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Author Topic: Buyer Beware. Proposal for a non high-frequency manipulatable exchange.  (Read 2300 times)
Isosceles
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December 20, 2011, 01:19:03 PM
 #1

I placed several buy orders on MtGox last night which were clearly above market, inside plenty of bid orders as shown on MtGoxLive. I was amazed that I didn't get filled, and instead it moves the market to my offer. It is as if someone is seeing the order flow before orders are processed, and cancelling their orders on the order book before they're lifted. (MtGoxLive updated to show my bid, so it hadn't stalled)

It may be a high frequency trading expert has cornered the bitcoin market. This is very bad for everyone, as it means the bid / ask spread will be much wider than you think when anyone trades. At the moment, most people are ignorant of the cost of HF trading manipulation because it's so hidden. eg. http://ftalphaville.ft.com/blog/2011/12/19/797701/alphachat-sal-arnuk-on-high-frequency-trading/ It's effectively using inside information to front run your trade.

Here's a proposal to make it harder : exchanges only allow trading every 30 seconds. You place orders whenever, they get filled using an auction mechanism every 30 seconds where the market gets filled the best bid / ask price below/above their order. Think of it like decimalisation of time. It should also help reduce volatility. Please can someone make this? I'll pledge some BTC, I'm tired of paying huge BTC transaction fees.
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DarkEmi
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December 20, 2011, 01:20:58 PM
 #2

I dont think mtgox has any incentive to run shadowy business when they are making bank with a clean exchange, thus what happened to you was probably a mere coincidence

And yes, allowing some "insiders" to get market data and using it before executing trades would be very close to theft.

Edit : However i would love to see removed the option to trade for 0.00001 btc or wathever which currently allow bots to spam the trade history, it is annoying and useless

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December 20, 2011, 01:21:48 PM
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I placed several buy orders on MtGox last night which were clearly above market, inside plenty of bid orders as shown on MtGoxLive. I was amazed that I didn't get filled, and instead it moves the market to my offer. It is as if someone is seeing the order flow before orders are processed, and cancelling their orders on the order book before they're lifted. (MtGoxLive updated to show my bid, so it hadn't stalled)

It may be a high frequency trading expert has cornered the bitcoin market. This is very bad for everyone, as it means the bid / ask spread will be much wider than you think when anyone trades. At the moment, most people are ignorant of the cost of HF trading manipulation because it's so hidden. eg. http://ftalphaville.ft.com/blog/2011/12/19/797701/alphachat-sal-arnuk-on-high-frequency-trading/ It's effectively using inside information to front run your trade.

Here's a proposal to make it harder : exchanges only allow trading every 30 seconds. You place orders whenever, they get filled using an auction mechanism every 30 seconds where the market gets filled the best bid / ask price below/above their order. Think of it like decimalisation of time. It should also help reduce volatility. Please can someone make this? I'll pledge some BTC, I'm tired of paying huge BTC transaction fees.

+1, i vote for a no-HFT exchange, we had a few threads talking on the subject already, i pledge some btc too

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Tril
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December 20, 2011, 02:45:03 PM
 #4

This is a good question.  We know someone is placing many tiny bids and asks at 0.0001 increments,
and can get notified when they are bought instantly over socketio.  The question is, while mtgox is processing
a trade, do you have time between receiving notification one of your 0.0001 orders was filled,
to edit the order book and remove a larger order right behind it?
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December 20, 2011, 03:32:23 PM
 #5

HFT is inevitable
DarkEmi
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December 20, 2011, 04:10:50 PM
 #6

This is a good question.  We know someone is placing many tiny bids and asks at 0.0001 increments,
and can get notified when they are bought instantly over socketio.  The question is, while mtgox is processing
a trade, do you have time between receiving notification one of your 0.0001 orders was filled,
to edit the order book and remove a larger order right behind it?

If they have time this is a bug from mtgox. The issue is not with HFT which provides liquidity to the market.

And also I dont think HFT has any edge for bitcoin, usually HFT is used for arbitrage opportunities...

speculate on the mtgox price - http://www.btcoracle.com/
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December 20, 2011, 06:01:11 PM
 #7

As far as I know, all of the bitcoin exchanges have continuous matching engines.  I do think a discrete matching engine would be a valuable service, though I think 30 seconds is overkill.  You could operate a discrete engine on a 1 second basis and all but eliminate any advantage that a trader with a low latency connection would have.  Maybe 5 seconds if you are concerned that people in rural Africa on dial up modems might be at a disadvantage.

However, a continuous matching engine shouldn't behave in the way that the OP described unless it's compromised in some way or you just got extremely unlucky.  The buy order should have matched against standing sell orders right away.  If those sell orders were removed ahead of your buy order reaching the matching engine, then either it was a stroke of bad luck, or someone is able to view the incoming orders before they are placed with the matching engine and place or remove other orders before yours (obviously not a good thing).

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December 20, 2011, 08:37:18 PM
 #8

You misunderstand how the exchange works and start blaming HFT without understanding how it works.

If you see sell orders, e.g.

3.700 - z
3.600 - y
3.500 - x

and you place a buy order at 4.0 $ per 1 BTC for N bitcoins, then your order eats all those starting from the cheapest (3.5 in our example) to buy N bitcoins, as you asked.

Obviously, if you consumed those sell orders, and noone else is selling at those prices (they even didn't have time to put their new orders!), you start seeing orders above (e.g. 3.800, 3.900, 4.000, etc).

It's as simple as that.


Now about HFT.
First of all, Mt.Gox is not suitable for HFT at all, but there are exchanges that will be suitable (like my derivatives market one).
Second, why HFT is good. A usual, "manual" trader would not even notice the subtle difference where HFT play. They are talking about positions aimed to get 0.000x points, while keeping open position for a couple of seconds. So it introduces very small rate drift, which, I will repeat myself, is unnoticeable to the manual trader. It's only important for algo-traders.
Third. HFT and algo players provide additional liquidity to the market. That means, that when you just consumed those "cheap" sell orders as in example above in absence of HFT players, if they were present - it would not be so easy. There would be more bid/ask offers, and this is a key factor in a stably going rate.

More depth in the market - better. Market must be free, and provide equal access for everyone. Then there will be no "losers" or "winners", everyone gets what she wants.

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December 20, 2011, 08:39:23 PM
 #9

I didn't tell another reason, maybe Mt.Gox just have a bug in the implementation.

In the trading engine I am developing, this just can't happen by nature of implementation, but it aims for HFT trading because as I said - the market must be free, no artificial limitations should be added, and everyone should be in the same conditions (thus have same access time).

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December 20, 2011, 09:49:39 PM
 #10

... everyone should be in the same conditions (thus have same access time).

exactly, ppl will wake up sooner than you think regarding trading bots.
I only want equal conditions with all other traders without some real fast bots interfering with the market. The best analogy are on line games where some players use scripts for better aiming or see through walls, like OGC in HalfLife. Yes, I'm completely aware that we have some real smart individuals around that write those scripts and use them. That doesn't mean they can't use their creativity edge for other purposes when bitcoiners will let them understand that cheats are not wanted.
When a real alternative to mtgox platform surfaces we will see how bots get along when no humans are left to play their game.

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December 20, 2011, 09:58:08 PM
 #11

I disagree. I think bots are exceptional at rapidly converging on a correct price.

Also, don't think of a bot as a bad thing if you are a trader. A bot is an algorithm written by someone who has to predict how to predict what way a price is going. If you ever played an RTS game against a bot, you will realize they don't have any intuition or smarts. They will always do the same thing over and over. Predict what the bots will do, and you win. Good luck trying to predict what the humans will do.

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December 20, 2011, 10:02:40 PM
 #12

I disagree. I think bots are exceptional at rapidly converging on a correct price.

Also, don't think of a bot as a bad thing if you are a trader. A bot is an algorithm written by someone who has to predict how to predict what way a price is going. If you ever played an RTS game against a bot, you will realize they don't have any intuition or smarts. They will always do the same thing over and over. Predict what the bots will do, and you win. Good luck trying to predict what the humans will do.

One more sane and smart person in the thread :-) Indeed bots are useful, and anyway could be outperformed by human if needed.

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paraipan
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December 20, 2011, 10:31:14 PM
 #13

I disagree. I think bots are exceptional at rapidly converging on a correct price.

Also, don't think of a bot as a bad thing if you are a trader. A bot is an algorithm written by someone who has to predict how to predict what way a price is going. If you ever played an RTS game against a bot, you will realize they don't have any intuition or smarts. They will always do the same thing over and over. Predict what the bots will do, and you win. Good luck trying to predict what the humans will do.

One more sane and smart person in the thread :-) Indeed bots are useful, and anyway could be outperformed by human if needed.

Agree with you ppl, bots are good but not in all situations. Sooner or later we will have a "humans only" exchange, i'm sure about that, because we have real bad "response times" when compared to automated programs and feel a lot more comfortable trading with equals.

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December 20, 2011, 11:08:36 PM
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I disagree. I think bots are exceptional at rapidly converging on a correct price.

Also, don't think of a bot as a bad thing if you are a trader. A bot is an algorithm written by someone who has to predict how to predict what way a price is going. If you ever played an RTS game against a bot, you will realize they don't have any intuition or smarts. They will always do the same thing over and over. Predict what the bots will do, and you win. Good luck trying to predict what the humans will do.

One more sane and smart person in the thread :-) Indeed bots are useful, and anyway could be outperformed by human if needed.

Agree with you ppl, bots are good but not in all situations. Sooner or later we will have a "humans only" exchange, i'm sure about that, because we have real bad "response times" when compared to automated programs and feel a lot more comfortable trading with equals.

You are sure about that? Let me know when it appears. I would like to set up my bot on it. It will just trade at whatever the exchange rate is on gox. If you try to filter it out with a captcha, there is a fine automated turk that will help me with that. The irony of using a human to serve a machine to serve a human to undercut other humans is too sweet to miss.

If you really want a human only exchange, you need to go here:
https://en.bitcoin.it/wiki/In_Person_Traders
I suspect that they all just use the bot derived price from their cell phones though.



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paraipan
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December 20, 2011, 11:15:31 PM
 #15

I disagree. I think bots are exceptional at rapidly converging on a correct price.

Also, don't think of a bot as a bad thing if you are a trader. A bot is an algorithm written by someone who has to predict how to predict what way a price is going. If you ever played an RTS game against a bot, you will realize they don't have any intuition or smarts. They will always do the same thing over and over. Predict what the bots will do, and you win. Good luck trying to predict what the humans will do.

One more sane and smart person in the thread :-) Indeed bots are useful, and anyway could be outperformed by human if needed.

Agree with you ppl, bots are good but not in all situations. Sooner or later we will have a "humans only" exchange, i'm sure about that, because we have real bad "response times" when compared to automated programs and feel a lot more comfortable trading with equals.

You are sure about that? Let me know when it appears. I would like to set up my bot on it. It will just trade at whatever the exchange rate is on gox. If you try to filter it out with a captcha, there is a fine automated turk that will help me with that. The irony of using a human to serve a machine to serve a human to undercut other humans is too sweet to miss.

If you really want a human only exchange, you need to go here:
https://en.bitcoin.it/wiki/In_Person_Traders
I suspect that they all just use the bot derived price from their cell phones though.


I will you can bet on that but be warned that it will have a 1 transaction/minute limit enabled for every trader/ip, so your bot will trade just like a human without taking advantage of sub-second orders on the platform  Tongue
the only real advantage you will have is watch some movies or go out with you girlfriend while tirelessly trading bitcoins, nothing more

if you don't get my point from this post i really give up for not being able to explain what i really mean.

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December 20, 2011, 11:45:15 PM
 #16

IP block - ha! There are world-wide proxy pools for me to dive into. The water is great and it makes my metallic skin glisten like the chrome on a classic automobile. I'll grab 120 of them and make trades every half second on average. Resistance to the swarm is useless. You will be assimilated.

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paraipan
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December 20, 2011, 11:53:23 PM
 #17

meh, whatever  Cheesy

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December 21, 2011, 12:56:52 AM
 #18

I believe that HFT pump and dump bots cause the instability of Bitcoin price. Why don't we just make Bitcoin a decentralized fiat currency with greater stability?

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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December 21, 2011, 01:04:35 AM
 #19

I believe that HFT pump and dump bots cause the instability of Bitcoin price. Why don't we just make Bitcoin a decentralized fiat currency with greater stability?

good question... but how ?

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December 21, 2011, 01:11:33 AM
 #20

I dont think mtgox has any incentive to run shadowy business when they are making bank with a clean exchange, thus what happened to you was probably a mere coincidence

And yes, allowing some "insiders" to get market data and using it before executing trades would be very close to theft.

Edit : However i would love to see removed the option to trade for 0.00001 btc or wathever which currently allow bots to spam the trade history, it is annoying and useless

I actually think the back-and-forth bids of .00001 BTC might be a data-gathering technique to help inform the bot of what to do next.

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