Source please? AFAIK every order is hedged, except for orders for which there is a counter-party on Bitcoinica, canceling each other out?
Ok I wasn't clear above.
+1 I couldn't have said it better, after Zhoutong openly admitting that he does not EXTERNALLY hedge every order I have cancelled all my business with him. Atm the only thing Bitcoinica is good for is a squeeze indicator.
So if user A wants to short 50 BTC, while user B wants to long 50 BTC, you'd rather have:
-Bitcoinica buys 50 BTC at Mtgox
-Bitcoinica sells 50 BTC at Mtgox
-Bitcoinica's net-gain: 0 BTC
-User B now has a 50 BTC long position
-User A now has a 50 BTC short position
-User B now has a 50 BTC long position (Traded internally with user A)
-User A now has a 50 BTC short position (Traded internally with user B)
Is that what you want? Don't you see the inefficiencies associated to the first approach? Bitcoinica will pay the spreads on Mtgox, a 0.25% fee over two 50 BTC trades and their net-gain will be 0, nada, zero. If Bitcoinica would use the first method they would either:
-Make less money (Bad for them)
-Charge higher spreads/fees (Bad for you)
-Or a combination of the two above
Can you give me one reason why you think the first approach is superior? A trade's a trade. No matter if done internally between two users or on Mtgox. Bitcoinica never trades with their users. They match trades done by different customers (In this case user A and user B) or they will trade on Mtgox on behalf of their customers (As a hedge, if they can't match an order by an opposing order from a different customer). This means that they aren't betting against their customers.