Bitcoin Forum
December 03, 2016, 12:26:32 AM *
News: To be able to use the next phase of the beta forum software, please ensure that your email address is correct/functional.
 
   Home   Help Search Donate Login Register  
Pages: [1]
  Print  
Author Topic: A little lesson learned the hard way - Margin Call  (Read 2752 times)
apetersson
Hero Member
*****
Offline Offline

Activity: 666


mycelium.com


View Profile WWW
September 12, 2011, 09:45:34 PM
 #1

I will tell you a little story from yesterday:

I opened a Bitcoinica account and played with it. Then, suddenly a big spike to 7 occured. My immediate thought: a very good opportunity to attempt a short sale, because 7 is at the moment not sustainable.
so i attempted to sell bitcoins @ 7. this is what happened: ( you have to read it from bottim to top)

BTCUSD   Market   175.0   -   Forced liquidation @ 7.4300559927762   Sep 11 04:17 PM   
BTCUSD   Market   -50.0   -   Executed @ 6.9769   Sep 11 04:16 PM   
BTCUSD   Market   -50.0   -   Executed @ 5.9849   Sep 11 04:09 PM   
BTCUSD   Limit   -25.0   $5.6900   Executed @ 5.9846   Sep 11 03:59 PM   
BTCUSD   Limit   -50.0   $5.6900   Executed @ 5.9846   Sep 11 03:59


The first mistake was i assumed i could actually sell at 7. But the spread was over 1 dollar, so i shortsold at 6.

yes, i was the sucker to buy coins at 7.4.

the second mistake: had i provided enough liquidity i could have made a nice profit by now. but i underestimated the 1:5 margin.
1480724792
Hero Member
*
Offline Offline

Posts: 1480724792

View Profile Personal Message (Offline)

Ignore
1480724792
Reply with quote  #2

1480724792
Report to moderator
1480724792
Hero Member
*
Offline Offline

Posts: 1480724792

View Profile Personal Message (Offline)

Ignore
1480724792
Reply with quote  #2

1480724792
Report to moderator
Advertised sites are not endorsed by the Bitcoin Forum. They may be unsafe, untrustworthy, or illegal in your jurisdiction. Advertise here.
Bloody Bell
Newbie
*
Offline Offline

Activity: 19


View Profile
September 12, 2011, 10:23:03 PM
 #2

And that is why you don't trade through a market maker. Especially not for short term.
fcmatt
Legendary
*
Offline Offline

Activity: 1106


View Profile
September 12, 2011, 11:40:25 PM
 #3

I am also playin around over there but with 10 usd to start. Blew 5 bucks quickly testing things and now did my first trade to make money. Made about 30 cents with 5 usd as capital. Still some quirks i am trying to figure about the spreads, delays, etc. I am yet to be comfortable that i fully understand the site and how to use/trust it.
nmat
Hero Member
*****
Offline Offline

Activity: 602


View Profile
September 13, 2011, 12:06:34 AM
 #4

I will tell you a little story from yesterday:

I opened a Bitcoinica account and played with it. Then, suddenly a big spike to 7 occured. My immediate thought: a very good opportunity to attempt a short sale, because 7 is at the moment not sustainable.
so i attempted to sell bitcoins @ 7. this is what happened: ( you have to read it from bottim to top)

BTCUSD   Market   175.0   -   Forced liquidation @ 7.4300559927762   Sep 11 04:17 PM   
BTCUSD   Market   -50.0   -   Executed @ 6.9769   Sep 11 04:16 PM   
BTCUSD   Market   -50.0   -   Executed @ 5.9849   Sep 11 04:09 PM   
BTCUSD   Limit   -25.0   $5.6900   Executed @ 5.9846   Sep 11 03:59 PM   
BTCUSD   Limit   -50.0   $5.6900   Executed @ 5.9846   Sep 11 03:59


The first mistake was i assumed i could actually sell at 7. But the spread was over 1 dollar, so i shortsold at 6.

yes, i was the sucker to buy coins at 7.4.

the second mistake: had i provided enough liquidity i could have made a nice profit by now. but i underestimated the 1:5 margin.

I don't understand anything about short selling, but I am interested in it. Could you explain what happened with a little more detail? I don't understand the table...
iprivately
Newbie
*
Offline Offline

Activity: 28


View Profile
September 13, 2011, 12:08:31 AM
 #5

I'd like to learn more also
evolve
Hero Member
*****
Offline Offline

Activity: 700


daytrader/superhero


View Profile
September 13, 2011, 12:40:25 AM
 #6

very comprehensive explanation (it talks about shorting stock, but trading on margin is the same for stocks, forex, and whatever btc is considered).

http://www.investopedia.com/university/shortselling/shortselling1.asp#axzz1XmxE4KiT
ruski
Full Member
***
Offline Offline

Activity: 182

I'm a hero now?


View Profile
September 13, 2011, 12:41:25 AM
 #7

Short sale:

Borrow 10 apples
Sell them for $10 total @ $1 each
Price goes down to .50c each
Buy 10 apples back for $5
Return apples
Huh
$5 profit.

Or, apples go up to $2
Buy 10 apples back for $20
Lose $10.

A margin call is when the lender forces you to buy them for a loss because you wont have the cash to buy them back if the price goes any higher.

Mobo: Asus P8P67, Intel i5
OS: Win 7 64 bit
PSU: APower 1200W (don't even say it)
Case: Case? What case?
GPU: is for sale
2112
Legendary
*
Offline Offline

Activity: 1708



View Profile
September 13, 2011, 01:40:15 AM
 #8

very comprehensive explanation (it talks about shorting stock, but trading on margin is the same for stocks, forex, and whatever btc is considered).
Actually the Investopedia isn't the appropriate explanation. They deal with a regulated (or even over-regulated) market.

What happened here is a so called "shakedown in a bucket shop". Wikipedia has a good starting point:

http://en.wikipedia.org/wiki/Bucket_shop_(stock_market)

But to really understand the economics of the operation of a bucket shop like Bitcoinica, you'll have to visit a physical library and look for some dusty paper books. Especially in the USA, where SEC was really successfull at shutting this type of scams.

Please comment, critique, criticize or ridicule BIP 2112: https://bitcointalk.org/index.php?topic=54382.0
Long-term mining prognosis: https://bitcointalk.org/index.php?topic=91101.0
fcmatt
Legendary
*
Offline Offline

Activity: 1106


View Profile
September 13, 2011, 01:46:06 AM
 #9

very comprehensive explanation (it talks about shorting stock, but trading on margin is the same for stocks, forex, and whatever btc is considered).
Actually the Investopedia isn't the appropriate explanation. They deal with a regulated (or even over-regulated) market.

What happened here is a so called "shakedown in a bucket shop". Wikipedia has a good starting point:

http://en.wikipedia.org/wiki/Bucket_shop_(stock_market)

But to really understand the economics of the operation of a bucket shop like Bitcoinica, you'll have to visit a physical library and look for some dusty paper books. Especially in the USA, where SEC was really successfull at shutting this type of scams.

Funnyyoumentionthiscausei was goingto make a transactionduringareallyslowperiodtofind outifthyeactualybuyonmtgox,
And yes iamtypingthis on a tablet forgive me
nmat
Hero Member
*****
Offline Offline

Activity: 602


View Profile
September 13, 2011, 03:03:03 AM
 #10

I understand the basic idea of selling something you don't own to buy it later when the value comes down. I just don't understand some details of how this happens. For example, how long can I want until I buy it back?

Let's go over what happened to OP.  From what I understand, you initially sold $100 at $6 (with a limit order to short-sell at $5.69 at most) and then you issued two market orders: sold $50 at 5.9849 and another $50 at $6.9769. So, what happened at $7.43? You were forced to buy back?
fcmatt
Legendary
*
Offline Offline

Activity: 1106


View Profile
September 13, 2011, 03:26:43 AM
 #11

I understand the basic idea of selling something you don't own to buy it later when the value comes down. I just don't understand some details of how this happens. For example, how long can I want until I buy it back?

Let's go over what happened to OP.  From what I understand, you initially sold $100 at $6 (with a limit order to short-sell at $5.69 at most) and then you issued two market orders: sold $50 at 5.9849 and another $50 at $6.9769. So, what happened at $7.43? You were forced to buy back?

First of all, make the large assumption that bitcoinica actually buys and sells coins on mtgox and is not a bucket shop.

You can wait as long as you like. As long as the price does not swing in a direction that totally screws you over.

It appears the OP wanted to short. But, like I, when first using the site you have to look closely at the spread which is
quite large, time delays involved in their website updating, and making a mistake with their web interface due to interpreting
things wrong. OP wanted to short at 7 but the bid was still sitting at 5.69. And this is when the price of bitcoin was 7!

So BOOM. 3 transactions shorting a 125 BTC at 5.69. Terrible move with the price at 7. Already in bad shape from the get go.
The person then realizes the mistake or tries to correct it when the bid moves to 6.97 on the website. Shorts another 50
but this time at the price they wanted.

Sadly.. bitcoin shot up to 7.43 during this time frame. When your net value falls below twice your maintenance value.. they
instantly liquidate your account and you pretty much lost your money.

If the person added more funds... they could have kept the position alive because their maintenance value would have
increased. For every 5 USD you add, your maintenance value is 1 USD.

Here is my trade I played with earlier. I had about 5 bucks in the account.

BTCUSD   Market   -3.0   -   Executed @ 6.0627   about 4 hours ago   
BTCUSD   Market   3.0   -   Executed @ 5.9751   about 6 hours ago

I bought 3 BTC@5.97. Keep in mind I only had 5 bucks in there.. so 25 dollars to play with.
I waited a couple of hours and my bet the price would go up did happen. I sold at 6.06 and made about 9 cents
per BTC bought. Thus about 30 cents if I round. So, what is that? 5-6% profit I think.



piramida
Legendary
*
Offline Offline

Activity: 994



View Profile
September 13, 2011, 06:00:20 AM
 #12

shorting bitcoins with a 5x margin is the riskiest play I have seen yet. they can shoot up 200% in value at any moment, so while you can win by using the nice downtrend you can lose all in a minute (or slowly lose all by activated stoplosses).

i am satoshi
nrd525
Legendary
*
Offline Offline

Activity: 1182


View Profile
September 13, 2011, 06:16:41 AM
 #13

If you short it, who is taking the long position?  Is bitcoinica itself doing this (eg being a market maker)?  If so, how do I know they'll be able to cover their position and not go bankrupt if the bitcoin price collapses?

I guess if they match the shorts with longs, they wouldn't stand to lose money if the market either skyrocketed or crashed.

Don't day trade.
ElectricMucus
Legendary
*
Offline Offline

Activity: 1540


Drama Junkie


View Profile
September 13, 2011, 11:31:43 AM
 #14

Imho leverage will not work with bitcoin in the long run. Well Bitcoinia is making a quick buck with it but as for their clients almost all of them will loose at some point.

Leverage in the fiat world mostly is an instrument for micro trading in combination with direct control over the inflation rate which is impossible for bitcoin.

First they ignore you, then they laugh at you, then they keep laughing, then they start choking on their laughter, and then they go and catch their breath. Then they start laughing even more.
Revalin
Hero Member
*****
Offline Offline

Activity: 728


165YUuQUWhBz3d27iXKxRiazQnjEtJNG9g


View Profile
September 13, 2011, 06:30:32 PM
 #15

If you short it, who is taking the long position?  Is bitcoinica itself doing this (eg being a market maker)?  If so, how do I know they'll be able to cover their position and not go bankrupt if the bitcoin price collapses?

According to Bitcoinica, they hedge their positions.  So, Bitcoinica buys it from you, then immediately sells it to someone else (either their own bidders or on MtGox).

      War is God's way of teaching Americans geography.  --Ambrose Bierce
Bitcoin is the Devil's way of teaching geeks economics.  --Revalin 165YUuQUWhBz3d27iXKxRiazQnjEtJNG9g
zhoutong
VIP
Hero Member
*
Offline Offline

Activity: 490


View Profile WWW
September 14, 2011, 05:26:53 PM
 #16

I will tell you a little story from yesterday:

I opened a Bitcoinica account and played with it. Then, suddenly a big spike to 7 occured. My immediate thought: a very good opportunity to attempt a short sale, because 7 is at the moment not sustainable.
so i attempted to sell bitcoins @ 7. this is what happened: ( you have to read it from bottim to top)

BTCUSD   Market   175.0   -   Forced liquidation @ 7.4300559927762   Sep 11 04:17 PM   
BTCUSD   Market   -50.0   -   Executed @ 6.9769   Sep 11 04:16 PM   
BTCUSD   Market   -50.0   -   Executed @ 5.9849   Sep 11 04:09 PM   
BTCUSD   Limit   -25.0   $5.6900   Executed @ 5.9846   Sep 11 03:59 PM   
BTCUSD   Limit   -50.0   $5.6900   Executed @ 5.9846   Sep 11 03:59


The first mistake was i assumed i could actually sell at 7. But the spread was over 1 dollar, so i shortsold at 6.

yes, i was the sucker to buy coins at 7.4.

the second mistake: had i provided enough liquidity i could have made a nice profit by now. but i underestimated the 1:5 margin.

I'm the creator of Bitcoinica. I'm sorry to hear this bad news.

The 9/11 spike caused the spread at Bitcoinica to be extremely large, because the liquidity at Mt. Gox is very limited despite the huge increase in price. (There is no time for people to make bids immediately after the $2 spike.)

Our responsive algorithm detected this irregularity and set the spread to almost $1. (If you sell 100 BTC immediately after the spike on Mt. Gox, you will surely push down the price by almost $1 anyway.)

You're right about "never use margin excessively". A small increase in price may cause your whole position to be liquidated. Because we almost always track the highest price for forced liquidation. (It's only possible to tell a highest point after passing the point.)

Also, it's lucky that our system didn't capture the $14.9 price. Because at that single point, there is no liquidity in the market. We immediately paused all the trade for a few seconds until the price recovers. (The quote reads -.---- / -.---- if you were online at that instant.) No customers are liquidated at $14.9.

Bitcoinica offers the best possible protection for traders. So as long as you can play it safe and place orders carefully, such fiasco shouldn't happen again.

Thank you for your support and good luck in future trading!

Founder of NameTerrific (https://www.nameterrific.com/). Co-founder of CoinJar (https://coinjar.io/)

Donations for my future Bitcoin projects: 19Uk3tiD5XkBcmHyQYhJxp9QHoub7RosVb
malevolent
can into space
Staff
Legendary
*
Offline Offline

Activity: 1624



View Profile
September 14, 2011, 06:21:34 PM
 #17

they can shoot up 200% in value at any moment

Smiley
nrd525
Legendary
*
Offline Offline

Activity: 1182


View Profile
September 14, 2011, 07:24:06 PM
 #18

Maybe you could have an indicator for the size of the spread on bitcoinica - or display it as a number or percent.

You could also have a "test for mtgox mistakes" - so if the price at mtgox falsely spikes to double the price, you ignore it or at least double check it. Is there a way to see if there are outstanding orders below the price that didn't get filled?


Don't day trade.
Pages: [1]
  Print  
 
Jump to:  

Sponsored by , a Bitcoin-accepting VPN.
Powered by MySQL Powered by PHP Powered by SMF 1.1.19 | SMF © 2006-2009, Simple Machines Valid XHTML 1.0! Valid CSS!