[UPDATED] MTGox and dark pool

[MagicalTux]

The idea so far in case of implementation of "iceberg"-type orders would cause dark orders to stay completly separate from the rest of the market, and iceberg orders to appear.

The things that I'll have to define are:

• The extra fee for iceberg orders
• The minimum visible part (in %)

The idea is that there will be no minimum for placing iceberg orders, so anyone will be able to place one. The dark pool would then be something totally unrelated.

[nanotube]

There is no reason to remove something people can just accomplish with bots. That simply would further the gap between the extremely tech savvy and the "general public."

The Bitcoin community should be fast realizing that the relationship with technically inexperienced business owners, investors, and consumers should be nurtured if the currency is to prosper.

the current implementation of the dark/open order cannot be accomplished with bots. see my post above.

[nanotube]

toffoo, addressing some issues you raise.

re: dark-only orders being separated: indeed, they are completely separate, basically equivalent to bitcoin-central being separated from the OTC market and each being separated from mtgox. so indeed prices could drift between them, no different as they can drift between exchanges. my point is that since dark-only is essentially a separate exchange... there's no reason for me to even worry about what goes on there, if i don't want to use it.

re: minimum price increment: the front-stepping by tiny fractions of a cent, using bots, is an issue that is exactly equivalent, whether we are talking about regular limit orders, or iceberg orders. hence, it is, IMO, something to be discussed separately, outside of the dark pool thread.

re: extra cost of iceberg orders: i have no problem if in addition to the 'implicit cost' of forgoing priority for the dark portion of your order, the market raises the fee for the iceberg order type by a few tenths of a percent. together with the implicit cost, this should serve as sufficient discouragement from use of dark pool without good cause.

[Keefe]

FYI: The current dark-only or dark+normal minimum is $1000, not 1000 BTC, for both buying and selling.

[toddbethell]

I would like to change my vote to REMOVING Dark Pools. Iceburg trading looks appealing and thoughtful, but Bitcoin is different. At this point of a fragile market I prefer to see trading based on fundamental utility, supply and demand.
Dark pools are clearly to the advantage of large professional traders who want to have their cake and eat it too. In my situation I would use it to try and prevent a precipitous price fall for the sake of my customers. Keep in mind that Bitcoin will be subject to credibility attacks. If dark pools or Icebergs remain I can foresee a government entity or NGO tasked with causing illogical market swings to slow down Bitcoin appreciation with countercyclical behavior (this seems visible in the charts now). It only takes one from some obscure agency in any number of countries who would have an interest in making Bitcoin appear unstable. Of course in the face of genuine consistent global demand, they would run out of Bitcoins eventually and get run over by the market (lets hope so). And we all know, (THEY CAN'T PRINT MORE).

[Vandroiy]

Nanotube is correct.

Also, Iceberg orders should be added for a simple reason: they can be achieved by using bots anyways!

Thus, NOT having iceberg orders is actually a current weakness of mtgox. Independent on the whole dark/semi-dark discussion, the feature should be added.

[imanikin]

Wow, spoken like a true politician. Lots of fear mongering, no facts.

Unlike you, i've already cited my facts earlier in this thread, and showed you where to find more. You're the one being a peanut-gallery, soundbite politician, but from another party – the Wall Street Party.

We all yet again saw in 2008 how unpolitical that party is: during the good times “get the government out of the way so we can rape and pillage. ...no, we meant create investor value.” 

When the crap hit the fan the same too-big-to-fail artists ran right to the politicians to save their big fortunes at taxpayer and small investor's expense...

The same arrangement is already appearing in Bitcoin. Now that times are reasonably good, the same large professional investors want the latitude to hoodwink the small amateur ones via manipulation tools such as dark pools.

If Bitcoin ever comes under attack, the same dark pool dwellers are already making plans to ask the same small investors to mine Bitcoins “at a loss to protect the network” (and their large fortunes...) 

[nanotube]

<snip>

i understand your concern... but trying to prevent dark pools is like alcohol and drug prohibition - it sounds good on paper, but it'll never work. every trade on bitcoin-otc is a 'dark pool' trade. every time someone buys on bitcoin4cash, it's a 'dark pool' trade - inasmuch as the bids and asks aren't visible, nor are trade amounts. so the "full dark" pool on mtgox is really nothing different - it is a separate market, like any other direct p2p exchanger.

further, the iceberg-style orders, are exactly what can be achieved with a trading bot. so in fact, rather than giving an advantage to the big player, they spread it to the small player. since normally, only the large player would find in worthwhile to invest in running a bot, but the iceberg order type opens this strategy up to everyone, including the small players, iceberg in fact levels the playing field. so if your goal is to level the playing field between large and small players, you should in fact be in favor of the iceberg orders.

the only really problematic order type, imo, is the current dark/light implementation, since as i describe in my earlier post, it disadvantages regular limit order placers. and i personally advocate for it to be removed (and replaced with iceberg).

[imanikin]

i understand your concern... but trying to prevent dark pools is like alcohol and drug prohibition - it sounds good on paper, but it'll never work. every trade on bitcoin-otc is a 'dark pool' trade. every time someone buys on bitcoin4cash, it's a 'dark pool' trade - inasmuch as the bids and asks aren't visible, nor are trade amounts. so the "full dark" pool on mtgox is really nothing different - it is a separate market, like any other direct p2p exchanger.

Well, if the Bitcoin world is already full of dark pools, and the one at MtGox is such a trifle, whose functionality will be duplicated by bots according to others here, then MtGox can only gain in trustworthiness by abandoning it.

It can say, “Look at that dark pool world out there! Here at MtGox, we have a completely clear, well-lit pool!”

The reason so many dark-pool dwellers want it to remain, is because it's not really a trifle that you present it to be, and is not as you put it “essentially a separate exchange." That's clear from the fact that a separate exchange would have its own pre-trade volume and bid/ask metrics, which would not be aggregated into post-trade MtGox metrics.

The dark pool is designed specifically to obfuscate those metrics, and allow dark pool dwellers to avoid the lumps of price discovery participation taken by open traders, yet get its full benefits, as if they are trading outside MtGox. As toffoo said, those metrics  would be “decoupled” from MtGox metrics pre-trade, and would only be aggregated into the metrics post-trade.

That's a classic, definition, real-time price discovery distortion of the pre-trade information at Bitcoin's main exchange.

In this thread i have already provided data that the majority of CFA Institute surveyed professionals (70%)  - both in Europe and US - consider dark pool operation “problematic” for both price discovery and market volatility. They operate in a world of exchanges where iceberg pools already exist.

[AbeSkray]

I would like to change my vote to REMOVING Dark Pools.
...
In my situation I would use it to try and prevent a precipitous price fall for the sake of my customers. Keep in mind that Bitcoin will be subject to credibility attacks. If dark pools or Icebergs remain I can foresee a government entity or NGO tasked with causing illogical market swings to slow down Bitcoin appreciation with countercyclical behavior (this seems visible in the charts now).

I understand the argument against dark+normal, but I don't understand the argument against pure dark pools. The argument for dark pools is that they help keep market prices more stable -- large buy/sell orders can be placed without causing the market to swing up or down in reaction.

Maybe I'm not connecting the dots, but I don't understand how a government entity could cause market swings using dark pools on Mt Gox. If Mt Gox decided to remove dark+normal trading and keep dark pools, wouldn't normal trades and dark pool trades be separated into two different markets? Could someone please elaborate or explain the potential attack vector?

[wb3]

Ok, I'm a little late to the subject but here are my thoughts.

DarkPools will exist. It is natural and IRL companies use them through an ECN to exchange stocks, bonds, etc... But they don't exist on the main public exchange and are separated and for good reason. They keep the "Exchange" honest and provide a level of Trust to the customers.

Imagine if an Exchange had advance knowledge of these DarkPools and no one else did, even the DarkPoolers. No one would ever know or even be able to compete with this advance knowledge. Not making an claims of MagicalTux's honesty or his future employees, but when one has an advantage usually with time one takes advantage.

Now when more than 1 (ONE) exchange becomes common place, then we can talk about DarkPools but until then keep them off of the 1 (ONE) and only good exchange that has volume.

As far as DarkPool referencing the current rate for their orders, yes they will but to get a lower price than what is being traded. If you are going to Buy 10,000 BTC or 56,000 USD worth of BTC, you want a Prime Rate. The Seller also wants to offload at a set price with out driving the price down. DarkPools have an advantage that others don't.

Lets assume you have bought the 10K BTC at $5, now instead of offloading it all and driving the price down, you slowly trickle the amount out at MTGOX Last of $5.6 as the order-book fills.

This will at least net you 11% in a couple of days at current volume. It will also give the impression of the market being stable when actually one order is doing it.

Once cashed out, you have $62,160 - $56,000 = $6,160 profit. and do it again. Once this is done about 4.5 times, your original investment is safe, and you are now working with Other Peoples Money.

Off course, some other DarkPooler, will be doing this and cut profits a little. However, there is at-least ONE who can see all of it. And most don't even know who 'HE' is.

If this much trust is expected from others, and even talk of "identifying" for DarkPools, it is time for MTGOX to "Identify", properly register the LLC in Delaware, and properly have a Registered Agent. At least for U.S. business, but without that, there is no MTGOX.

Again, my intent is not to disparage but to try and convey that if the BitCoin is to survive in an Exchange, that Exchange will have to be OPEN. It is to MTGOX's advantage to be open because people are loosing lots of money. This always brings lawsuits. It is time to get in front of the curve.

Best Regards,

[cablepair]

At this point I do not trade at a level where I would really use DP, but it does not look good to people who do not understand it, and when it comes to trying to win over the public on this whole bitcoin thing DP is going to make it more difficult.

I have read several bad press items reviewing bitcoin in a unfavorable way, they were all incorrect and misinformed, but features like dark pool trading make the whole thing even less easy to swallow by your average joe.

[BitterTea]

At this point I do not trade at a level where I would really use DP, but it does not look good to people who do not understand it, and when it comes to trying to win over the public on this whole bitcoin thing DP is going to make it more difficult.

I have read several bad press items reviewing bitcoin in a unfavorable way, they were all incorrect and misinformed, but features like dark pool trading make the whole thing even less easy to swallow by your average joe.

Dark pools are not something unique to Bitcoin. http://www.forbes.com/2009/05/18/dark-pools-trading-intelligent-investing-exchanges.html

[cablepair]

im aware of that

however your average joe does not need to trade on the stock market in order to use the USD
and that average joe will never get exposed to DP

but at least at this point in time if that average joe wants to get involved in BTC he is going to need to trade it and going to be exposed to DP at some time or another.

I personally have nothing against it, but people seem to be automatically against anything they dont understand (unfortunately) and DP is one of those pseudo ugly things that will make it difficult.

[BitterTea]

im aware of that

however your average joe does not need to trade on the stock market in order to use the USD
and that average joe will never get exposed to DP

but at least at this point in time if that average joe wants to get involved in BTC he is going to need to trade it and going to be exposed to DP at some time or another.

I personally have nothing against it, but people seem to be automatically against anything they dont understand (unfortunately) and DP is one of those pseudo ugly things that will make it difficult.

It is not necessary to use MtGox to exchange USD for BTC, and it will be increasing less necessary as time goes on.

[cablepair]

ok

let me put it this way

as of the way things are right now, if you want the best trading price (and the best trading experience IMO) and if your 95% of most people who are just getting into mining right now and want to cash out some btc.....


your going to use MtGox

no its not 100% necessary but we are talking about likelihood here and we are not talking about the future we are talking about right now

my only point is as miners and traders we have to sell this whole BTC thing to the world. Its each and every one of our jobs, and in my humble opinion dark pool trading is one of the things that is going to turn people off...

and BTC has been getting a lot of bad press lately so I just think that getting rid of dark or converting it to iceberg is a great idea little things like this are going to make the world more accepting especially at this time in the game where to really be engaged you in the BTC world you need to be engaged in trading of some sort. (even for the average joe like me)

[cypherdoc]

dark pools should be removed.  they violate completely the objectives of the btc community

[BitterTea]

dark pools should be removed.  they violate completely the objectives of the btc community

You're projecting your subjective value judgements onto everyone else.

What are these supposed objectives and in what way do dark pools violate them?

May I also remind you that MtGox is a private enterprise and you are free to not use it if you do not agree with the way it engages in business.

Fucking authoritarians.

[wb3]

dark pools should be removed.  they violate completely the objectives of the btc community

You're projecting your subjective value judgements onto everyone else.

What are these supposed objectives and in what way do dark pools violate them?

May I also remind you that MtGox is a private enterprise and you are free to not use it if you do not agree with the way it engages in business.

Fucking authoritarians.

Absolutely correct, He is a Private "Enterprise", he is using an LLC to exchange funds from currencies. He is now subject to "Laws of the Land", congratulate him on his success. However, he is now a business, not some guy conducting a service for a fee in relative anonymity. Regulations will be imposed on him, if not buy the Law then by "others".  Do you honestly believe people will put 50K or more into this service without "some" knowledge. Does everyone have the same knowledge?  No, the time is approaching where we will see the true intentions. Either full open public disclosure, or cut and run. The cut and run would cause irreparable harm to BTC, so lets look for the prospectus sort of speak.