by a spike which is the result of that 4 sec rule (which is equivalent to an eternity).

also, i would like an answer to my previous question about Guaranteed Liquidity vs. Mushoz's explanation in regards to limit orders.

Quote
Now you can safely place stop loss orders because any trade restrictions will have no effect on these orders!

Safely?  

a stop loss order would effectively be a limit order. lets take the example of a Big Red Bullseye event and a short seller.  in a vicious spike, what happens if there are no specific asks at the stop loss "buy to cover" price as the price shoots up and the bots withdrawal their asks scrambling to get out of the way?

edit:  these same bots or providers of liquidity (sellers that would allow a short to cover) will see that same "*" and start withdrawing their asks, mark my words.



Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 01, 2012, 02:50:06 PM
Thanks for not adding anything to my understanding... Only Zhoutong can tell me what I want to know. Essentially it boils down to what percentage of positions are able to liquidate?  Is this percentage constant, or does it vary?  If it varies, how is it calculated?

It's a constant percentage of open positions in a certain direction with an absolute minimum threshold. There are variations such as withdrawals and currency conversions, but I have tested the feature against past data to ensure effectiveness.

The risk is actually very minimal, but we won't publish the exact numbers in order to prevent abuse.

Thank you for you answer Zhoutong.

you're happy with that answer?


Title: Re: Bitcoinica: How it works
Post by: notme on January 01, 2012, 03:01:03 PM
Thanks for not adding anything to my understanding... Only Zhoutong can tell me what I want to know. Essentially it boils down to what percentage of positions are able to liquidate?  Is this percentage constant, or does it vary?  If it varies, how is it calculated?

It's a constant percentage of open positions in a certain direction with an absolute minimum threshold. There are variations such as withdrawals and currency conversions, but I have tested the feature against past data to ensure effectiveness.

The risk is actually very minimal, but we won't publish the exact numbers in order to prevent abuse.

Thank you for you answer Zhoutong.

you're happy with that answer?

No, but I'm glad for a straight answer after her ignored my other posts.  I would prefer to see a fully backed Bitcoinica.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 01, 2012, 03:24:19 PM
do we have another Bullseye event?


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 01, 2012, 04:31:52 PM
what the heck is this?

https://bitcointalk.org/index.php?topic=56273.msg669744#msg669744


Title: Re: Bitcoinica: How it works
Post by: ineededausername on January 01, 2012, 04:51:42 PM
what the heck is this?

https://bitcointalk.org/index.php?topic=56273.msg669744#msg669744

Oh dear, what if bitcoinica is insolvent?

I don't think they are. 


Title: Re: Bitcoinica: How it works
Post by: sat0pi on January 01, 2012, 05:02:21 PM
Oh dear, what if bitcoinica is insolvent?

I don't think they are. 

To be clear, I don't think they are either. It was most likely either a browser anomaly or a momentary problem with the server. I just found it odd.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 01, 2012, 07:46:01 PM
what happens if i as a new customer of Bitcoinica deposit $50K right now?  does it just sit there until i decide to do something with those USD's or will they be siphoned off to allow shorts to cover or other longs to buy?


Title: Re: Bitcoinica: How it works
Post by: ineededausername on January 01, 2012, 07:51:51 PM
what happens if i as a new customer of Bitcoinica deposit $50K right now?  does it just sit there until i decide to do something with those USD's or will they be siphoned off to allow shorts to cover or other longs to buy?

I think they will be siphoned off.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 01, 2012, 07:56:47 PM
what happens if i as a new customer of Bitcoinica deposit $50K right now?  does it just sit there until i decide to do something with those USD's or will they be siphoned off to allow shorts to cover or other longs to buy?

I think they will be siphoned off.

you better hope not b/c that would be a total ass rape for customers.  not being able to buy in a Bullseye situation with your own money?

why do you tolerate this?  you're losing money by not being allowed to participate in an uptrend.  thats just as bad as the shorts not being able to cover.  you need to be able to make those gains now so as to cushion the downswings which will inevitably come.  


Title: Re: Bitcoinica: How it works
Post by: Isosceles on January 01, 2012, 09:44:23 PM
Zhoutong, if your reserves are short of USD or BTC, have you considered offering interest on balances held at Bitcoinica?
Although I think offering interest on fiat deposits is a regulated activity, that might cause problems


Title: Re: Bitcoinica: How it works
Post by: sgbett on January 01, 2012, 11:16:02 PM
this 'short of USD' thing is worrying considering my entire Currency Account on there is in USD! (not sure why you would keep it in BTC - surely if the usd/btc price drops, the last thing you want is for your trading margin to disappear too! or maybe I'm not 'risk on' enough, heheh)

For all the reassurances in this thread, something doesn't feel right to me. The very fact that my withdrawal to gox voucher goes to 'pending approval' instead of simply issuing a voucher makes me feel a bit uncomfortable. Feels a bit like the distinction between 'client money' and 'bank deposits'. I like my brokerage to hold my funds as client money.

Think I'll withdraw my capital and just play with my winnings in bitcoinica from now on there. Good luck to zhou and the boys, its a pretty neat site - nice idea and nicer ui than gox v2.0 imho! I'd rather lose a few hundred if it goes tits up though that a few thousand!

Mind you , if you were to get options up and running I might reconsider.... :)

edit:

http://help.bitcoinica.com/discussions/questions/56-withdrawal-of-usd-as-mt-gox-coupon-displays-pending-approval

OK, fair explanation about why i have to wait, still I don't have to like it !


Title: Re: Bitcoinica: How it works
Post by: sunnankar on January 02, 2012, 05:21:25 AM
Feels a bit like the distinction between 'client money' and 'bank deposits'. I like my brokerage to hold my funds as client money.

Exactly. Don't get MFed Global.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 02, 2012, 05:29:40 AM
what happens if i as a new customer of Bitcoinica deposit $50K right now?  does it just sit there until i decide to do something with those USD's or will they be siphoned off to allow shorts to cover or other longs to buy?

I think they will be siphoned off.

you better hope not b/c that would be a total ass rape for customers.  not being able to buy in a Bullseye situation with your own money?

why do you tolerate this?  you're losing money by not being allowed to participate in an uptrend.  thats just as bad as the shorts not being able to cover.  you need to be able to make those gains now so as to cushion the downswings which will inevitably come.  

Since i can't get an answer to this question, i might as well ask an even more difficult question assuming ineedausernames answer above is correct:

why is Zhou giving preferential treatment to the shorts?  as in giving them USD's before longs who may in fact have gotten their long bid orders in first and who missed out on this last ramp?

since when should Bitcoinica be choosing the winners vs. the losers?  its just as much of a loss for a long to not have been able to climb on board this train a few days ago as it is for the short who wasn't able to cover.

Summary:  any trading platform that prevents its customers from trading when (4 sec or more after they initiate an order which may or may not execute at the displayed price as well as forcing Bullseye situations) and how they want (forcing limit vs market orders) is no trading platform at all; its a rigged game.


Title: Re: Bitcoinica: How it works
Post by: RaggedMonk on January 02, 2012, 10:57:53 AM
Great writeup OP.


Title: Re: Bitcoinica: How it works
Post by: sgbett on January 02, 2012, 11:05:45 AM
in the interests of fairness i should confirm my USD gox code came through about 7 hours ago, so i didn't have to wait long.

the irony of course was that I then couldn't get on to gox to cash it. hah. still its all sorted now just need a retrace to load back up ;)


Title: Re: Bitcoinica: How it works
Post by: zhoutong on January 02, 2012, 12:58:53 PM
what happens if i as a new customer of Bitcoinica deposit $50K right now?  does it just sit there until i decide to do something with those USD's or will they be siphoned off to allow shorts to cover or other longs to buy?

I think they will be siphoned off.

you better hope not b/c that would be a total ass rape for customers.  not being able to buy in a Bullseye situation with your own money?

why do you tolerate this?  you're losing money by not being allowed to participate in an uptrend.  thats just as bad as the shorts not being able to cover.  you need to be able to make those gains now so as to cushion the downswings which will inevitably come.  

Since i can't get an answer to this question, i might as well ask an even more difficult question assuming ineedausernames answer above is correct:

why is Zhou giving preferential treatment to the shorts?  as in giving them USD's before longs who may in fact have gotten their long bid orders in first and who missed out on this last ramp?

since when should Bitcoinica be choosing the winners vs. the losers?  its just as much of a loss for a long to not have been able to climb on board this train a few days ago as it is for the short who wasn't able to cover.

Summary:  any trading platform that prevents its customers from trading when (4 sec or more after they initiate an order which may or may not execute at the displayed price as well as forcing Bullseye situations) and how they want (forcing limit vs market orders) is no trading platform at all; its a rigged game.

Bitcoinica is a pool of shared resources. If you deposit USD, you can short if you want. This is a quid pro quo thing, some people with USD want to go short and some people with BTC want to go long, and without Bitcoinica, they can't do that elsewhere.

We can now guarantee this:

If you can open your position or enlarge it, you can close it or reduce it any time.


This is not a different treatment to shorts. When the market is downtrending and we used up all our BTC reserves, same "treatment" will be given to the longs who lost.

It's not a winner or loser thing. You can buy at Mt. Gox if you have money, but you can't close your Bitcoinica short position elsewhere. I think this makes sense. It's more of a matter of freedom and choice.

Anyway,

Bitcoinica never runs out of reserves - They're a bucketshop! It's crime in US!
Bitcoinica runs out of reserves - They're broke! Get away from them!

In conclusion,

Bitcoinica is doomed, to people who don't appreciate it.

I listen to all your constructive suggestions and comments, but seriously, I don't care about the FUD(s).


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 02, 2012, 04:33:23 PM
those are not all my quotes and i'll agree to stop saying you're doomed b/c its quite possible for you to stay quite profitable at your customers expense.

anyways, please answer my specific questions above since you last posted.

edit:

1. does this mean Bitcoinica is going to take more risk by reducing margin capabilities or are you just going to flat out assume more risk?  by taking more risk (aka buying the btc that the shorts need to cover out of your own funds) isn't this what you mean when you say "trading against your customers"?

2. its still possible to get a Bullseye event.

3. if i as a new customer deposits $50K and doesn't open a position, will those USD's get added to the shared pool and get lent out to longs to buy or shorts to cover?  as a result, is it possible for a new customer to be prevented from opening a position at all in the case of a Bullseye event?

4. i'm still not clear on a buyer who hits a displayed ask @$4.  is he guaranteed to get that price but just after 4 sec or can you refuse to honor it if we get a spike on mtgox?


Title: Re: Bitcoinica: How it works
Post by: RaggedMonk on January 02, 2012, 07:26:22 PM
No wonder cypherdoc has almost 3k posts, he accounts for almost half the posts in this thread :P

All hail cypherdoc, king of FUD!


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 02, 2012, 07:50:13 PM
No wonder cypherdoc has almost 3k posts, he accounts for almost half the posts in this thread :P

All hail cypherdoc, king of FUD!

if i'm spreading FUD, why don't you step up and answer some of my questions in detail and prove it.  

i'm just trying to sort out whats going on here so everyone understands what's happening.


Title: Re: Bitcoinica: How it works
Post by: smickles on January 03, 2012, 06:15:45 AM
No wonder cypherdoc has almost 3k posts, he accounts for almost half the posts in this thread :P

All hail cypherdoc, king of FUD!

if i'm spreading FUD, why don't you step up and answer some of my questions in detail and prove it.  

i'm just trying to sort out whats going on here so everyone understands what's happening.
To prove you are spreading FUD RaggedMonk would only have to prove that you caused fear, uncertainty, or doubt. It has nothing to do with the answers to your questions.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 06:27:43 AM
No wonder cypherdoc has almost 3k posts, he accounts for almost half the posts in this thread :P

All hail cypherdoc, king of FUD!

if i'm spreading FUD, why don't you step up and answer some of my questions in detail and prove it.  

i'm just trying to sort out whats going on here so everyone understands what's happening.
To prove you are spreading FUD RaggedMonk would only have to prove that you caused fear, uncertainty, or doubt. It has nothing to do with the answers to your questions.

instead of just accusing me of FUD perhaps he should step forward and answer what i think are legitimate questions.  maybe he'll realize they are good questions?  they can only lead to increased transparency and knowledge for all.

perhaps you should answer my questions since i can't seem to get exact answers from Zhou.  and that by itself should tell you something.


Title: Re: Bitcoinica: How it works
Post by: RyNinDaCleM on January 03, 2012, 06:54:08 AM
I see cyphers' inquiring (or "FUD" as many seem to believe) as investigative questioning. He is asking the questions that apparently no one else has the balls to ask, or maybe don't understand enough to ask. That or the users of bitcoinica are along the same lines as a nVidia fan boi, and dismiss the possibility that Zhou could do any wrong. I think he is doing a public service by trying to get the facts out in the open.

I don't use bitcoinica. But if I did, I would be glad to have someone trying to expose the truth when it's an issue pertaining to MY money.
  


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 07:09:41 AM
but how can good questions lead to FUD?  they can only lead to increased transparency and knowledge for all.

Preconceived notions. I agree with a lot of what you are saying. At the same time, I'm rooting for any Bitcoin business that manages to stick through the rough times and succeed.
so am i.  there are not many more than i who have supported Bitcoin in terms of time spent, posts made, and money invested.  i want Bitcoin to succeed and feel an obligation to make sure good businesses serve the community.

Quote
Is Zhou out to ruin us all or is he just trying to provide a service that wasn't available before?
i don't know what his intentions are.  he seems legit and interested in making his business run.  but i see it coming at the expense of others who are being liquidated.  short sellers being liquidated in a red flag event b/c they couldn't cover even if they wanted wasn't serving the community was it?  he only just now addressed that.

Quote

He might fuck up. Gox did, right? As long as he doesn't run off with the customers deposits, good.

Maybe his service promotes a lower Bitcoin price? Bet against it if you don't believe it.
i think short selling has hurt the community as a whole.  just my opinion.
Quote

Isn't Bitcoinica just matching longs with shorts and vice versa? If there are no opposing positions, you can't take the position you desire.
no. he's already said they don't always hedge and it sounds to me that now that they're guaranteeing short covering even in red flag events Zhou is going to be the one taking opposing positions to customers.
Quote

In the forex, this doesn't happen, because it's so massive there is always someone else to take the opposing position.

TL;DR

If you don't like the service, don't use it.
i don't and i won't.  doesn't mean i can't ask tough questions to help others does it?

Quote

P.S. Doc, I enjoy reading your posts. But lets stick to the positive. If Bitcoinica is going to fail, give a warning and move on. Let's focus on the positive.

i have no idea whether if and when they will fail but if enough ppl get discouraged by skewed rules he most certainly can.

asking tough but good questions isn't negative; in fact its positive.  poking holes in his model is helpful information.  he should be thanking me for putting him through the ringer now before some coalition or large player comes thru and starts really playing rough.  i am part of the market speaking to him and trying to teach him something useful. 

in fact why don't you want to know the answers to the questions i've posed?  they would help you trade better and thats what we want.


Title: Re: Bitcoinica: How it works
Post by: notme on January 03, 2012, 07:21:57 AM
but how can good questions lead to FUD?  they can only lead to increased transparency and knowledge for all.

Preconceived notions. I agree with a lot of what you are saying. At the same time, I'm rooting for any Bitcoin business that manages to stick through the rough times and succeed.
so am i.  there are not many more than i who have supported Bitcoin in terms of time spent, posts made, and money invested.  i want Bitcoin to succeed and feel an obligation to make sure good businesses serve the community.

Quote
Is Zhou out to ruin us all or is he just trying to provide a service that wasn't available before?
i don't know what his intentions are.  he seems legit and interested in making his business run.  but i see it coming at the expense of others who are being liquidated.  short sellers being liquidated in a red flag event b/c they couldn't cover even if they wanted wasn't serving the community was it?  he only just now addressed that.

Quote

He might fuck up. Gox did, right? As long as he doesn't run off with the customers deposits, good.

Maybe his service promotes a lower Bitcoin price? Bet against it if you don't believe it.
i think short selling has hurt the community as a whole.  just my opinion.
Quote

Isn't Bitcoinica just matching longs with shorts and vice versa? If there are no opposing positions, you can't take the position you desire.
no. he's already said they don't always hedge and it sounds to me that now that they're guaranteeing short covering even in red flag events Zhou is going to be the one taking opposing positions to customers.
Quote

In the forex, this doesn't happen, because it's so massive there is always someone else to take the opposing position.

TL;DR

If you don't like the service, don't use it.
i don't and i won't.  doesn't mean i can't ask tough questions to help others does it?

Quote

P.S. Doc, I enjoy reading your posts. But lets stick to the positive. If Bitcoinica is going to fail, give a warning and move on. Let's focus on the positive.

i have no idea whether if and when they will fail but if enough ppl get discouraged by skewed rules he most certainly can.

asking tough but good questions isn't negative; in fact its positive.  poking holes in his model is helpful information.  he should be thanking me for putting him through the ringer now before some coalition or large player comes thru and starts really playing rough.  i am part of the market speaking to him and trying to teach him something useful. 

in fact why don't you want to know the answers to the questions i've posed?  they would help you trade better and thats what we want.

+1

Cypherdoc's inquiries have inspired my own (a Bitcoinica user), as well as being informative in their own right.  I have learned a lot in the process, and even Zhoutong has to admit he has vastly improved his algorithm as a result of addressing our (more than just me and Cyperdoc) concerns.  As a result, I have resumed trading with him and use my knowledge of the redflag status to determine overspeculation.  So far, it's been a pretty accurate indicator, but that will probably fade as more people step up to keep the speculators in line.


Title: Re: Bitcoinica: How it works
Post by: BadBear on January 03, 2012, 12:48:07 PM
Most of the longs will get liquidated soon, if this keeps up.  Down to 5.02, from 5.50 24 hours ago. 


Title: Re: Bitcoinica: How it works
Post by: zhoutong on January 03, 2012, 12:55:15 PM
I would be surprised if anybody who actually understood Bitcoinica would use them.

The basic problem is that he doesn't have the capital to hedge a significantly imbalanced customer position, at which time Bitcoinica becomes a bucket shop where he is your counter party... add a large move to that and he goes bankrupt (and you with him).

A significantly imbalanced unhedged position can be entered directly: by people opening too many new positions, or indirectly: by people closing existing positions, or by people withdrawing funds.  That this doesn't happen and wipe you out is left entirely to chance.

Here's my proposition zhoutong: for a 10,000 BTC consulting fee, I will tell you the solution to this that will reduce the chance of Bitcoinica's collapse to 0.  (Payable in advance... and that's at a discount because it makes me smile that a 17 y/o is parting these fools of their money.)


So we have been running the service for over 3 months and we get over 1,800 customers.

The redflag issue has proven to everyone that Bitcoinica is not a bucket shop.

I wonder how a guy with completely no understanding of this thread can charge 10,000 BTC for consultation.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 03, 2012, 01:31:17 PM
I would be surprised if anybody who actually understood Bitcoinica would use them.

The basic problem is that he doesn't have the capital to hedge a significantly imbalanced customer position, at which time Bitcoinica becomes a bucket shop where he is your counter party... add a large move to that and he goes bankrupt (and you with him).

A significantly imbalanced unhedged position can be entered directly: by people opening too many new positions, or indirectly: by people closing existing positions, or by people withdrawing funds.  That this doesn't happen and wipe you out is left entirely to chance.

Here's my proposition zhoutong: for a 10,000 BTC consulting fee, I will tell you the solution to this that will reduce the chance of Bitcoinica's collapse to 0.  (Payable in advance... and that's at a discount because it makes me smile that a 17 y/o is parting these fools of their money.)


They hedge every imbalance. If they don't have enough funds to hedge more, they stop accepting new positions that would cause a further imbalance (The asterisk already discussed in this thread). Bitcoinica does _not_ bet against its customers. If your consulting is as good as your thread reading skills, that would be the ripoff of the century :p


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 03:03:26 PM
I would be surprised if anybody who actually understood Bitcoinica would use them.

The basic problem is that he doesn't have the capital to hedge a significantly imbalanced customer position, at which time Bitcoinica becomes a bucket shop where he is your counter party... add a large move to that and he goes bankrupt (and you with him).

A significantly imbalanced unhedged position can be entered directly: by people opening too many new positions, or indirectly: by people closing existing positions, or by people withdrawing funds.  That this doesn't happen and wipe you out is left entirely to chance.

Here's my proposition zhoutong: for a 10,000 BTC consulting fee, I will tell you the solution to this that will reduce the chance of Bitcoinica's collapse to 0.  (Payable in advance... and that's at a discount because it makes me smile that a 17 y/o is parting these fools of their money.)


So we have been running the service for over 3 months and we get over 1,800 customers.

The redflag issue has proven to everyone that Bitcoinica is not a bucket shop.

I wonder how a guy with completely no understanding of this thread can charge 10,000 BTC for consultation.

i'm glad you turned off  the ignore button.  now would you please answer my legitimate questions?


Title: Re: Bitcoinica: How it works
Post by: BadBear on January 03, 2012, 03:14:30 PM
i'm glad you turned off  the ignore button.  now would you please answer my legitimate questions?

I think he's figured out you won't be happy with any answer to any question.   ;)


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 03:26:55 PM
i'm glad you turned off  the ignore button.  now would you please answer my legitimate questions?

I think he's figured out you won't be happy with any answer to any question.   ;)

If you would read carefully, you'd notice that not only are these legitimate questions, they're unemotional which you should value highly.  You're not contributing anything here except a judgment.


Title: Re: Bitcoinica: How it works
Post by: BadBear on January 03, 2012, 03:46:02 PM
i'm glad you turned off  the ignore button.  now would you please answer my legitimate questions?

I think he's figured out you won't be happy with any answer to any question.   ;)

If you would read carefully, you'd notice that not only are these legitimate questions, they're unemotional which you should value highly.  You're not contributing anything here except a judgment.

You're right, and I do. I'll admit I'm just skimming your posts in the bitcoinica threads lately, assumed it was the same old.  A bear can turn bull, and cypherdoc can turn...rational?  What kinda crazy world is this?   


Title: Re: Bitcoinica: How it works
Post by: Serge on January 03, 2012, 04:02:53 PM


You're right, and I do. I'll admit I'm just skimming your posts in the bitcoinica threads lately, assumed it was the same old.  A bear can turn bull, and cypherdoc can turn...rational?  What kinda crazy world is this?  

the kind of world where we have rational bulls and crazy bears, no pun intended )


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 04:15:21 PM
i'm glad you turned off  the ignore button.  now would you please answer my legitimate questions?

I think he's figured out you won't be happy with any answer to any question.   ;)

If you would read carefully, you'd notice that not only are these legitimate questions, they're unemotional which you should value highly.  You're not contributing anything here except a judgment.

You're right, and I do. I'll admit I'm just skimming your posts in the bitcoinica threads lately, assumed it was the same old.  A bear can turn bull, and cypherdoc can turn...rational?  What kinda crazy world is this?  

nah, they're actually very good questions which will have a big impact on a customers risk profile.  i keep poking holes in the model which leads to an update (acknowledgment of problem) which then leads to another contradiction and another update.

for example:  Zhou now guarantees liquidity for shorts even in a Bullseye situation which was forced by several customer complaints including my own.  that means he needs to dig into Bitcoinicas own pocket and trade against his customers to fulfill that obligation.  that leads to a conflict of interest.  so solving one problem the way he is, is leading to another problem.

another hole which i single handedly exploited was that spike i caused from 3.5 to 3.9 that i talk about here:  

https://bitcointalk.org/index.php?topic=55970.msg667447#msg667447

for verification of my claim i come onto this thread within minutes of execution and ask "How many":
https://bitcointalk.org/index.php?topic=49445.msg655781#msg655781

henceforth the never ending stream of questions...

as a moderator of the busiest Discussion Forum i really don't think you should be rendering judgments on ppls character when you admit you just "skim" like you just did here and here:

https://bitcointalk.org/index.php?topic=49445.msg661906#msg661906

these are complex questions which require alot of thought and gaming.  to just brush them off as FUD and assume the worst isn't right.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 04:37:36 PM
I would be surprised if anybody who actually understood Bitcoinica would use them.

The basic problem is that he doesn't have the capital to hedge a significantly imbalanced customer position, at which time Bitcoinica becomes a bucket shop where he is your counter party... add a large move to that and he goes bankrupt (and you with him).

A significantly imbalanced unhedged position can be entered directly: by people opening too many new positions, or indirectly: by people closing existing positions, or by people withdrawing funds.  That this doesn't happen and wipe you out is left entirely to chance.

Here's my proposition zhoutong: for a 10,000 BTC consulting fee, I will tell you the solution to this that will reduce the chance of Bitcoinica's collapse to 0.  (Payable in advance... and that's at a discount because it makes me smile that a 17 y/o is parting these fools of their money.)


They hedge every imbalance. If they don't have enough funds to hedge more, they stop accepting new positions that would cause a further imbalance (The asterisk already discussed in this thread). Bitcoinica does _not_ bet against its customers. If your consulting is as good as your thread reading skills, that would be the ripoff of the century :p

how can u say that when Zhou's already made clear that he doesn't hedge every position and that his algo makes judgment calls in this regard?  he's already given the definition of reserves and that is 100% of customer deposits and 50% of his profits (aka his own pocket).

and now that they're guaranteeing liquidity for the shorts in a red flag situation where do u think those funds are coming from?  him. 

which means they will be trading against their customers.

whose reading skills are in question?


Title: Re: Bitcoinica: How it works
Post by: Dan The Man on January 03, 2012, 04:41:50 PM
I tried making a trailing stop order for the first time and I was not impressed. When the price was around $5.2, I set a trailing stop buy order at $5.5 and promptly it was filled at a market price for $5.25. This of course was immediately before the price fell to 4.7


Title: Re: Bitcoinica: How it works
Post by: zhoutong on January 03, 2012, 04:47:50 PM
I would be surprised if anybody who actually understood Bitcoinica would use them.

The basic problem is that he doesn't have the capital to hedge a significantly imbalanced customer position, at which time Bitcoinica becomes a bucket shop where he is your counter party... add a large move to that and he goes bankrupt (and you with him).

A significantly imbalanced unhedged position can be entered directly: by people opening too many new positions, or indirectly: by people closing existing positions, or by people withdrawing funds.  That this doesn't happen and wipe you out is left entirely to chance.

Here's my proposition zhoutong: for a 10,000 BTC consulting fee, I will tell you the solution to this that will reduce the chance of Bitcoinica's collapse to 0.  (Payable in advance... and that's at a discount because it makes me smile that a 17 y/o is parting these fools of their money.)


They hedge every imbalance. If they don't have enough funds to hedge more, they stop accepting new positions that would cause a further imbalance (The asterisk already discussed in this thread). Bitcoinica does _not_ bet against its customers. If your consulting is as good as your thread reading skills, that would be the ripoff of the century :p

how can u say that when Zhou's already made clear that he doesn't hedge every position and that his algo makes judgment calls in this regard?  he's already given the definition of reserves and that is 100% of customer deposits and 50% of his profits (aka his own pocket).

and now that they're guaranteeing liquidity for the shorts in a red flag situation where do u think those funds are coming from?  him. 

which means they will be trading against their customers.

whose reading skills are in question?

Your reading skill.

We don't hedge every single order, but we always track total positions accurately. We match orders internally and hedge when the positions are imbalanced.

Also, we reserve a percentage of open positions for them to close. So we won't be at exactly 0 USD or ฿ when you see the *. We have more, but only for people with open positions.

I didn't answe your questions because they all have been addressed previously. And I can't propose any changes based on your posts, never.

The spike doesn't matter. Just 10 seconds out of 86400 seconds in the day with no threat of adverse selection. I don't really have to care.


Title: Re: Bitcoinica: How it works
Post by: zhoutong on January 03, 2012, 04:50:19 PM
I tried making a trailing stop order for the first time and I was not impressed. When the price was around $5.2, I set a trailing stop buy order at $5.5 and promptly it was filled at a market price for $5.25. This of course was immediately before the price fell to 4.7

This was a known issue. Trailing stops are extremely tricky to deal with and I'm rewriting the code.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 03, 2012, 04:54:02 PM
2. We don't bet against our clients. We never want them to lose. There's no incentive to do that.

Why would you trade on a platform where you bet against the platform owner?
We're market maker, yes.

But we don't bet against our customers.

Why should we take the risk when we can comfortably earn the spreads and hedge the customers' orders elsewhere?


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 05:03:41 PM
2. We don't bet against our clients. We never want them to lose. There's no incentive to do that.

Why would you trade on a platform where you bet against the platform owner?
We're market maker, yes.

But we don't bet against our customers.

Why should we take the risk when we can comfortably earn the spreads and hedge the customers' orders elsewhere?

out of curiosity, do u have a financial relationship with Bitcoinica?


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 05:14:34 PM
I tried making a trailing stop order for the first time and I was not impressed. When the price was around $5.2, I set a trailing stop buy order at $5.5 and promptly it was filled at a market price for $5.25. This of course was immediately before the price fell to 4.7

This was a known issue. Trailing stops are extremely tricky to deal with and I'm rewriting the code.

but you already said they were safe  ::)

https://bitcointalk.org/index.php?topic=55970.msg669617#msg669617


Title: Re: Bitcoinica: How it works
Post by: BadBear on January 03, 2012, 05:21:08 PM
My role there is keeping the forum usable and readable without interfering with peoples right to express themselves. That's why you can post things like
Quote
you know what?  i'm tired of being nice to you just b/c you're a 17 yo kid.  f*ck you prick!

And that's also the same reason I can say that, you're kind of a dick sometimes (that's all I'm gonna say on that). Free speech thing's gotta work both ways. Honestly you and I agree on a lot of things, you've brought up some good points in this thread. I wouldn't mind seeing those answers either, at least to get any issues resolved. If there is going to be short/long selling allowed order should be allowed to be placed at any time or they could adversely affect the exchange price if it doesn't work well. Things like not allowing shorts to liquidate when they want can cause spikes and cause even more liquidations or give false market data. Or even wipe out some dudes 401k. You're a smart guy, you can figure out how to present an argument better than that.

Besides it's the speculation forum, if they started enforcing rules everybody would be banned, including me and you  ;D. Should take this into Meta discussion, it's off topic, if you really want to discuss it further.  I'm not even a moderator here, not that it matters, has nothing to do with my personal opinion.

 


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 06:08:11 PM
My role there is keeping the forum usable and readable without interfering with peoples right to express themselves. That's why you can post things like
Quote
you know what?  i'm tired of being nice to you just b/c you're a 17 yo kid.  f*ck you prick!

And that's also the same reason I can say that, you're kind of a dick sometimes (that's all I'm gonna say on that).
asking questions ppl don't want to answer is tough but someone has to do it.  this is the free market.  ppl like you wonder why i'm all over this.  its b/c i see problems that relate to money and if i can exploit them, i will.  i've said several times that i trade markets daily.  right now, i have 3 diff stock trading programs open with level 2 access.  the trading restrictions and problems i've witnessed on Bitcoinica does give me a hard on (panerai?) b/c they represent opportunities unheard of in regular markets.  and as i've warned other large players will enter with bad intentions.  the updates that continually get written are asymmetric and are meant to protect Zhou, not the customer.  not everything just some, like the 4 sec delay rule.  but if customers don't care, hey, so be it.

Dan the Man just verified my warnings above about stop loss orders.

Quote

Free speech thing's gotta work both ways. Honestly you and I agree on a lot of things, you've brought up some good points in this thread. I wouldn't mind seeing those answers either, at least to get any issues resolved. If there is going to be short/long selling allowed order should be allowed to be placed at any time or they could adversely affect the exchange price if it doesn't work well. Things like not allowing shorts to liquidate when they want can cause spikes and cause even more liquidations or give false market data. Or even wipe out some dudes 401k. You're a smart guy, you can figure out how to present an argument better than that.

and you presented that quote out of context.
Quote

Besides it's the speculation forum, if they started enforcing rules everybody would be banned, including me and you  ;D. Should take this into Meta discussion, it's off topic, if you really want to discuss it further.  I'm not even a moderator here, not that it matters, has nothing to do with my personal opinion.

tell u what.  u and i should call a truce.  i'll try to stop being a dick if u will too.  lotsa this is in the eyes of the beholder.

but i still have questions for Zhou which i've never heard him answer. and if he has, i apologize; i can't find them and i still want the answers.  isn't this the "How it Works" thread?:

3. if i as a new customer deposits $50K and doesn't open a position, will those USD's get added to the shared pool and get lent out to longs to buy or shorts to cover?  as a result, is it possible for a new customer to be prevented from opening a position at all in the case of a Bullseye event?

4. i'm still not clear on a buyer who hits a displayed ask @$4.  is he guaranteed to get that price but just after 4 sec or can you refuse to honor it if we get a spike on mtgox?


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 03, 2012, 08:08:57 PM
My role there is keeping the forum usable and readable without interfering with peoples right to express themselves. That's why you can post things like
Quote
you know what?  i'm tired of being nice to you just b/c you're a 17 yo kid.  f*ck you prick!

And that's also the same reason I can say that, you're kind of a dick sometimes (that's all I'm gonna say on that).
asking questions ppl don't want to answer is tough but someone has to do it.  this is the free market.  ppl like you wonder why i'm all over this.  its b/c i see problems that relate to money and if i can exploit them, i will.  i've said several times that i trade markets daily.  right now, i have 3 diff stock trading programs open with level 2 access.  the trading restrictions and problems i've witnessed on Bitcoinica does give me a hard on (panerai?) b/c they represent opportunities unheard of in regular markets.  and as i've warned other large players will enter with bad intentions.  the updates that continually get written are asymmetric and are meant to protect Zhou, not the customer.  not everything just some, like the 4 sec delay rule.  but if customers don't care, hey, so be it.

Dan the Man just verified my warnings above about stop loss orders.

Quote

Free speech thing's gotta work both ways. Honestly you and I agree on a lot of things, you've brought up some good points in this thread. I wouldn't mind seeing those answers either, at least to get any issues resolved. If there is going to be short/long selling allowed order should be allowed to be placed at any time or they could adversely affect the exchange price if it doesn't work well. Things like not allowing shorts to liquidate when they want can cause spikes and cause even more liquidations or give false market data. Or even wipe out some dudes 401k. You're a smart guy, you can figure out how to present an argument better than that.

and you presented that quote out of context.
Quote

Besides it's the speculation forum, if they started enforcing rules everybody would be banned, including me and you  ;D. Should take this into Meta discussion, it's off topic, if you really want to discuss it further.  I'm not even a moderator here, not that it matters, has nothing to do with my personal opinion.

tell u what.  u and i should call a truce.  i'll try to stop being a dick if u will too.  lotsa this is in the eyes of the beholder.

but i still have questions for Zhou which i've never heard him answer. and if he has, i apologize; i can't find them and i still want the answers.  isn't this the "How it Works" thread?:

3. if i as a new customer deposits $50K and doesn't open a position, will those USD's get added to the shared pool and get lent out to longs to buy or shorts to cover?  as a result, is it possible for a new customer to be prevented from opening a position at all in the case of a Bullseye event?

4. i'm still not clear on a buyer who hits a displayed ask @$4.  is he guaranteed to get that price but just after 4 sec or can you refuse to honor it if we get a spike on mtgox?


3. It's probably pooled. This allows people that deposit USD to sell BTC or people who deposit BTC to buy more BTC. It wouldn't make sense for Bitcoinica to use their own funds for every hedge, because that would require insane reserves. If you don't like it, don't use Bitcoinica. Nobody is forcing you. And remember this pooling is always only temporary. Your funds are never "gone" or anything like that.

4. Not sure, you'll have to ask Zhoutong. Still, as I've said again and again, there's no reason to use market orders when you go do the same with limit orders and more. Imaging wanting to click when it's at 4$ and you're too slow to notice a spike, and you click at whatever other price is displays instead.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 08:29:44 PM

3. It's probably pooled. This allows people that deposit USD to sell BTC or people who deposit BTC to buy more BTC. It wouldn't make sense for Bitcoinica to use their own funds for every hedge, because that would require insane reserves.

so someone who deposits $50K, doesn't establish a position, gets that $50K added to the pool, might in fact not be able to establish a position in a red flag event.  is this fair?
Quote

If you don't like it, don't use Bitcoinica. Nobody is forcing you. And remember this pooling is always only temporary. Your funds are never "gone" or anything like that.

why does everyone say this when asked questions?

Quote

4. Not sure, you'll have to ask Zhoutong. Still, as I've said again and again, there's no reason to use market orders when you go do the same with limit orders and more. Imaging wanting to click when it's at 4$ and you're too slow to notice a spike, and you click at whatever other price is displays instead.

but a market and limit order are not the same thing.  they serve different useful functions.  sure a limit order is safer.  but if the displayed ask @$4 keep moving up after you've clicked the button, it sounds like it won't fill and you could be stuck chasing it.  a market order, will sweep up and thru any asks that are listed until its filled.  when i trade stocks, the execution is instantaneous (relatively) so i'm not too exposed to a spike.  but a 4 sec delay could spell death to your acct as we saw on the spike to 4.95.

you didn't answer my question about whether you had a financial link to Bitcoinica.


Title: Re: Bitcoinica: How it works
Post by: trogdorjw73 on January 03, 2012, 08:56:33 PM

3. It's probably pooled. This allows people that deposit USD to sell BTC or people who deposit BTC to buy more BTC. It wouldn't make sense for Bitcoinica to use their own funds for every hedge, because that would require insane reserves.

so someone who deposits $50K, doesn't establish a position, gets that $50K added to the pool, might in fact not be able to establish a position in a red flag event.  is this fair?
Quote

If you don't like it, don't use Bitcoinica. Nobody is forcing you. And remember this pooling is always only temporary. Your funds are never "gone" or anything like that.

why does everyone say this when asked questions?

Quote

4. Not sure, you'll have to ask Zhoutong. Still, as I've said again and again, there's no reason to use market orders when you go do the same with limit orders and more. Imaging wanting to click when it's at 4$ and you're too slow to notice a spike, and you click at whatever other price is displays instead.

but a market and limit order are not the same thing.  they serve different useful functions.  sure a limit order is safer.  but if the displayed ask @$4 keep moving up after you've clicked the button, it sounds like it won't fill and you could be stuck chasing it.  a market order, will sweep up and thru any asks that are listed until its filled.  when i trade stocks, the execution is instantaneous (relatively) so i'm not too exposed to a spike.  but a 4 sec delay could spell death to your acct as we saw on the spike to 4.95.

you didn't answer my question about whether you had a financial link to Bitcoinica.
For #3, everything put into Bitcoinica would be part of the pool I'd imagine. If everyone puts in USD and takes a long position, then very quickly Bitcoinica would have to start buying BTC in order to cover those. Likewise, if everyone put in BTC and took a short position, Bitcoinica would have to start selling BTC in order to have enough reserve. Over time, of course, Bitcoinica has been increasing their holding of both USD and BTC because they get their 1-5% margin wherever the market goes. They've also likely lost at least a portion of that to accounts that got force liquidated at a price that left them negative. Still, I'm sure they're way ahead overall. Realistically, if Bitcoinica has something like $100K USD long and $100K USD short (probably more like $500K or even $1000K each), both sides can't be right and so when the market moves one way or the other, one side loses, the other side wins, and Bitcoinica always wins.

For #4, if you put in a market order buy at $5 a fraction of a second before or after someone on MtGox sends through a $10K buy order that moves the price up $1, yes, you'd get dinged for that extra $1 (and perhaps more as the sudden spike would likewise cause a sudden jump in leverage "just in case"). There is no such thing as "instantaneous" transactions, but of course at MtGox if you put in a sell for $5 right about the same time someone else puts in a huge sell order at $4.999, at least your sell won't ever execute. When you're trading market orders, you're always running a risk that someone, somewhere is putting in a huge sell/buy right before you -- whether it's delayed four seconds or not. In fact, if you go to MtGox and put in a sell order at $4 right now, and watch MtGoxLive, you'll see that it doesn't execute immediately, and in heavy traffic there could be many seconds of delay (though your order is at least put in the queue somewhere). Best-case, though, "instant" on the Internet still has to account for round trip time of the network traffic ("ping"), which would likely be at least half a second for your order to go to MtGox, process, and send the update out over the network API. The only place that could really execute an "instant" trade would be MtGox itself, and they would need to do something like this: pause all other trades, execute our trade at the current prices, and then resume all other trades. Then they would know for sure exactly what the price will be. All of that is more or less happening in real-time, except that they just take the top order from the queue and execute it (or if it's not an order that will actually commit right now, they put it on the order books).


Title: Re: Bitcoinica: How it works
Post by: notme on January 03, 2012, 09:44:48 PM
+1

Zhoutong?


Title: Re: Bitcoinica: How it works
Post by: sgbett on January 03, 2012, 09:46:01 PM
Any downward spike will be even worse for all the people who's margin balance is leveraged up from BTC Currency.

As BTC price drops the 'margin balance' also drops forcing quicker liquidations for anyone who was leveraged up.

I still have a few hundred bucks parked over there for a speculative leveraged up buy at knockdown prices ;) but I don't fancy risking much more than that for now.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 03, 2012, 09:57:08 PM
you didn't answer my question about whether you had a financial link to Bitcoinica.

I don't. I do use it myself though. I love leverage :)


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 03, 2012, 09:58:11 PM

3. It's probably pooled. This allows people that deposit USD to sell BTC or people who deposit BTC to buy more BTC. It wouldn't make sense for Bitcoinica to use their own funds for every hedge, because that would require insane reserves.

so someone who deposits $50K, doesn't establish a position, gets that $50K added to the pool, might in fact not be able to establish a position in a red flag event.  is this fair?
Quote

If you don't like it, don't use Bitcoinica. Nobody is forcing you. And remember this pooling is always only temporary. Your funds are never "gone" or anything like that.

why does everyone say this when asked questions?

Quote

4. Not sure, you'll have to ask Zhoutong. Still, as I've said again and again, there's no reason to use market orders when you go do the same with limit orders and more. Imaging wanting to click when it's at 4$ and you're too slow to notice a spike, and you click at whatever other price is displays instead.

but a market and limit order are not the same thing.  they serve different useful functions.  sure a limit order is safer.  but if the displayed ask @$4 keep moving up after you've clicked the button, it sounds like it won't fill and you could be stuck chasing it.  a market order, will sweep up and thru any asks that are listed until its filled.  when i trade stocks, the execution is instantaneous (relatively) so i'm not too exposed to a spike.  but a 4 sec delay could spell death to your acct as we saw on the spike to 4.95.

you didn't answer my question about whether you had a financial link to Bitcoinica.
For #3, everything put into Bitcoinica would be part of the pool I'd imagine. If everyone puts in USD and takes a long position, then very quickly Bitcoinica would have to start buying BTC in order to cover those. Likewise, if everyone put in BTC and took a short position, Bitcoinica would have to start selling BTC in order to have enough reserve. Over time, of course, Bitcoinica has been increasing their holding of both USD and BTC because they get their 1-5% margin wherever the market goes. They've also likely lost at least a portion of that to accounts that got force liquidated at a price that left them negative. Still, I'm sure they're way ahead overall. Realistically, if Bitcoinica has something like $100K USD long and $100K USD short (probably more like $500K or even $1000K each), both sides can't be right and so when the market moves one way or the other, one side loses, the other side wins, and Bitcoinica always wins.

For #4, if you put in a market order buy at $5 a fraction of a second before or after someone on MtGox sends through a $10K buy order that moves the price up $1, yes, you'd get dinged for that extra $1 (and perhaps more as the sudden spike would likewise cause a sudden jump in leverage "just in case"). There is no such thing as "instantaneous" transactions, but of course at MtGox if you put in a sell for $5 right about the same time someone else puts in a huge sell order at $4.999, at least your sell won't ever execute. When you're trading market orders, you're always running a risk that someone, somewhere is putting in a huge sell/buy right before you -- whether it's delayed four seconds or not. In fact, if you go to MtGox and put in a sell order at $4 right now, and watch MtGoxLive, you'll see that it doesn't execute immediately, and in heavy traffic there could be many seconds of delay (though your order is at least put in the queue somewhere). Best-case, though, "instant" on the Internet still has to account for round trip time of the network traffic ("ping"), which would likely be at least half a second for your order to go to MtGox, process, and send the update out over the network API. The only place that could really execute an "instant" trade would be MtGox itself, and they would need to do something like this: pause all other trades, execute our trade at the current prices, and then resume all other trades. Then they would know for sure exactly what the price will be. All of that is more or less happening in real-time, except that they just take the top order from the queue and execute it (or if it's not an order that will actually commit right now, they put it on the order books).

Couldn't have said it better. Please read this! Exactly the way I see it!


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 09:59:56 PM
Any downward spike will be even worse for all the people who's margin balance is leveraged up from BTC Currency.

As BTC price drops the 'margin balance' also drops forcing quicker liquidations for anyone who was leveraged up.

I still have a few hundred bucks parked over there for a speculative leveraged up buy at knockdown prices ;) but I don't fancy risking much more than that for now.

i agree with this.  this is what i was referring to as a derivative tower so to speak.

USD's are the base currency, BTC is the speculative asset, and now you add leverage with more BTC on top of this.  the leverage contraction would be enormous in a downdraft.


Title: Re: Bitcoinica: How it works
Post by: RaggedMonk on January 03, 2012, 10:54:58 PM
i'm glad you turned off  the ignore button.  now would you please answer my legitimate questions?

Cypher: Every time you ask a question, someone answers it, then you ask new questions and make many more posts saying nobody is answering you.  Can you write out your unanswered questions clearly and grammatically, and stop whining about being ignored, so we can actually find your questions and respond to them? 

3. if i as a new customer deposits $50K and doesn't open a position, will those USD's get added to the shared pool and get lent out to longs to buy or shorts to cover?  as a result, is it possible for a new customer to be prevented from opening a position at all in the case of a Bullseye event?

4. i'm still not clear on a buyer who hits a displayed ask @$4.  is he guaranteed to get that price but just after 4 sec or can you refuse to honor it if we get a spike on mtgox?

(Mushoz answered well, but here is my take)

3. Probably.  The 50K should be lent to other customers once deposited.  If the entire system is skewed long, for example, that user would not be able to buy until it rebalances.

4. What does this mean?  That is barely English.

What do you mean by "hits"? (Sees?)

What is a displayed ask?  Do you mean the current market buy price (seen in the "Instant Execution" tab)?

If you want to lock in a price, you should use a limit order, not market.  If you want to place a market order, you should not be upset if the price moves a bit.  The purpose of a market order is to be fast, not precisely priced. 


Title: Re: Bitcoinica: How it works
Post by: RaggedMonk on January 03, 2012, 10:58:43 PM

Here's my proposition zhoutong: for a 10,000 BTC consulting fee, I will tell you the solution to this that will reduce the chance of Bitcoinica's collapse to 0.  (Payable in advance... and that's at a discount because it makes me smile that a 17 y/o is parting these fools of their money.)



You can prevent that degree of imbalance by stopping people from opening new postions (which your customers will consider acceptable), however people closing positions and/or withdrawing funds can also bring about 'critical imbalance' - i.e. a position you can not hedge, where you will have to either prevent people from closing positions and withdrawing funds (which they will react very badly to) or _become_ a bucket shop (you were trying out the former, now it looks like you will try out the latter).

My prediction for the end of Bitcoinica: the latest volitility that broke Bitcoinica was a rise which tends to be slower moving than crashes, at some point in the future we're going to get a crushing panic selloff (maybe when the US gov tries to shutdown bitcoin), then Bitcoinica will go under.


What an asshole. Trying to charge zhou to explain features that are already implemented.  Bitcoinica didn't break, it did what you appear to be suggesting.  Go back to the newbie forums, troll.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 03, 2012, 11:22:06 PM
i'm glad you turned off  the ignore button.  now would you please answer my legitimate questions?

Cypher: Every time you ask a question, someone answers it, then you ask new questions and make many more posts saying nobody is answering you.  Can you write out your unanswered questions clearly and grammatically, and stop whining about being ignored, so we can actually find your questions and respond to them? 

3. if i as a new customer deposits $50K and doesn't open a position, will those USD's get added to the shared pool and get lent out to longs to buy or shorts to cover?  as a result, is it possible for a new customer to be prevented from opening a position at all in the case of a Bullseye event?

4. i'm still not clear on a buyer who hits a displayed ask @$4.  is he guaranteed to get that price but just after 4 sec or can you refuse to honor it if we get a spike on mtgox?

(Mushoz answered well, but here is my take)

3. Probably.  The 50K should be lent to other customers once deposited.  If the entire system is skewed long, for example, that user would not be able to buy until it rebalances.

4. What does this mean?  That is barely English.

What do you mean by "hits"? (Sees?)

What is a displayed ask?  Do you mean the current market buy price (seen in the "Instant Execution" tab)?

If you want to lock in a price, you should use a limit order, not market.  If you want to place a market order, you should not be upset if the price moves a bit.  The purpose of a market order is to be fast, not precisely priced. 

if the displayed ask is $4, and i place a limit order @$4, am i guaranteed to get filled @$4?


Title: Re: Bitcoinica: How it works
Post by: RaggedMonk on January 03, 2012, 11:36:33 PM
I am assuming you mean a limit buy order.  I have never seen an explicit guarantee (which makes sense because the market can move in the time it takes for your order to be sent), but most of the time you will get filled. If you want an instant execution, it would make more sense to use a market order for the situation you are talking about.

If you are asking about the price being guaranteed, when I look in my order history, all limit orders get executed at the price I specified or one more favorable (ex. Limit buy at $5.00, executed at 4.8424!).  My history shows no trades at worse than my own limit price (and of course there shouldn't be any of those). 


Title: Re: Bitcoinica: How it works
Post by: zhoutong on January 04, 2012, 12:31:19 AM
So we have been running the service for over 3 months and we get over 1,800 customers.

The redflag issue has proven to everyone that Bitcoinica is not a bucket shop.

I wonder how a guy with completely no understanding of this thread can charge 10,000 BTC for consultation.

zhoutong: you haven't thought Bitcoinica through, which is why surprise problems keep poping up.

I haven't accused you of being a bucket shop: I am saying when your positions become significantly imbalanced you will have to stop people from closing positions and from withdrawing funds... or you will have to _become_ a bucket shop.  Your recent change was a band-aid, you kicked the can down the road to some future date.

You can prevent that degree of imbalance by stopping people from opening new postions (which your customers will consider acceptable), however people closing positions and/or withdrawing funds can also bring about 'critical imbalance' - i.e. a position you can not hedge, where you will have to either prevent people from closing positions and withdrawing funds (which they will react very badly to) or _become_ a bucket shop (you were trying out the former, now it looks like you will try out the latter).

I understand Bitcoinica perfectly, apparently you and your customers don't (your system works within certain statistical parameters, outside that it will blow up)... but for a modest fee I will help you out.

My prediction for the end of Bitcoinica: the latest volitility that broke Bitcoinica was a rise which tends to be slower moving than crashes, at some point in the future we're going to get a crushing panic selloff (maybe when the US gov tries to shutdown bitcoin), then Bitcoinica will go under.

If one day the longs all panic sell to cover and people with BTC as magin start withdrawing their funds, you will have to either prevent people from closing positions and withdrawing funds or become a bucket shop - either way it's the end of Bitcoinica.


Good attempt.

Bitcoinica is modeled after the real world brokerages, and we lack two things from real world:

- legal protection as a brokerage
- money market

These two will solve problems.

But well, we have done enough to protect our customers and ourselves. There're constantly new issues brought up because of the different contexts. The redflag was there on day one, why nobody complained for the first three months? Why this time people are speculating the collapse when we're doing better than ever?

We are not Mt. Gox, and we take some risk. But we have experienced the last three months of volatility: including 9/9 crash, 9/11 spike and all kinds of market conditions. We have forced liquidated positions as huge as 38,000 BTC without problems.

I've thought through, at least I have experience. I have 5 years trading experience (Chinese stocks, warrants and forex) and 3 years Ruby programming experience. And I have access to my advisor, who is a forex broker himself.


Title: Re: Bitcoinica: How it works
Post by: smickles on January 04, 2012, 02:58:33 AM
<snip>
We have forced liquidated positions as huge as 38,000 BTC without problems.
<snip>
I just have to say:
ouch.


Title: Re: Bitcoinica: How it works
Post by: ineededausername on January 04, 2012, 03:46:34 AM
<snip>
We have forced liquidated positions as huge as 38,000 BTC without problems.
<snip>
I just have to say:
ouch.

:o

Wonder if that 38k BTC guy is still playing on Bitcoinica... I'd ragequit if I were him :D


Title: Re: Bitcoinica: How it works
Post by: pirateat40 on January 04, 2012, 03:52:30 AM
<snip>
We have forced liquidated positions as huge as 38,000 BTC without problems.
<snip>
I just have to say:
ouch.

:o

Wonder if that 38k BTC guy is still playing on Bitcoinica... I'd ragequit if I were him :D

Oh its just smoke and mirrors.  Don't worry go long.


Title: Re: Bitcoinica: How it works
Post by: mjcmurfy on January 04, 2012, 04:42:24 AM
I have 5 years trading experience.

You're 17 now, so are you telling us you have been trading since you were 12?
Pokemon cards do not count.

And I have access to my advisor, who is a forex broker himself.

Who is your advisor, any relation to you? Are you paying him for his advice or does he work pro-bono? What exactly is his role?
Is he involved in the technical, financial, legal or PR aspects of bitcoinica? All of the above?


Title: Re: Bitcoinica: How it works
Post by: smickles on January 04, 2012, 05:49:51 AM
<snip>

Who is your advisor, any relation to you? Are you paying him for his advice or does he work pro-bono? What exactly is his role?
Is he involved in the technical, financial, legal or PR aspects of bitcoinica? All of the above?
ooh, those are some good questions.


Title: Re: Bitcoinica: How it works
Post by: zhoutong on January 04, 2012, 10:59:59 AM
I have 5 years trading experience.

You're 17 now, so are you telling us you have been trading since you were 12?
Pokemon cards do not count.

And I have access to my advisor, who is a forex broker himself.

Who is your advisor, any relation to you? Are you paying him for his advice or does he work pro-bono? What exactly is his role?
Is he involved in the technical, financial, legal or PR aspects of bitcoinica? All of the above?

I bought my first stock in Shanghai Stock Exchange in 2006 when I was 12. It's not a game.

My advisor doesn't take charge of Bitcoinica operations, and I don't pay him. I help him with his new social marketing venture and he helps me confirm the viability of the features that I purpose.

I did everything on my own.


Title: Re: Bitcoinica: How it works
Post by: Bigpiggy01 on January 04, 2012, 11:33:37 AM
Ummm Zhoutong,

Last time you recommended a long squeeze  ;)

What are your thoughts on a short squeeze atm?


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 04, 2012, 07:06:06 PM
Ummm Zhoutong,

Last time you recommended a long squeeze  ;)

What are your thoughts on a short squeeze atm?

go for it  ;)


Title: Re: Bitcoinica: How it works
Post by: notme on January 04, 2012, 09:10:02 PM
Ummm Zhoutong,

Last time you recommended a long squeeze  ;)

What are your thoughts on a short squeeze atm?

go for it  ;)

He has automated his recommendations now... ATM he's fairly balanced, so no squeeze is available.


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 05, 2012, 12:57:19 AM
can someone explain this to me?:

https://bitcointalk.org/index.php?topic=56615.msg674392#msg674392e

i thought that even in a red flag event the longs were supposed to be able to cash out in USD's?


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 01:49:49 PM
I'm probably being thick here but would someone be kind enough to explain how I can reduce my long position on bitcoinica  (profit taking) without liquidating it all, I have made a few sales & that reduces the number of bitcoins that I am long but it doesn't release the proceeds in $ for me to withdrawal to Mt.Gox - do I have to liquidate my whole position to free up those funds or just until the number of bitcoins that I am long matches the number that I initially deposited so that there's then no leverage, ideally I would like to leave those long & sell my leveraged positions & remove that profit in $, many thanks


Title: Re: Bitcoinica: How it works
Post by: alan2here on January 05, 2012, 02:05:10 PM
Stuff is relative to you'r first contrabution to the position vs subseqent ones?


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 02:12:44 PM
I don't understand sorry, I started with a 300Btc deposit & went long 300 a while back, when the price rose I increased the number of bitcoins that I was long with leverage now I would like to know if I can retain my original 300 Btc long position  by selling bitcoins or do I have to liquidate the whole position (or sell all little by little) in order to release the $ profit for withdrawal - sry to be such a trading noob


Title: Re: Bitcoinica: How it works
Post by: alan2here on January 05, 2012, 02:49:25 PM
I wasn't answering you. I'm trying to find out how it works too.


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 02:54:05 PM
I wasn't answering you. I'm trying to find out how it works too.
ah OK sry, btw 1 Btc reward to first person who can explain the above couple of questions to me, also is it normally better to sell one's position little by little rather than liquidate (assuming the market is relatively stable) & is the end result the same, many thanks


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 05, 2012, 03:07:16 PM
Ragged Monk:  if perfect English is so important to you, why don't you get your ass over here and answer all our questions that are piling up cuz it appears Zhou sure won't or can't.

yes, i am whining again.


Title: Re: Bitcoinica: How it works
Post by: chunglam on January 05, 2012, 03:30:03 PM
I don't understand sorry, I started with a 300Btc deposit & went long 300 a while back, when the price rose I increased the number of bitcoins that I was long with leverage now I would like to know if I can retain my original 300 Btc long position  by selling bitcoins or do I have to liquidate the whole position (or sell all little by little) in order to release the $ profit for withdrawal - sry to be such a trading noob
Yes, you have to liquidate all to realize your profit.

I asked Zhou this question and his answer in other thread
Hi Zhoutong, could you let us partially cash out profit from our position? Currently, we have to liquidate our position to make the profit move into USD balance, I would like to buy real BTCs using my profit balance. ;)

All your unrealized profits are automatically leveraged again for trading.

Your tradable balance should already include the profits.

Maybe he wants to withdraw some of the profit to his wallet outside Bitcoinica.

Sorry for my misunderstanding.

If you have profits to support your position, technically you can already use the Exchange or withdraw feature to do whatever you want, just like the real USD balance. However, the limit is your actual USD balance, as it can't be negative.

Unfortunately but we don't offer the service to let you withdraw more USD than what you have.


Title: Re: Bitcoinica: How it works
Post by: alan2here on January 05, 2012, 03:30:28 PM
A redesign of the interface, if only to reword things, but idealy more thorough than that would solve most of the problems.


Title: Re: Bitcoinica: How it works
Post by: chunglam on January 05, 2012, 03:37:40 PM
also is it normally better to sell one's position little by little rather than liquidate (assuming the market is relatively stable) & is the end result the same, many thanks
I would suggest to set limit sell order to decrease your long position, take more time but better price ;)


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 03:46:08 PM
many thanks to all, yes that's what i have been doing - placing limit sell orders for Btc 50 at Btc 0.005 intervals somewhere above the instant sell price & when they get filled on spikes or bitcoinica balancing their books then I'm getting a much better price, better even than on Mt.Gox live at times


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 05, 2012, 03:50:03 PM
I don't understand sorry, I started with a 300Btc deposit & went long 300 a while back, when the price rose I increased the number of bitcoins that I was long with leverage now I would like to know if I can retain my original 300 Btc long position  by selling bitcoins or do I have to liquidate the whole position (or sell all little by little) in order to release the $ profit for withdrawal - sry to be such a trading noob
Yes, you have to liquidate all to realize your profit.

I asked Zhou this question and his answer in other thread
Hi Zhoutong, could you let us partially cash out profit from our position? Currently, we have to liquidate our position to make the profit move into USD balance, I would like to buy real BTCs using my profit balance. ;)

All your unrealized profits are automatically leveraged again for trading.

Your tradable balance should already include the profits.

Maybe he wants to withdraw some of the profit to his wallet outside Bitcoinica.

Sorry for my misunderstanding.

If you have profits to support your position, technically you can already use the Exchange or withdraw feature to do whatever you want, just like the real USD balance. However, the limit is your actual USD balance, as it can't be negative.

Unfortunately but we don't offer the service to let you withdraw more USD than what you have.

this is really too bad.  in one of my bond accts, when the positions move up a certain % in interest payments, i will siphon the interest earned to a money mkt leaving the original investment.  this is how most retired seniors work their accts (i'm not one:))

in my stock acct, if the positions appreciate by a certain %, i then am free to sell off whatever % i want to realize the profit.  i usually will sell just the profit portion leaving my original positions.  this way i can still be in the game while living off the profits.  standard stuff.


Title: Re: Bitcoinica: How it works
Post by: gewure on January 05, 2012, 05:34:31 PM
.. is it only me or are spreads really getting bigger and bigger?  >:(

i don't get it at all, why spreads are that high on bitcoinica, if it is the second largest 'exchange' (i know it is no real one) by volume.

spreads as high as 20 cent, sometimes 30 and i have even seen some higher than 40 cents.. just insane.

zhouthong, do something about this, seriously!

..


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 05, 2012, 05:41:00 PM
.. is it only me or are spreads really getting bigger and bigger?  >:(

i don't get it at all, why spreads are that high on bitcoinica, if it is the second largest 'exchange' (i know it is no real one) by volume.

spreads as high as 20 cent, sometimes 30 and i have even seen some higher than 40 cents.. just insane.

zhouthong, do something about this, seriously!

..

There's no depth in a 10 cents range on Mtgox, so they need those spreads. Spreads will generally become much smaller once we've been "stable" for a while, which IMO, isn't going to happen anytime soon ;)


Title: Re: Bitcoinica: How it works
Post by: gewure on January 05, 2012, 05:47:39 PM
.. is it only me or are spreads really getting bigger and bigger?  >:(

i don't get it at all, why spreads are that high on bitcoinica, if it is the second largest 'exchange' (i know it is no real one) by volume.

spreads as high as 20 cent, sometimes 30 and i have even seen some higher than 40 cents.. just insane.

zhouthong, do something about this, seriously!

..

There's no depth in a 10 cents range on Mtgox, so they need those spreads. Spreads will generally become much smaller once we've been "stable" for a while, which IMO, isn't going to happen anytime soon ;)

lol - are you going to tell me, they need a 40-cent-spread if i want to trade.. 1BTC?! ..

i think zhoutong should open up his order book - at least he should open up the book for the LIMIT and STOP orders, presupposed there are enought orders to avoid serious market manipulation (aka 'zhouthonging' the shit out of ppl with heavy leveraged positions)



Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 05, 2012, 06:00:26 PM
.. is it only me or are spreads really getting bigger and bigger?  >:(

i don't get it at all, why spreads are that high on bitcoinica, if it is the second largest 'exchange' (i know it is no real one) by volume.

spreads as high as 20 cent, sometimes 30 and i have even seen some higher than 40 cents.. just insane.

zhouthong, do something about this, seriously!

..

There's no depth in a 10 cents range on Mtgox, so they need those spreads. Spreads will generally become much smaller once we've been "stable" for a while, which IMO, isn't going to happen anytime soon ;)

lol - are you going to tell me, they need a 40-cent-spread if i want to trade.. 1BTC?! ..

i think zhoutong should open up his order book - at least he should open up the book for the LIMIT and STOP orders, presupposed there are enought orders to avoid serious market manipulation (aka 'zhouthonging' the shit out of ppl with heavy leveraged positions)



The spread is only 10 cents, and second of all they need those spreads for up to 50 BTC offers. They can't start offering different spreads for different sized orders, it would become a mess. Btw, for those low numbers you should really just use Mtgox. Much better for small trades. Only use Bitcoinica when you're using a lot more money to play around with and if you want to use leverage.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 05, 2012, 06:02:30 PM
can anyone explain me how partial liquidation is working ???

If you partially liquidate a position you won't get the profit/loss calculated into your account funds yet, but your tradeable balance does increase, meaning you can use those funds for new positions if you want.

Edit: Actually, you don't have to liquidate for that. Your tradeable balance increases/decreases as your P/L goes up and down as well.


Title: Re: Bitcoinica: How it works
Post by: gewure on January 05, 2012, 06:08:52 PM
mushoz: im long at the moment with some 50+ coins..

offering different spreads for different ordervolumes would be imo no mess at all,  but much more accurate and fair. basically, that is how free markets form their *price.


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 06:24:27 PM
over the last 6 hours I have closed most of my long position through limit sales, I was going to close it all out but decided to leave some now as I kind of believe I may understand some of how bitcoinica works,  I have 300 Btc on deposit there & now no leverage, down from 1343 Btc long to just 243 now, sitting on a healthy unrealised profit which I can't access until I fully close out the position which is fine as I don't need it right now & anyway thought that those 300 Btc were already probably lost over the last few days wild swings - I must have been close to being zhoutonged quite a few times, so this on paper at least covers my big shorting losses from over thanksgiving & also covers the original cost of 170 of the 300 Btc I've deposited there, I wondering now if I can withdraw those 300 Btc & just use the unrealised profit as security for my position - I'm guessing so but any input would be much appreciated


Title: Re: Bitcoinica: How it works
Post by: Dan The Man on January 05, 2012, 06:25:12 PM
ah OK sry, btw 1 Btc reward to first person who can explain the above couple of questions to me, also is it normally better to sell one's position little by little rather than liquidate (assuming the market is relatively stable) & is the end result the same, many thanks

I don't understand sorry, I started with a 300Btc deposit & went long 300 a while back, when the price rose I increased the number of bitcoins that I was long with leverage now I would like to know if I can retain my original 300 Btc long position  by selling bitcoins or do I have to liquidate the whole position (or sell all little by little) in order to release the $ profit for withdrawal - sry to be such a trading noob

You can retain your long position by selling, either at market value or with limit orders. The profits go into lowering the base price of your position rather than into your account. So if you had a 300 BTC long position at a low price before, you will now have 300 BTC at an even lower price.


Title: Re: Bitcoinica: How it works
Post by: Dan The Man on January 05, 2012, 06:28:22 PM
over the last 6 hours I have closed most of my long position through limit sales, I was going to close it all out but decided to leave some now as I kind of believe I may understand some of how bitcoinica works,  I have 300 Btc on deposit there & now no leverage, down from 1343 Btc long to just 243 now, sitting on a healthy unrealised profit which I can't access until I fully close out the position which is fine as I don't need it right now & anyway thought that those 300 Btc were already probably lost over the last few days wild swings - I must have been close to being zhoutonged quite a few times, so this on paper at least covers my big shorting losses from over thanksgiving & also covers the original cost of 170 of the 300 Btc I've deposited there, I wondering now if I can withdraw those 300 Btc & just use the unrealised profit as security for my position - I'm guessing so but any input would be much appreciated

Go to withdrawal and see what it says. Bitcoinica will inform you what your maximum withdrawal amount is. If it's 300, then yes you can withdraw all of it. I would assume that this to be the case if the profit covers the margin. It is your net value that matters when determining margin calls/liquidation.


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 06:47:31 PM
many thanks both, yes I've been discovering getting limit sales met reduces my long position & lowers it's base price, almost like locking in profit - not quite as I can't withdraw it but locking down risk a lot & yes it will let me send the original 300 btc back to Gox np, so that still leaves about half my net value which is plenty to safeguard my remaining 243 long position - it's about the same as when I originally deposited the 300, so now I can effectively play with just the house's money (or that of peeps who got short squeezed out) with no risk of my Btc or capital except that until I close out the position I don't get the $s to cover my thanksgiving losses or the funds to cover the cost of 170 of the 300 bitcoins that I gambled with that I am up atm


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 07:02:25 PM
hmm, when I say np it's actually "Pending approval"  "Mt. Gox limit reached temporarily" for a while now - 15 minutes & counting
but I guess it will clear eventually - I hope  :-\  that is...

30 minutes now, how long is 'temporarily' I wonder
same thing happening with $s as I had just $30 odd there too that I tried to convert to a Goxy code over 19 minutes ago

It's like the bloody hotel california

You can checkout any time you like,
But your bitcoins can never leave!


Title: Re: Bitcoinica: How it works
Post by: ArsenShnurkov on January 05, 2012, 07:21:54 PM
how long is 'temporarily' I wonder

mt gox limit is per 24 hours. so it can take few days


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 08:09:52 PM
both withdrawals have now been in the zhoutong kung fu wallet grip hold for over 1 hour  :'(

the message then defaults to "about 1 hour ago"

some info link would be more professional, like eta of when the funds might actually be expected to get released


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 08:29:50 PM
I do think that it's a bit off that I can't even withdraw the same amount of bitcoins & cash that I deposited there, BTC 300 & $33

I gambled with these on high leverage & have an unrealised profit of well over $1,000 which I'm using to support an open long position

Back in Thanksgiving time I shorted with very high leverage & closed out with about a $600 loss that I paid in $ cash for to free up my Btc 300 again for round two so technically until I close out my position I am still well down even after I (hopefully) get to withdraw my initial stake

mumblemumblemumble

message now re withdrawal of my funds, same with: "about 2 hours ago"


Title: Re: Bitcoinica: How it works
Post by: sgbett on January 05, 2012, 08:48:00 PM
I had similar issues, I found this. It was sorted within 24hrs.

http://help.bitcoinica.com/discussions/questions/56-withdrawal-of-usd-as-mt-gox-coupon-displays-pending-approval


Title: Re: Bitcoinica: How it works
Post by: proudhon on January 05, 2012, 08:58:50 PM
Out of curiosity I've decided to see what bitcoinica is all about with 1BTC.


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 08:58:59 PM
many thanks, it says there:

Mt. Gox gives us a withdrawal limit. This means we can only withdraw so much each day on behalf of our clients. You should be able to access your Mt. Gox code after 24-48 hours. I'm sorry about the inconvenience, but our hands are tied in the matter. I suggest only using the Bitcoin network (you can even withdraw directly to your Mt. Gox deposit address) for withdrawals and deposits.
Thank you for trading with Bitcoinica,
-Jon

& WhyTF didn't bitcoinica just not make this clear on the withdrawals page, of corse I could have used my Mt.Gox deposit address instead - if I had known or if they had told me that they were maxed out >:( (not actually >:( but I can imaging that many would be over this kind of so easily avoidable BS)

like choose this option & your funds will be then locked down for (edit now 6 hrs plus) - just say so ffs how hard is that to let peeps know


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 05, 2012, 09:01:05 PM
many thanks, it says there:

Mt. Gox gives us a withdrawal limit. This means we can only withdraw so much each day on behalf of our clients. You should be able to access your Mt. Gox code after 24-48 hours. I'm sorry about the inconvenience, but our hands are tied in the matter. I suggest only using the Bitcoin network (you can even withdraw directly to your Mt. Gox deposit address) for withdrawals and deposits.
Thank you for trading with Bitcoinica,
-Jon

& WhyTF didn't bitcoinica just not make this clear on the withdrawals page, of corse I could have used my Mt.Gox deposit address instead - if I had known or if they had told me that they were maxed out  >:( (not actually but I can imaging that many would be over this kind of so easily avoidable BS)

Hmm, try contacting support. They can probably cancel your withdrawal, so you can withdraw over the Bitcoin Network instead.


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 09:02:06 PM
Out of curiosity I've decided to see what bitcoinica is all about with 1BTC.

get 10 times leverage authorised & choose a big momentum wave with no quick spike backs, let it ride up to $66.66666 & then cash out, good luck actually trying to extract the $s from Khou's kung fu grip tho


Title: Re: Bitcoinica: How it works
Post by: sgbett on January 05, 2012, 09:03:27 PM
Yeah it took me ages to find this info.

I was able to cancel my BTC through the site and just do a normal withdrawal to my mtgox wallet.

For USD I just had to sit it out.


Title: Re: Bitcoinica: How it works
Post by: proudhon on January 05, 2012, 09:08:03 PM
Out of curiosity I've decided to see what bitcoinica is all about with 1BTC.

get 10 times leverage authorised & choose a big momentum wave with no quick spike backs, let it ride up to $66.66666 & then cash out, good luck actually trying to extract the $s from Khou's kung fu grip tho

I have no fucking clue what I'm doing.


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 09:08:21 PM
many thanks, it says there:

Mt. Gox gives us a withdrawal limit. This means we can only withdraw so much each day on behalf of our clients. You should be able to access your Mt. Gox code after 24-48 hours. I'm sorry about the inconvenience, but our hands are tied in the matter. I suggest only using the Bitcoin network (you can even withdraw directly to your Mt. Gox deposit address) for withdrawals and deposits.
Thank you for trading with Bitcoinica,
-Jon

& WhyTF didn't bitcoinica just not make this clear on the withdrawals page, of corse I could have used my Mt.Gox deposit address instead - if I had known or if they had told me that they were maxed out  >:( (not actually but I can imaging that many would be over this kind of so easily avoidable BS)

Hmm, try contacting support. They can probably cancel your withdrawal, so you can withdraw over the Bitcoin Network instead.
many thanks, unfortunately I now need my 480 minutes of sleep (as Mt.Gox live puts it) so I'll just let it ride, at least a learning experience & not an immediate need case for once


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 05, 2012, 09:09:00 PM
Out of curiosity I've decided to see what bitcoinica is all about with 1BTC.

get 10 times leverage authorised & choose a big momentum wave with no quick spike backs, let it ride up to $66.66666 & then cash out, good luck actually trying to extract the $s from Khou's kung fu grip tho

I have no fucking clue what I'm doing.

Haha, good luck :D Let's hope for beginners luck ;) Protip: Don't short the market atm :p


Title: Re: Bitcoinica: How it works
Post by: proudhon on January 05, 2012, 09:10:49 PM
I think I'm doing it wrong  :P, but I don't know:

http://i44.tinypic.com/214cw0m.png


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 05, 2012, 09:12:19 PM
I think I'm doing it wrong  :P, but I don't know:

http://i44.tinypic.com/214cw0m.png

You're doing it right :) You just went long with your 5:1 leverage with 1 BTC backing it =) You're currently in the red, because of the spreads. If it's going to move up, your profit will increase. If it moves down, your losses will become greater. Just sit tight and watch it closely now ;)


Title: Re: Bitcoinica: How it works
Post by: proudhon on January 05, 2012, 09:14:32 PM
I think I'm doing it wrong  :P, but I don't know:

http://i44.tinypic.com/214cw0m.png

You're doing it right :) You just went long with your 5:1 leverage with 1 BTC backing it =) You're currently in the red, because of the spreads. If it's going to move up, your profit will increase. If it moves down, your losses will become greater. Just sit tight and watch it closely now ;)

Haha, ok.  Watching.


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 09:15:58 PM
yep you're doing good, don't mess with it until you're either wiped out by some pidley little spike down or have lotsa $ unrealised profit as the bitcoin price soars, basically just let it ride in to 2017

what your doing is gambling 5 times your 1 Btc stake so you are exposed to 5 times any price drop which will quickly get you zhoutonged (an experience in itself) or if the normal rules of gambler's beginners luck holds then the price will now soar & every time you hit say $60 or so say of unrealised profit you could buy more longs, by 2033 you could be browsing catalogues for 50 foot yachts


Title: Re: Bitcoinica: How it works
Post by: notme on January 05, 2012, 09:19:13 PM
I think I'm doing it wrong  :P, but I don't know:

http://i44.tinypic.com/214cw0m.png

Or just add 1 BTC Limit Sells at 6.35, 6.40, 6.45, 6.50.  Wait until it hits 6.5, then rinse and repeat compounding your 50cent profit back into your bitcoin reserves.


Title: Re: Bitcoinica: How it works
Post by: ineededausername on January 05, 2012, 09:23:54 PM
:o

PROUDHON WENT LONG!


Title: Re: Bitcoinica: How it works
Post by: RaggedMonk on January 05, 2012, 09:29:19 PM
I don't understand sorry, I started with a 300Btc deposit & went long 300 a while back, when the price rose I increased the number of bitcoins that I was long with leverage now I would like to know if I can retain my original 300 Btc long position  by selling bitcoins or do I have to liquidate the whole position (or sell all little by little) in order to release the $ profit for withdrawal - sry to be such a trading noob

I am pretty sure you can't cash profits out into your currency account without closing your whole position, unfortunately.  (This means selling to zero, overshooting can keep the position open).

You should be able to pull out approx currency account balance - position size/leverage (though I recommend keeping a bit more than necessary so you don't immediately get liquidated if the market moves against you).

Withdrawal limits are a big problem.  They have always gone through in less than 3 days for me, usually around 24 hours. Technically, it is Gox's "fault" but zhou should really implement a separate withdrawal wallet for this situation.


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 05, 2012, 09:33:18 PM
:o

PROUDHON WENT LONG!

BUY BUY BUY!!!  ;D


Title: Re: Bitcoinica: How it works
Post by: bitdragon on January 05, 2012, 09:45:27 PM
has anyone used the trailing stop?

i just bought 100btc at 6,3683 with a trailing at 6.
The price is now at 6,3642 but my trailing has been increasing and is now at 6,17 and I cancelled it.

Did the spread get smaller? or have i missed something ? this was in the space of 12 minutes


Title: Re: Bitcoinica: How it works
Post by: Mushoz on January 05, 2012, 09:47:01 PM
has anyone used the trailing stop?

i just bought 100btc at 6,3683 with a trailing at 6.
The price is now at 6,3642 but my trailing has been increasing and is now at 6,17 and I cancelled it.

Did the spread get smaller? or have i missed something ? this was in the space of 12 minutes

Spreads got smaller and the price was moving up, moving the trailing stop up as well


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 09:53:33 PM
I don't know if he's fixed it as yet but zhou admitted recently to problems re trailing stops functionability & planned to recode them soon


Title: Re: Bitcoinica: How it works
Post by: bitdragon on January 05, 2012, 10:09:18 PM
has anyone used the trailing stop?

i just bought 100btc at 6,3683 with a trailing at 6.
The price is now at 6,3642 but my trailing has been increasing and is now at 6,17 and I cancelled it.

Did the spread get smaller? or have i missed something ? this was in the space of 12 minutes

Spreads got smaller and the price was moving up, moving the trailing stop up as well

i just tried again at 5 and it is now at 5,16 and nor the bid or ask increased by that much.

something is counting the increases a bit too much in my opinion.


Title: Re: Bitcoinica: How it works
Post by: bitdragon on January 05, 2012, 10:36:49 PM
there is clearly double counting going on with trailing stop.

i recorded 10 minutes of bitcoinica, and especially towards the end, leads me to believe the trails increases way too much when the bid just goes back and forth.

if it interests :
https://content22.wuala.com/rawcontent/r1fU0d06FWaFdx2fec7ZHq9viHXZ3nlbtTCfLi3fzRSqfpCzTYrtqM4Vk5SMAm2Njw-i3hIeloQQRRINU4LGPZp7eEfi1sN6t5XpQEdW6xeZqbyZZSVAp3c_TDtPBVuas_z1PnKF7riIMxYNPy_xQb5KE9yjOzrn2OSuIQIvoIs/out-26.ogv

does this link work?


Title: Re: Bitcoinica: How it works
Post by: ArsenShnurkov on January 05, 2012, 10:38:37 PM
does this link work?

yes


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 05, 2012, 11:42:09 PM
also see the end of this thread re trailing stops fail

https://bitcointalk.org/index.php?topic=56583.msg676378#msg676378


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 06, 2012, 12:05:47 AM
seems a little odd to me we haven't heard from Zhou for a while.  has anyone been able to remove USD's from Bitcoinica recently?  is trading proceeding normally?


Title: Re: Bitcoinica: How it works
Post by: tickets on January 06, 2012, 06:43:09 AM
I've been trying to figure out how to do shorting and set stoplosses on MtGox but I don't see either capability...

so I searched and found this thread where people are mentioning shorting and bitcoinica ... I can't seem to get to bitcoinica.com though. 

Can someone point me to more information on traditional daytrading type support for shorting and stoploss functions? 

thanks


Title: Re: Bitcoinica: How it works
Post by: zhoutong on January 06, 2012, 06:57:33 AM
seems a little odd to me we haven't heard from Zhou for a while.  has anyone been able to remove USD's from Bitcoinica recently?  is trading proceeding normally?

I'm in my hometown right now.

Withdrawals: Apparently we have hit Mt. Gox's monthly withdrawal limit. Bitcoinica users have to wait for a few days for this limit to be refilled.

Trading: No redflag event longer than 5 seconds has been recorded in the last 48 hours.


Title: Re: Bitcoinica: How it works
Post by: Crypt_Current on January 06, 2012, 07:00:23 AM
seems a little odd to me we haven't heard from Zhou for a while.  has anyone been able to remove USD's from Bitcoinica recently?  is trading proceeding normally?

I'm in my hometown right now.

Withdrawals: Apparently we have hit Mt. Gox's monthly withdrawal limit. Bitcoinica users have to wait for a few days for this limit to be refilled.

Trading: No redflag event longer than 5 seconds has been recorded in the last 48 hours.

FIVE SECONDS!!!!!! BULLSHIT, I WANT IT NOW!!!!!!

lolz, i'm sleep deprived.

Nice to hear from you, Zhou.  :-)


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 06, 2012, 11:13:21 AM
seems a little odd to me we haven't heard from Zhou for a while.  has anyone been able to remove USD's from Bitcoinica recently?  is trading proceeding normally?

I'm in my hometown right now.

Withdrawals: Apparently we have hit Mt. Gox's monthly withdrawal limit. Bitcoinica users have to wait for a few days for this limit to be refilled.

Trading: No redflag event longer than 5 seconds has been recorded in the last 48 hours.

yep my funds are still locked in, if I cancel the request for a Mt.Gox Btc code can I then just send the Btc to my deposit address at Mt.Gox via bitcoinica's withdraw to wallet option, I assume yes
the few dollars also locked in I don't mind waiting for & btw Zhou if I'm ever in Singapore I'd like to buy you a stupendous lunch, preferably with bitcoins


Title: Re: Bitcoinica: How it works
Post by: cypherdoc on January 06, 2012, 03:28:05 PM
seems a little odd to me we haven't heard from Zhou for a while.  has anyone been able to remove USD's from Bitcoinica recently?  is trading proceeding normally?

I'm in my hometown right now.

Withdrawals: Apparently we have hit Mt. Gox's monthly withdrawal limit. Bitcoinica users have to wait for a few days for this limit to be refilled.

Trading: No redflag event longer than 5 seconds has been recorded in the last 48 hours.

so its defined by month.  can u tell us what the parameters of these limits are. i think that would help everyone.


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 06, 2012, 03:40:53 PM
I cancelled my request for a Mt.Gox BTC code after waiting for over 12 hrs & then just withdrew to my Mt.Gox deposit address (withdraw to wallet option) the funds had cleared there within 1 hr - sweet  :)


Title: Re: Bitcoinica: How it works
Post by: smickles on January 06, 2012, 07:48:13 PM
I cancelled my request for a Mt.Gox BTC code after waiting for over 12 hrs & then just withdrew to my Mt.Gox deposit address (withdraw to wallet option) the funds had cleared there within 1 hr - sweet  :)
actual bitcoins are awesome, arn't they? MtGox codes feel so much like "paper money" if you catch my drift.


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 06, 2012, 08:28:24 PM
indeed bitcoins, they just work, other options/intermediaries often seem to suck or at the very least appear not have got their act together as yet, a good learning experience

I even plan on actually downloading the client soon & starting to learn how a BTC wallet works with small change at first rather than just relying upon the exchanges to hold my BTC

up to now most of my BTC are at Mt.Gox so it seems about the same risk having them there as requesting/holding/using a Mt.Gox BTC code, the only problem was that it didn't get issued so what's the point, I wanted to move BTC to Mt.Gox & saw a Mt.Gox related facility so assumed that was the way to go, hopeless - from now on I just bitcoin transfer & Mt.Gox BTC codes can be for perhaps some fun other scenarios but I won't use them to transfer funds from Bitcoinica to Mt.Gox again & seriously Zhou should have a warning or pop up when they are maxed out to prevent peeps from going down that dead end route when it's so avoidable by just bitcoin transferring to one's Mt.Gox account

edit to add: I've now sent the BTC back to Bitcoinica from Gox & the Gox BTC code is fantastic for this as it's about instant - very useful in a fast moving market & most impressive service


Title: Re: Bitcoinica: How it works
Post by: smickles on January 06, 2012, 08:46:41 PM
indeed bitcoins, they just work, other options/intermediaries often seem to suck or at the very least appear not have got their act together as yet, a good learning experience

I even plan on actually downloading the client soon & starting to learn how a BTC wallet works with small change at first rather than just relying upon the exchanges to hold my BTC
If I may offer advice, Just be sure to learn how to properly and safely back up your wallet.


Title: Re: Bitcoinica: How it works
Post by: Otoh on January 06, 2012, 09:06:26 PM
yep, I've been genning up on this now for over 6 months & am still not confident that I get it 100%
I will need to start playing around with the wallet to get surer - I'll only send loose change to it while I practice
& even when I recon that I know pretty well how to keep it backed up & secure it will be at least 6 months more of playing around with it before I expect to feel confident enough make any long term deep storage wallets via linux which again I've only briefly looked in to over the last 3 months


Title: Re: Bitcoinica: How it works
Post by: elux on January 20, 2012, 04:49:24 PM
Sticky request.  :)