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).

you didn't answer my question about whether you had a financial link to Bitcoinica.

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.


and you presented that quote out of context.

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?

2. We don't bet against our clients. We never want them to lose. There's no incentive to do that.

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?

i did sell a significant amount of coin, wanted to cash in what i had made. im looking to buy back in at lowish 4$ or even lower:P

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.)

I see the * at times.... but that still didn't stop me from getting 1300 bitcoins on 10:1 leverage... 

Here's to $6 and beyond!

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?

this is the first time i've lost my temper with him.

if you go back thru the threads, i've tolerated alot of disrespectful comments from him.

you know what?  i'm tired of being nice to you just b/c you're a 17 yo kid.  f*ck you prick!

i've rooted out several valid problems with the way Bitcoinica functions.  while i had to do some catching up with exactly how your service works b/c its so opaque, it turns out that most of my suspicions are real. 

and i would posit that NO ONE around here knew that your service could freeze up like this and prevent shorts and longs from covering or buying due to a red flag event.  too bad your short clients will have to be liquidated.  its either you or them who will take losses Zhou.  who will you choose?

the fact that you're constantly having to "revise" your algorithm is testament to this.  the fact that i was able to jam your algorithm as up to 4.95 10d ago is fact, not fiction.

you need to keep your mouth shut.

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.