How many of you have been Zhoutonged?

[zhoutong]

Let me get this correct... So when the price spiked up and people were trading on Mt.Gox at $4.5,  Zhoutong's genius matching algorithm put the buy price at a $1 spread and force liquidate people's position at $4.9 ?? 

So when all these forced buy bitcoins are actually bought in Mt.Gox market at any price around $4.1-4.5, the all difference goes into Bitcoinica's pocket?

I've been Zhoutonged good!!!

Can you send an email to support@bitcoinica.com about this? We'd like to compensate you on this.

While it's true that our algorithm sets the price by balancing and predicting the benefit and the risk, after all the trading, there's no point of predicting, and we can clearly see that the prediction was wrong. So we are perfectly okay to refund you the "unexpected profit" we made from you.

I hope this explanation makes sense.

to be honest, i don't see any explanation as to why or how you determined "unexpected profits".

If we liquidated the customer's assets at $4.50 but we charged the customer $4.90 for it, I would say $0.35-$0.39 should be the unexpected profit.

On the other hand, if the customer's assets shouldn't be liquidated at the price of $4.50 instead of $4.90, the better solution is to reverse it.

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[cypherdoc]

Let me get this correct... So when the price spiked up and people were trading on Mt.Gox at $4.5,  Zhoutong's genius matching algorithm put the buy price at a $1 spread and force liquidate people's position at $4.9 ?? 

So when all these forced buy bitcoins are actually bought in Mt.Gox market at any price around $4.1-4.5, the all difference goes into Bitcoinica's pocket?

I've been Zhoutonged good!!!

Can you send an email to support@bitcoinica.com about this? We'd like to compensate you on this.

While it's true that our algorithm sets the price by balancing and predicting the benefit and the risk, after all the trading, there's no point of predicting, and we can clearly see that the prediction was wrong. So we are perfectly okay to refund you the "unexpected profit" we made from you.

I hope this explanation makes sense.

to be honest, i don't see any explanation as to why or how you determined "unexpected profits".

If we liquidated the customer's assets at $4.50 but we charged the customer $4.90 for it, I would say $0.35-$0.39 should be the unexpected profit.

On the other hand, if the customer's assets shouldn't be liquidated at the price of $4.50 instead of $4.90, the better solution is to reverse it.

how did your algorithm make this mistake?

[zhoutong]

Let me get this correct... So when the price spiked up and people were trading on Mt.Gox at $4.5,  Zhoutong's genius matching algorithm put the buy price at a $1 spread and force liquidate people's position at $4.9 ?? 

So when all these forced buy bitcoins are actually bought in Mt.Gox market at any price around $4.1-4.5, the all difference goes into Bitcoinica's pocket?

I've been Zhoutonged good!!!

Can you send an email to support@bitcoinica.com about this? We'd like to compensate you on this.

While it's true that our algorithm sets the price by balancing and predicting the benefit and the risk, after all the trading, there's no point of predicting, and we can clearly see that the prediction was wrong. So we are perfectly okay to refund you the "unexpected profit" we made from you.

I hope this explanation makes sense.

to be honest, i don't see any explanation as to why or how you determined "unexpected profits".

If we liquidated the customer's assets at $4.50 but we charged the customer $4.90 for it, I would say $0.35-$0.39 should be the unexpected profit.

On the other hand, if the customer's assets shouldn't be liquidated at the price of $4.50 instead of $4.90, the better solution is to reverse it.

how did your algorithm make this mistake?

At the point of $4.50, there were a lot of forced liquidations, stop orders and market buy orders, and there's almost no depth beyond the price until $4.90. So the algorithm decided that the price should be set at $4.90 to minimize the risk for Bitcoinica based on the actual situations.

Then there are sell orders and price decreased, so the algorithm relaxed and lowered the spread. And the previous high were proven wrong.

It's important to know that currently we always have a chain of forced liquidations, because forced liquidations will push the price to trigger more forced liquidations. We will just make sure that they are fully hedged in the market and the prices are reasonable.

[caston]

This is why trading options is better than shorting. With option trading, your loss is limited and you don't get margin calls.

Bitcoin is so volatile that some random spike is likely to wipe out a leveraged short position.  With an option, you only care what the price is when the option matures.

Bitcoin doesn't have options, of course. 

Options recently came out on vircurex.

[cypherdoc]

It's important to know that currently we always have a chain of forced liquidations, because forced liquidations will push the price to trigger more forced liquidations. We will just make sure that they are fully hedged in the market and the prices are reasonable.

so how do you define "reasonable"?

no offense but your business model is doomed.  especially since mtgox, the major exchange, is going to be offering similar hedging options.  you will always be one step behind them in reacting to volatility as they will be the HFT and you will be the retail equivalent.

not to be mean but i think you're offering to reverse trades for those customers wiped out in the last ramp b/c if you don't your client base will never return and you need to keep them alive and in the game.

this is going to keep happening over and over again. 

[smickles]

This is why trading options is better than shorting. With option trading, your loss is limited and you don't get margin calls.

Bitcoin is so volatile that some random spike is likely to wipe out a leveraged short position.  With an option, you only care what the price is when the option matures.

Bitcoin doesn't have options, of course. 

Options recently came out on vircurex.

wow, really?

[zhoutong]

It's important to know that currently we always have a chain of forced liquidations, because forced liquidations will push the price to trigger more forced liquidations. We will just make sure that they are fully hedged in the market and the prices are reasonable.

so how do you define "reasonable"?

no offense but your business model is doomed.  especially since mtgox, the major exchange, is going to be offering similar hedging options.  you will always be one step behind them in reacting to volatility as they will be the HFT and you will be the retail equivalent.

not to be mean but i think you're offering to reverse trades for those customers wiped out in the last ramp b/c if you don't your client base will never return and you need to keep them alive and in the game.

this is going to keep happening over and over again. 

The point is "going to". I'm going to build breakthroughs too, and you forgot this. Bitcoinica is already using Redis to track prices, and we already have the back-end engine to process 10,000 trades per second. Who will be the first to do HFT?

The business model may be doomed in the future but definitely not now. Bitcoinica has always been changing more quickly than our competitors.

Also, I didn't reverse any trades that happens under $4.55. Sorry but the "reasonable" price range is only the obvious personal feeling. $4.55 is reasonable, and $4.89 is not. I'm the guy coding and I know the price is wrong, that's why I'm reversing. I don't claim profits that shouldn't be mine.

[cypherdoc]

It's important to know that currently we always have a chain of forced liquidations, because forced liquidations will push the price to trigger more forced liquidations. We will just make sure that they are fully hedged in the market and the prices are reasonable.

so how do you define "reasonable"?

no offense but your business model is doomed.  especially since mtgox, the major exchange, is going to be offering similar hedging options.  you will always be one step behind them in reacting to volatility as they will be the HFT and you will be the retail equivalent.

not to be mean but i think you're offering to reverse trades for those customers wiped out in the last ramp b/c if you don't your client base will never return and you need to keep them alive and in the game.

this is going to keep happening over and over again. 

The point is "going to". I'm going to build breakthroughs too, and you forgot this. Bitcoinica is already using Redis to track prices, and we already have the back-end engine to process 10,000 trades per second. Who will be the first to do HFT?

The business model may be doomed in the future but definitely not now. Bitcoinica has always been changing more quickly than our competitors.

Also, I didn't reverse any trades that happens under $4.55. Sorry but the "reasonable" price range is only the obvious personal feeling. $4.55 is reasonable, and $4.89 is not. I'm the guy coding and I know the price is wrong, that's why I'm reversing. I don't claim profits that shouldn't be mine.

then why do HFT companies pay millions of USD's every year to co-locate their computers in a room next to the NYSE?  mtgox IS the exchange and will be competing with you in the option business.  you will never be able to measure up to their service.

[smickles]

<snip>  mtgox IS the exchange and will be competing with you in the option business.  you will never be able to measure up to their service.

Wait a tic... options? where?

[cypherdoc]

<snip>  mtgox IS the exchange and will be competing with you in the option business.  you will never be able to measure up to their service.

Wait a tic... options? where?

they're planning to roll them out in the near future.

[notme]

Bitcoinica may be threatened when mtgox adds options/margin trading.  That doesn't mean that will happen any time soon.  MtGox is a slow moving beast.  Why discourage Zhoutong when he is providing a valuable service not available elsewhere?  He has clearly demonstrated (IMHO) better responsiveness and more agile development.  Unless you have inside info you're not sharing, MtGox hasn't said anything about this since they posted it on their site over 6 months ago.

[BadBear]

Bitcoinica may be threatened when mtgox adds options/margin trading.  That doesn't mean that will happen any time soon.  MtGox is a slow moving beast.  Why discourage Zhoutong when he is providing a valuable service not available elsewhere?  He has clearly demonstrated (IMHO) better responsiveness and more agile development.  Unless you have inside info you're not sharing, MtGox hasn't said anything about this since they posted it on their site over 6 months ago.

He's always been a hater.  Probably just jealousy. 

[RandyFolds]

Bitcoinica may be threatened when mtgox adds options/margin trading.  That doesn't mean that will happen any time soon.  MtGox is a slow moving beast.  Why discourage Zhoutong when he is providing a valuable service not available elsewhere?  He has clearly demonstrated (IMHO) better responsiveness and more agile development.  Unless you have inside info you're not sharing, MtGox hasn't said anything about this since they posted it on their site over 6 months ago.

He's always been a hater.  Probably just jealousy. 

[notme]

He actually gave some good advice on the stock market rally last week, so I do have some respect for him.  Too bad for him, but he chickened out on his positions a few days before.  I'm too small of a player to be wasting trade fees, plus I didn't see how anything had changed, so I hung in there and made a nice profit.

[cypherdoc]

Bitcoinica may be threatened when mtgox adds options/margin trading.  That doesn't mean that will happen any time soon.  MtGox is a slow moving beast.  Why discourage Zhoutong when he is providing a valuable service not available elsewhere?  He has clearly demonstrated (IMHO) better responsiveness and more agile development.  Unless you have inside info you're not sharing, MtGox hasn't said anything about this since they posted it on their site over 6 months ago.

He's always been a hater.  Probably just jealousy.  

typical comment from a guy who's missed a 217% ramp off the bottom that i called 2d before it happened  

and you're a moderator?

[cypherdoc]

He actually gave some good advice on the stock market rally last week, so I do have some respect for him.  Too bad for him, but he chickened out on his positions a few days before.  I'm too small of a player to be wasting trade fees, plus I didn't see how anything had changed, so I hung in there and made a nice profit.

if you read my blog carefully, i replaced my stock positions with additions to my TBT  which did even better.  I had caught the majority of the stock rally since the 10/4 bottom if you recall.  and it won't be too late to add to stock positions.

[cypherdoc]

actually i'm not trying to discourage Zhoutong.  i'm trying to warn him about what i feel is a flawed business model which i agree is debatable.

but if mtgox does offer options he WILL be at a significant disadvantage.  there is no question about that.

maybe he can adjust but i'm not sure how.

also i feel that by offering shorting in an immature market such as Bitcoin, he has contributed to an artificially suppressed price over the last several months since he's been in biz.  its too late to help that but now we're seeing the market compensate in the other direction; UP.

[BadBear]

Bitcoinica may be threatened when mtgox adds options/margin trading.  That doesn't mean that will happen any time soon.  MtGox is a slow moving beast.  Why discourage Zhoutong when he is providing a valuable service not available elsewhere?  He has clearly demonstrated (IMHO) better responsiveness and more agile development.  Unless you have inside info you're not sharing, MtGox hasn't said anything about this since they posted it on their site over 6 months ago.

He's always been a hater.  Probably just jealousy.  

typical comment from a guy who's missed a 217% ramp off the bottom that i called 2d before it happened  

and you're a moderator?

lol I didn't miss anything, don't worry about me, I'm doing great    You really should relax a little bit, can't be good to be so hostile on Christmas!
And yes I am!


 

[proudhon]

actually i'm not trying to discourage Zhoutong.  i'm trying to warn him about what i feel is a flawed business model which i agree is debatable.

but if mtgox does offer options he WILL be at a significant disadvantage.  there is no question about that.

maybe he can adjust but i'm not sure how.

also i feel that by offering shorting in an immature market such as Bitcoin, he has contributed to an artificially suppressed price over the last several months since he's been in biz.  its too late to help that but now we're seeing the market compensate in the other direction; UP.

Maybe MtGox will buy bitcoinica.

[netrin]

There is something to cypherdoc's complaints. Whenever the prices get volatile, the spread compensates. Recall the spike up last week? Even if you had perfect orders at the exact bottom and top I doubt you would have made much if any money at Bitcoinica, but if you bet incorrectly, you'd have lost your entire bet and then some and some more again. $3.8 to $4.5 didn't happen on Bitcoinica, yet the ASK was over $5. It's taken me too long to realize Bitcoinica only works best for the very long term position holders at the expense of the day or week traders.