ICBIT Derivatives Market (USD/BTC futures trading) - LIVE

[zebedee]

If we now have two clearings a day (do we?) then it's even more imperative that the contracts specify at precisely what time the 24-hour VWAP is taken at.  Just saying final day's average price, and assuming people will read it as 8pm, is not good enough (and never was - as this illustrates well).

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[Fireball]

If spot price won't drop during the next hour, an additional clearing to enhance trading range may happen.
Please be well prepared, you have at least one hour.


To zebedee: We are still with additional clearings, moving to 2 clearings per day some time next week, I suppose (this has to be announced well before it happens).

[picobit]

@Fireball

Something is again wrong with the trading range of gold.  For two days, there have been asks all the way down to the bottom of the trading range (13.04 BTC/oz, corresponding to a bitcoin price of around 119 USD), but no-one wants to buy at that unfavorable rate, to the last trade price does not change, and at the last clearing the trading range did not move.  In this kind of situations, the trading range should be recentered around the lowest ask (or highest bid if movement goes the other way), so trading can be resumed.  It may need doing this for two clearings to get to a reasonable trading range for Gold.


EDIT: Again at todays clearing, the trading range did not move.  This instrument is temporarily deadlocked.

[Fireball]

EDIT: Again at todays clearing, the trading range did not move.  This instrument is temporarily deadlocked.

It's weird because I just checked all prices today. Allright, I'll have another look and fix. Thanks for reporting the problem!

[Super T]

Steps to solving the futures liquidity problem at ICBIT.

1. Create a "pooled fund", where users can allocate portions of their available balance (one fund for BTC, one for $) into a holding area.
2. Create a bot and use this fund to auto-execute arbitrage opportunities between Futures and Exchange markets (both local Icbit and Mt Gox exchanges).  This will provide liquidity to the market, and increase trade volume, not to mention establishing a lucrative interest rate to attract further deposits.
3. Repay arbitrage gain back into pooled account to be divided amongst contributors, users can also withdraw balances back into main account at any point, along with interest "earned".
4. Collect reasonable commission on arbitrage profit for ICBIT.
5. Pay me commission (this is the most important step).
6. Everybody wins.

Any reason this won't work?

[toffoo]

Any reason this won't work?

A cash vs. futures position is not an arbitrage trade (in the strict sense of the word) but a relative value trade.  Spreads can widen as well as narrow, especially on longer dated futures or in volatile (Bitcoin!) or illiquid markets.  It's entirely possible for the spread to temporarily widen and the bot to run out of capital and blow up, especially on daily margined futures.

Remember the old saying, "Markets can remain irrational longer than you can remain solvent"?  (--John Maynard Keynes)

Yours is not a terrible idea, but you asked, so that's the risk.

[Super T]

Presumably only a risk if you have actually leveraged the underlying position? With enough capital (and i accept a lot would be needed), the risk of margin closure is zero and simply holding to settlement would see any widened spreads converge again, no?

[toffoo]

Yes perhaps you are right.  I'm so used to thinking about thinking about these kinds of trades on a leveraged basis.  Perhaps with no leverage it becomes a lot safer, but then it just becomes a question of whether after commissions, fees, and cost of funds if that's a good use of capital to be tied up for months at a time, and what "risk free rate" / opportunity cost would you compare it to for Bitcoin?

There's a good paper by Francis Longstaff called "Losing Money on Arbitrages" that covers just these kind of questions (for the pre-Bitcoin economy) and I happen to have a copy right here...

Abstract:

In theory, an investor can make infinite profits by taking unlimited positions in an arbitrage. In reality, however, investors must satisfy margin requirements which completely change the economics of arbitrage. We derive the optimal investment policy for a risk-averse investor in a market where there are arbitrage opportunities. We show that it is often optimal to underinvest in the arbitrage by taking a smaller position than margin constraints allow. In some cases, it is actually optimal for an investor to walk away from a pure arbitrage opportunity. Even when the optimal policy is followed, the arbitrage strategy may underperform the riskless asset or have an unimpressive Sharpe ratio. Furthermore, the arbitrage portfolio typically experiences losses at some point before the final convergence date. These results have important implications for the role of arbitrageurs in financial markets.

and a quote:

So there’s an arbitrage. So what? This desk has lost a lot of money on arbitrages. Arbitrages aren’t particularly great trades.
– Treasury bond trader at a major Wall Street investment bank.

[davidoski]

Hi Fireball,

could you please clarify why today's clearing price of the BUJ contracts (04.13) was below the spot price. The spot price was around 142-143 as the screen below clearly shows and the clearing price was 141. How could it be?

[Fireball]

Hi Fireball,

could you please clarify why today's clearing price of the BUJ contracts (04.13) was below the spot price. The spot price was around 142-143 as the screen below clearly shows and the clearing price was 141. How could it be?

That's because the last futures trade happened to be $141. This issue will be addressed, as I promised to implement averaging over the last hour of futures trades instead of just picking the latest one.

However, it's perfectly normal situation, sometimes we may see backwardation and clearings would be well below the spot price (as e.g. right now on BUM3 the price is WAY above the spot price).

To conclude: there is nothing bad or extraordinary in the BUJ3 futures' daily clearing price to get close to the spot price as the futures is nearing the final settlement.

[davidoski]

But was this "last trade" an execution of someone's margin call by the exchange itself?

[Fireball]

So during the recent week there were two problems explained:
1. Additional clearings vs. trading ranges.
2. Market manipulation in the last second before clearing.

To address these issues, as it's agreed with community, we plan to implement the following:
1. Perform two clearings per day instead of one (the time of the second clearing is to be determined, but it should not necessarily divide the trading time into exact halves).
2. The clearing price will be calculated as average price for the hour preceding clearing.


It's been enough time for discussion, so the changes may go live starting from monday, 04/08.

If there are any comments, please let me know.

[starik69]

I think 1 hour on such weak market still may be manipulated

[davidoski]

Just for clarity and to avoid any claims I would urge to add to the rules that the trade price might be someone's margin call executed by the exchange. I learned that from the clearing price observation as I previously posted. I think it is important for traders to know that they need to take into account that the price might be determined not only by the trades between them but by the exchange executing margin call as well. This affects the clearing price calculated as average as well as the current last price.

[[Tycho]]

Just for clarity and to avoid any claims I would urge to add to the rules that the trade price might be someone's margin call executed by the exchange. I learned that from the clearing price observation as I previously posted. I think it is important for traders to know that they need to take into account that the price might be determined not only by the trade between them but by the exchange executing margin call as well.

AFAIK, that margin call was executed within the trading range, so it's the same as any other trade.

[davidoski]

I don't think the trade executed by the exchange as margin call is the same as trade between traders. The difference is pretty obvious. No matter that it is within the trading range. It affects the clearing price and needs to be known to the traders to properly calculate the risk.

[toffoo]

https://twitter.com/icbit_se/status/320632134815584257

Changes to the rules (effective from 04/08): 2 clearings per day instead of one, clearing price calculated as last hour average.

At what time will the new clearing be?  08:00 UTC?

[Fireball]

As part of the risk management strategy, due to higher USD/BTD volatility we are going to gradually increase the initial and maintenance margin requirements, starting from today's clearing.

Please make sure you have enough BTC on your account for your futures position.

Official rules for margin calculation are not published, because it's part of our internal process. But the general idea is to be able to withstand movement of the price within trading session. Right now we use 75% of that value (thus giving a "discount" to users), however due to risks the discount will be reduced.

Thanks and happy trading!

[picobit]

The Gold and Oil futures will settle in a week or so.  Will they be replaced?

[Fireball]

The Gold and Oil futures will settle in a week or so.  Will they be replaced?

They show exceptionally low trading volume, so I am not sure yet.