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Author Topic: Mt Gox now trading on a principal basis?  (Read 1109 times)
EuSouBitcoin
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September 08, 2011, 02:55:29 PM
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Mt Gox and most other BTC exchanges have been trading on an agency basis where they match buyers and sellers and receive commission for matching the 2 together. Now I see that "Mt Gox opens 15 new currency markets"
https://mtgox.com/press_release_20110902.html
But instead of having the orders within 1 currency only trade with orders of the same currency, I see they post "Mt.Gox’s custom implementation of a multi-currency platform is unique in that currency markets are not separated from one another, and traders are not limited to their own currency market. Instead traders access the entire market with the trade priority being put on their native currency."
If John wants to buy BTC with USD and Bjorn wants to sell BTC for SEK, the only way these 2 orders can trade with each other is if there is a middleman in between, either Mt Gox or some other market maker. This middle man is the counter party to both John and Bjorn. Does anyone know who is serving as the middle man, Mt Gox or someone else?
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davout
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September 08, 2011, 03:31:45 PM
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I'm impressed.

EuSouBitcoin
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September 08, 2011, 03:45:55 PM
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Wouldn't necessarily have to be a "middle man" per se, mt.gox would just have to have a common currency "backbone", ie. some common denominator for all trading.... in reality that's how the "real world" works i.e. you typically don't trade Rubbles for Yen, you typically trade Rubbles for Dollars for Yen and vice versa, if all are weighted against a common currency that kills those pesky triangles of doom currency trading i.e. Pound > Euro > Dollar > Pound .... as you can see there would be a problem if that ever occurred but it's eliminated by i.e. Pound > Dollar < Euro

I would suspect Mt.Gox is just pulling off the same mechanic under the hood enabling any fiat to BTC trading possible.
[/quote]

How would this work in the USD SEK example above?
payb.tc
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September 08, 2011, 03:50:27 PM
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I would suspect Mt.Gox is just pulling off the same mechanic under the hood enabling any fiat to BTC trading possible.

question is, at what rate are they doing this?

i.e. what rate are they converting USD to SEK?
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September 08, 2011, 04:20:51 PM
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question is, at what rate are they doing this?

i.e. what rate are they converting USD to SEK?

**Note my answers are speculative btw.
More than likely it would be at international forex trading rates, otherwise they get into that "triangle of doom" I referred to.

Mt.Gox auto converts the SEK to USD or vice versa and then performs the trade for BTC.  If they can perform the USD <-> SEK conversion with little to no exchange fees (because they are acting as the exchanger) and it is done rapidly (ie. not convert and wait and then the currency exchange changes value then they convert back) the USD <-> SEK conversion would not even be noticed.  To accomplish this all Mt.Gox would need really is a reserve of non-trading fiat that it uses to perform the trade.
[/quote]

i think any site that converts between currencies at any time should have a regularly-updated page informing users of the rates.

(or at least a policy which states something like 'we use the mid-rate on xe.com' for example).

for now though, flying blind...
EuSouBitcoin
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September 08, 2011, 04:34:11 PM
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So Mt Gox sells BTC to John and receives USD. It takes those USD to a forex trading firm and converts them to SEK. Mt Gox then pays SEK to Bjorn and receives BTC from him. The BTC Mt Gox receives from Bjorn is used to offset the BTC Mt Gox sold to John. And if Mt Gox has done its calculations correctly, it will receive more BTC from Bjorn than it sells to John.

That sounds like trading on a principal basis to me. I don't think there's anything wrong with it and it should help liquidity in all of the BTC vs fiat currency markets on Mt Gox. However, Mt Gox is the only place I know of that trades on both a principal basis and an agency basis. Does anyone know of other exchanges that trade on both a principal basis and an agency basis?
davout
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September 08, 2011, 04:34:57 PM
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Well, I'm not really impressed if they're using some currency conversion scheme.
I'm really fucking impressed if they're using some sort of "trading path" algorithm.

koin
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September 08, 2011, 05:18:06 PM
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Mt.Gox’s custom implementation of a multi-currency platform is unique in that currency markets are not separated from one another

this could be scary.  if the exchange is acting as market maker and doing arbitrage between their own currency markets that means they are incurring risk that they wouldn't normally have operating simply as an agent.
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September 11, 2011, 07:35:56 AM
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Mt.Gox’s custom implementation of a multi-currency platform is unique in that currency markets are not separated from one another

this could be scary.  if the exchange is acting as market maker and doing arbitrage between their own currency markets that means they are incurring risk that they wouldn't normally have operating simply as an agent.

That's correct. If Mt. Gox is honest, under the existing system they took on no trading risk. If they are doing currency conversion, they have exchange rate risk. Not much, if they settle daily, but some. Does Mt. Gox charge for currency conversion? What are their exchange rates? 

If Mt. Gox is becoming a foreign exchange broker, they face more regulatory problems in Japan.

I still wonder whether, as Bitcoin winds down and Mt. Gox has to pay out on all their cash deposits, if the money is actually all there.
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