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Author Topic: ICBIT Derivatives Market (USD/BTC futures trading) - LIVE  (Read 88549 times)
Fireball
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November 03, 2011, 09:01:52 PM
 #1

Hello,
I am getting private messages on this forum and emails asking me about the derivatives market platform I am working on (since summer of 2011), and because the work entered into final development stage, I decided to start this thread. Ideally it should become a good place for collaborative work on the platform, where the community decides what and how is going to work.

Website: https://icbit.se

Short features description of the trading platform (in its current design):
- Futures (and later options) trading is the main target.
- All derivatives being traded are accounted in Bitcoins and/or other currencies. Futures with settling in non-crypto currencies or exchange traded stocks will be considered later.
- Marginal trading from the first day of trading.
- Low latency of trade execution and high throughput (thousands of trades per day for a start).
- Automatic, quick Bitcoins deposit/withdrawal as many times as you like.

What is it good for in terms of crypto-currencies economy?
- Hedging the Bitcoin conversion rate risk for miners.
- Stabilizing the Bitcoin conversion rate (spot and derivatives market are two essential and self-complementing parts necessary for a currency market to be stable).
- Ability to trade major indexes/commodities/energy futures (e.g. S&P500mf, Brent f, etc) in Bitcoins.

As you can see, it brings a lot of opportunities for all kind of people - miners to be sure they are insured from the BitCoin rate drop; investors to be able to buy/sell index futures without the need to change BitCoins to US Dollars / Euros and back; algorithmic traders to take profits from arbitrage and quantative trading; etc etc etc.

Trading is now live for BTCUSD-3.13, OIL-02.13 and GOLD-02.13 futures contracts. Just go to https://icbit.se, register and trade.

Please feel free to ask any questions.

Screenshot of the older version of futures trading interface (updated 2012-06-15):

Margin trading platform OrderBook.net (ICBIT): https://orderbook.net
Follow us in Twitter: https://twitter.com/orderbooknet
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There are several different types of Bitcoin clients. The most secure are full nodes like Bitcoin-Qt, which will follow the rules of the network no matter what miners do. Even if every miner decided to create 1000 bitcoins per block, full nodes would stick to the rules and reject those blocks.
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blueadept
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November 03, 2011, 09:24:13 PM
 #2

This is awesome and a much-needed part of the Bitcoin economy. I really look forward to your success!

Like my posts?  Connect with me on LinkedIn and endorse my "Bitcoin" skill.
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November 09, 2011, 10:14:21 AM
 #3

I put up the first futures contract specification here:
https://icbit.se/node/3

It's a contract for US dollar - BitCoin exchange rate. Any comments are appreciated.

Also the web trading client is in progress, incrementive deployment will start this week.

Margin trading platform OrderBook.net (ICBIT): https://orderbook.net
Follow us in Twitter: https://twitter.com/orderbooknet
Andrew Vorobyov
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November 09, 2011, 10:53:57 AM
 #4

keep going... people are waiting...

ultima
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November 09, 2011, 11:25:54 AM
 #5

Why are the contracts so large? 1000 USD.
notme
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November 09, 2011, 11:39:00 PM
 #6

Why are the contracts so large? 1000 USD.

So he can make a little more by offering marginal trading Wink.  Seriously though, 1000 USD isn't so big when you consider daily USD/BTC volume is about 60,000 BTC or about $180,000.

https://www.bitcoin.org/bitcoin.pdf
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Fireball
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November 10, 2011, 02:31:19 PM
 #7

Why are the contracts so large? 1000 USD.

So he can make a little more by offering marginal trading Wink.  Seriously though, 1000 USD isn't so big when you consider daily USD/BTC volume is about 60,000 BTC or about $180,000.
A trader can make more money by trading marginally, but it's important to remember that with marginal trading the risk is higher.

Yes, derivatives trade marginally, but margin size would be higher in the beginning to reduce abovementioned risks. This is a rather large  and important topic for discussion, and we'll discuss it here.

Anyway I think it makes sense to reduce the contract size to 100 USD. Or might be even add a special mini-contract which would have a size of 10 USD, and depending how good it goes, proceed to bigger contracts.

Margin trading platform OrderBook.net (ICBIT): https://orderbook.net
Follow us in Twitter: https://twitter.com/orderbooknet
Ukigo
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November 10, 2011, 04:31:04 PM
 #8

Definitely say $20 and $100 contracts are much better for beginning.
$1000 will be to risky.

How much leverage do you plan to use for marginal trading?
1:3 or 1:10 or ?

One more question -- from your contract spec. :
"Minimal price step: 1
 Cost of the minimal price step: 1"

What means "1" here - 1 BTC,  1 USD or 1 magic point ?

"...Enemies are everywhere ! Angka is all rage ! Be a good soldiers, blow everything... " <-- Pol Pot (C)
Fireball
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November 10, 2011, 07:58:20 PM
 #9

Definitely say $20 and $100 contracts are much better for beginning.
$1000 will be to risky.
Probably $100 would be more realistic, but we'll see from the explanation below. Also as time goes, if the load to the exchange is too big, it could always be changed.

How much leverage do you plan to use for marginal trading?
1:3 or 1:10 or ?
This is very interesting part. The maintenance margin requirement is a variable value, the way it's calculated will always be public to prevent abuse of course.
On traditional exchanges, this value is between 2% - 10% of the asset's current market value. From a real world example to buy 1 lot of USD vs. somecurrency contract for $1000, one would need $50 maintenance margin.

One more question -- from your contract spec. :
"Minimal price step: 1
 Cost of the minimal price step: 1"

What means "1" here - 1 BTC,  1 USD or 1 magic point ?
I was not very clear in this. Let's look at the formula:
VariationMargin = (LastPrice - PreviousPrice) * W / R;
where W is the cost of the minimal price step and R is the minimal price step. LastPrice is the current price, and PreviousPrice is the price of the previous "clearance" or just a start price if the contract has just started trading.

In order to better understand, let's make a real example, what today's highs might look like (for simplicity, assuming futures trades without contango or backwordation) along with all calculations.
24 hours ago, 1 BTC max price was $2.955 USD, out of this, $1000 USD corresponds to 338.4 BTC.
1 hour ago, 1 BTC max price was $2.86 USD, out of this, $1000 USD corresponds to 349.6 BTC.
Hence, the necessary trading precision for $1000 contract could be 1 BTC (trade $1000 contracts with roughly 2.86 USD step in the price), or 0.1 BTC for a finer grain (ca 0.286 USD price change for the today's ratio).

Please note, it might be hard to understand at first, but it looks different than just spot rates. See - the BitCoin's worth fell today from $2.95 to $2.86, but the corresponding futures contract value increased!
So if you want to profit from BitCoin becoming cheaper you need to long-buy the contract, and if you think BitCoin's value is going to increase, you need to short-sell the futures.

I'm used to how exchanges work, but if you think there is a mistake somewhere or you can tell how to make it better - please post here.

Margin trading platform OrderBook.net (ICBIT): https://orderbook.net
Follow us in Twitter: https://twitter.com/orderbooknet
Ukigo
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November 10, 2011, 08:39:07 PM
 #10

Please note, it might be hard to understand at first, but it looks different than just spot rates. See - the BitCoin's worth fell today from $2.95 to $2.86, but the corresponding futures contract value increased!

I guess this is b/c of you quote price in BTC and not in USD ?

At what account balance will happen margin call ?

How do you plan to deal with negative acc. balance, if it will occur after last clearing ,
given that trading will be without signed paper contract ,unlike with "usual" brokerage firm ?

"...Enemies are everywhere ! Angka is all rage ! Be a good soldiers, blow everything... " <-- Pol Pot (C)
Fireball
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November 10, 2011, 10:02:33 PM
 #11

Please note, it might be hard to understand at first, but it looks different than just spot rates. See - the BitCoin's worth fell today from $2.95 to $2.86, but the corresponding futures contract value increased!

I guess this is b/c of you quote price in BTC and not in USD ?
Exactly. Base currency is BitCoin.

At what account balance will happen margin call ?

How do you plan to deal with negative acc. balance, if it will occur after last clearing ,
given that trading will be without signed paper contract ,unlike with "usual" brokerage firm ?
Unlike "usual" brokerage, it is only possible to always maintain the positive balance. So by the moment the balance (variation margin to pay to the counter client + some safety value, which is in fact the maintenance margin I explained above) becomes more than the user's account value for a given moment of time (not clearing, but that's monitored continuously), a forced sale occurs (a margin call) which would sell the contract at the best possible price.

Would this be enough? Impossible to say, there were many crashes on the "usual" exchanges, when some people messed up with 0s when selling contracts Wink. We could introduce capped futures to cope with this, or charge a special small "insurance" value which would be later used to refund losses in these cases to contract counterparties.

Margin trading platform OrderBook.net (ICBIT): https://orderbook.net
Follow us in Twitter: https://twitter.com/orderbooknet
ultima
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November 11, 2011, 01:57:54 PM
 #12

Maintenance margin requirement will have to be large enough to prevent this. With 10% requrement if the price of the contract changes 10% you have no more money but BTC can can move 10% in a second. Margin requirement will have to be at least 20-30% or you will have margin calls with no bid/ask at the right price at some point.
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November 11, 2011, 04:39:30 PM
 #13

Maintenance margin requirement will have to be large enough to prevent this. With 10% requrement if the price of the contract changes 10% you have no more money but BTC can can move 10% in a second. Margin requirement will have to be at least 20-30% or you will have margin calls with no bid/ask at the right price at some point.
Yes, that's the idea - when market volatility decreases, maintenance margin would be decreased allowing for bigger positions. When the market volatility increases, then to prevent losses, maintenance margin would be increased.

During initial starting stage of the exchange, certainly maintenance margin would be high enough (obviously there would be not so much liquidity from day one). And that's why I see the requested change from $1000 to $100 contract size a very reasonable one - I'll edit the contract's data accordingly.

Margin trading platform OrderBook.net (ICBIT): https://orderbook.net
Follow us in Twitter: https://twitter.com/orderbooknet
ultima
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November 12, 2011, 11:43:27 AM
 #14

Yes, $100 should be ok. When do you think your platform will be finished?
Fireball
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November 12, 2011, 11:57:02 AM
 #15

Yes, $100 should be ok. When do you think your platform will be finished?
"Finished" is a very strong word Wink The platform is supposed to constantly evolve according to demands of traders.
I'm working on it right now, the first thing is the web trading client, it'll be updated as development goes. Something like in a couple of days I'll finish an initial version of the web based client so that we can proceed to testing the trading engine. When the trading engine is tested and performs good enough, real BTC would be hooked up, and we are going to discuss trading API for algorithmic trading and a possibility of a desktop client.

To sum up - I will post URLs here in the nearby time, please stay tuned and testers would really be needed.

Margin trading platform OrderBook.net (ICBIT): https://orderbook.net
Follow us in Twitter: https://twitter.com/orderbooknet
Fireball
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November 18, 2011, 10:31:25 AM
 #16

EDIT: Screenshot is moved to the first post. This post is "intentially left blank" for now.

Margin trading platform OrderBook.net (ICBIT): https://orderbook.net
Follow us in Twitter: https://twitter.com/orderbooknet
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November 18, 2011, 03:38:15 PM
 #17

Nice work! Look forward to testing it. Cool

notme
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November 18, 2011, 11:44:19 PM
 #18

Will you have an API? I am currently working on a project that could utilize some hedging ability.  We've still a few months of development, but if we have any significant Bitcoin volume your site might just help us keep our losses bounded.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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notme
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November 18, 2011, 11:46:17 PM
 #19

Also, if you need a bankroll to keep things smooth in the beginning you should create an asset on GLBSE.  I would buy a few shares just to help get you off the ground.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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November 19, 2011, 01:07:33 PM
 #20

Will you have an API?

Absolutely. This is the next important step after launching web client. Algorithmic trading and market making are essential to providing liquidity to the futures market.

Margin trading platform OrderBook.net (ICBIT): https://orderbook.net
Follow us in Twitter: https://twitter.com/orderbooknet
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