[UPDATED] MTGox and dark pool

[MagicalTux]

This is a poll about the MTGox dark pool.

The original goal of the dark pool was to allow people willing to trade large quantities of bitcoins to avoid having a too large impact on the market.

While it seems indeed that dark pool orders have none to little impact, this has caused a big reduction of orders visible to people, reducing the visibility and trust of the market. Additionally, mixed orders (dark+normal) makes it impossible for someone to trade while having a full visibility of the market.

So, before I take any decision, I'll try to get some feedback first, and I guess I'm at the perfect place for this. This poll is just to see what you, as users, think, and it's not because option X or Y wins that it will happen. You are also encouraged to discuss the possibilities, and even give options that are not listed here. The poll is set to end in 7 days (around April 15th depending on where you live).


So, here are the various possible options:

Keep the dark pool as is

I guess I don't need to explain much about this one. It'll still include some bugfixes.

Keep the dark pool, but make remove "dark+normal" option

The main point here is to avoid dark pool orders from hitting normal orders. This'll allow normal traders to not have to fear they'll hit some invisible order while trying to buy or sell bitcoins.

Keep the dark pool and implement iceberge orders instead of "dark+normal"

See more details on nanotube's post:

http://bitcointalk.org/index.php?topic=5564.msg83075#msg83075

Remove the dark pool

This would mean completly removing the dark pool. All orders placed there will be automatically cancelled, and users will be free to either place orders again on the normal pool, or withdraw their funds/bitcoins.

Limit it to specific users

Limiting the dark pool to users under specific conditions might be a good option too. The idea would be to define a set of restrictions (e.g. must have at least 2500$ funds in usd/btc, request access and explain motivations, be identified, etc) and advantages (less transaction fees?)


Anyway please provide some feedback. The goal is to improve everyone's trading conditions. I might be worrying for nothing since I likely only get feedback from worried people, so feedback is welcome.

[kiba]

The dark pools does not complete it objectives, therefore it is unnecessary.

[BitterTea]

7 people already voted remove it in 30 minutes? Why? I'm suspicious.

I say leave it as is. If you hit a dark order while trading on normal, you're not going to be any worse off, and you might actually get a better deal than you thought.

edit... I can't seem to change my vote, I accidentally voted for "remove dark+normal".

The dark pools does not complete it objectives, therefore it is unnecessary.

In order to make this statement accurately, you would have to know that the market would not have been more volatile without dark pools.

[FreeMoney]

If you go to accept the lowest ask or highest bid and a dark pool grabs you instead won't it always be as good or better than you expected? What is the problem?

I do see the loss in terms of making the market look thinner.

For a small price and a little time it is possible to figure out where dark offers are, but not how deep. You could save people this hassle and enlighten those who didn't know how by marking where the lowest dark pool ask and highest bid are.

Of course then the next move for the darkies is to not make the bid/ask and use a robot.

[LightRider]

I voted Keep it, but I wouldn't mind any of the top 3 options. The fourth option I think is not at all in the best interests of anyone trying to encourage the use of bitcoins, in my opinion. If we start trying to be gatekeepers to a system often boasted as being "open and anonymous" then we really kill some of the better aspects of the idea, not to mention that begins opening yourselves up to legal attack in the future, not to mention the potential to open yourselves up to conspiracy theorists and the like. The avoidance of both, I think, were probably major reasons for the system's creation in the first place.

But I understand that it is a privately run market, so it shouldn't be limited to my, or any other outside person's opinion.

[jgarzik]

IIRC, one of the goals of the dark pool was to eliminate the need to to write bots that accomplish the same end result as the dark pool (reducing visibility).

Thus, it sounds like people may choose to reduce their visibility regardless of the absence or presence of the dark pool.

I voted "keep it as is", purely because that seems the simplest approach.  But I would be just as happy if the dark pool disappeared, and the market was 100% transparent.

[mjsbuddha]

I think keep it but RAISE its fee, to discourage its frivolous use.

[dust]

Voted to remove.

The only reason I see in keeping dark pools is that their functionality can be partially emulated by a trading bot or script, and having the functionality built into the exchange would even the playing field to some extent.

[jkminkov]

fyi I don't use the exchange, yet.

voted keep it, because I see that feature as a lever to compete with bots

[Keefe]

I can't decide between leaving it as is, and removing dark+normal. There have been times I've been frustrated by the fact the market looks thinner than it may actually be, but I realize that serious traders are going to write a bot to substitute for the dark+normal functionality if removed. Raising the fee for dark+normal is an interesting idea, but again, a serious trader may write a bot to save money. I've used dark+normal orders to beat the annoying just-.000001-better bots, so I can see the usefulness also.

I have no problem at all with dark-only orders, as that's just like a separate exchange, just built on MtGox infrastructure and trust.

[fetokun]

Sorry for my ignorance, but I still don't understand what the Dark Pool is.

"The Mt Gox dark pool allows you to buy or sell large quantities of BTC without moving the market"

What exactly does "moving the market" means? Means that these dark trades won't affect the price of  the BTC? Does it mean that these trades are untraceable ?

[killerstorm]

What exactly does "moving the market" means? Means that these dark trades won't affect the price of  the BTC?

They will ultimately affect the price of the BTC through demand/supply rules. But there will significantly less immediate effect on the market comparing to normal, visible order, so this helps to combat short-term volatility.

Please check depth of market and megachart on mtgox to see what we're talking about (http://mtgox.com/trade/history).

Now to see how it works, consider that you want to buy a lot of USD for BTC. Let's say 5000 BTC which is more or comparable to sum of current bids.

If you'll try to buy it at market price going through current bids starting from highest you will fill a lot of bids and thus drive the highest bid down. So it is not a very good idea. Even you do this gradually, still highest bid will decrease over time from your activity, people will notice this and will put both their bids and asks lower, thus you're losing again.

If you do not want to buy at a huge premium you can try to buy at fixed price. Let's say lowest current ask is 0.79. Then you can put your ask at 0.78. Then, in theory, people who sell at market price will eventually fill your order without driving price down.

But the problem is that others see your ask order and its size and they will anticipate drop in price of BTC through demand/supply balance. Besides that there are other people who want to buy and they will try to put their asks lower than yours, e.g. 0.7799 < 0.78 to get their orders filled before yours by market orders. (As there is no chance that anybody can buy at better price in near future.)

Thus again, price is going down and you're not buying anything until some huge-ass sell order will appear.

Dark orders are kind of solution to this problem -- you're still buying something but people do not see your orders so they cannot anticipate whether market goes up/down before you do.

In dark+normal situation it is like a normal order but it is invisible. People will see that something happens -- ask orders are not filled at market, or are not filled as fast as they should, but they will not know what is your price and how much volume is left. So they cannot anticipate drop in price and drop it before that.

With dark-only situation you'll be trading among other dark-poolers (people with huge orders). So it will be invisible to normal market, but affect it because there are less volume flowing through it. Dark-poolers will probably use current market price as a reference for their orders.

So this stuff is unnecessary if there is huge volume in trading and so individual orders do not move market much. But it looks like it is not a case with bitcoin exchanges so far because there are different players with different capacities.

[fetokun]

What exactly does "moving the market" means? Means that these dark trades won't affect the price of  the BTC?

They will ultimately affect the price of the BTC through demand/supply rules. But there will significantly less immediate effect on the market comparing to normal, visible order, so this helps to combat short-term volatility.

Please check depth of market and megachart on mtgox to see what we're talking about (http://mtgox.com/trade/history).

Now to see how it works, consider that you want to buy a lot of USD for BTC. Let's say 5000 BTC which is more or comparable to sum of current bids.

If you'll try to buy it at market price going through current bids starting from highest you will fill a lot of bids and thus drive the highest bid down. So it is not a very good idea. Even you do this gradually, still highest bid will decrease over time from your activity, people will notice this and will put both their bids and asks lower, thus you're losing again.

If you do not want to buy at a huge premium you can try to buy at fixed price. Let's say lowest current ask is 0.79. Then you can put your ask at 0.78. Then, in theory, people who sell at market price will eventually fill your order without driving price down.

But the problem is that others see your ask order and its size and they will anticipate drop in price of BTC through demand/supply balance. Besides that there are other people who want to buy and they will try to put their asks lower than yours, e.g. 0.7799 < 0.78 to get their orders filled before yours by market orders. (As there is no chance that anybody can buy at better price in near future.)

Thus again, price is going down and you're not buying anything until some huge-ass sell order will appear.

Dark orders are kind of solution to this problem -- you're still buying something but people do not see your orders so they cannot anticipate whether market goes up/down before you do.

In dark+normal situation it is like a normal order but it is invisible. People will see that something happens -- ask orders are not filled at market, or are not filled as fast as they should, but they will not know what is your price and how much volume is left. So they cannot anticipate drop in price and drop it before that.

With dark-only situation you'll be trading among other dark-poolers (people with huge orders). So it will be invisible to normal market, but affect it because there are less volume flowing through it. Dark-poolers will probably use current market price as a reference for their orders.

So this stuff is unnecessary if there is huge volume in trading and so individual orders do not move market much. But it looks like it is not a case with bitcoin exchanges so far because there are different players with different capacities.

Thanx a lot for your explanation.
You made it sound really important and hard to live without =D

[MagicalTux]

Thanx a lot for your explanation.
You made it sound really important and hard to live without =D

That was the original idea. However the result is not exactly what was expected... maybe? (hard to tell what would have happened without the dark pool)

[slush]

I voted for 'keep it as is'. I believe that most of dark pool haters don't really understand what DP is and they are simply scared by unknowns.

Writing custom bots for trading large amounts is ugly workaround, DP solve that nicely. I simply don't see the reason why to remove it.

Disclaimer: I didn't used DP yet, so I'm not following my own interests .

Edit: OK, I see one reason why DP is bad - market then looks thinner and people are affraid of trading because it looks like trade will be filled for worse price.

[fetokun]

I like the idea of charging a fee

[da2ce7]

I like the idea of charging a fee

Either you have dark pools free and available to anyone, eg.  don't limit to 1000BTC/$ +
Or don't have them at all.

[Cusipzzz]

keep it as is..dark pools are effective even if most people can't see the value.

[Alex Beckenham]

I voted for 'keep it as is'.
I didn't used DP yet, so I'm not following my own interests .

Likewise.

[grondilu]

After some hesitation, I voted "remove it".

Not that I think dark pools are a bad thing or that it should be forbidden.  I just don't think it's necessary and I'd rather see as many orders as possible.


But I really think it's only up to you.  MtGox is your business, not ours.