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[myself]

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[Serge]

looking at mtgoxlive, seems bots are taking vacation

[waspoza]

looking at mtgoxlive, seems bots are taking vacation

Even bots got owned, lol.

[Mushoz]

i dont see any bitcoinica orders to go at mtgox, anyone see this ?


bucket shop ?

Most orders are matched internally at Bitcoinica. This does _not_ make them a bucket shop. They only allow internal trades when there's opposing positions canceling each other out. If they need to hedge, they use Mtgox. Bitcoinica does _not_ bet against their costumers.

[old_engineer]

i dont see any bitcoinica orders to go at mtgox, anyone see this ?


bucket shop ?

Most orders are matched internally at Bitcoinica. This does _not_ make them a bucket shop. They only allow internal trades when there's opposing positions canceling each other out. If they need to hedge, they use Mtgox. Bitcoinica does _not_ bet against their costumers.

Actually, it is a bucket shop according the US definition: if an order is made, and there is no trade of the underlying security, it's a bucket shop.  End of story.

That said, it's a bucket shop that hedges on a larger exchange (Mt. Gox) whenever there are more orders to buy or sell than they are comfortable with holding. So you could say that they're only 20% bucket shop on some days, but anything greater than 0% would make them a bucket shop in the eyes on the SEC (were they regulated, of course).

[Mushoz]

i dont see any bitcoinica orders to go at mtgox, anyone see this ?


bucket shop ?

Most orders are matched internally at Bitcoinica. This does _not_ make them a bucket shop. They only allow internal trades when there's opposing positions canceling each other out. If they need to hedge, they use Mtgox. Bitcoinica does _not_ bet against their costumers.

Actually, it is a bucket shop according the US definition: if an order is made, and there is no trade of the underlying security, it's a bucket shop.  End of story.

That said, it's a bucket shop that hedges on a larger exchange (Mt. Gox) whenever there are more orders to buy or sell than they are comfortable with holding. So you could say that they're only 20% bucket shop on some days, but anything greater than 0% would make them a bucket shop in the eyes on the SEC (were they regulated, of course).

I agree betting against the customers should be illegal, but if person A wants to buy 10BTC, and person B wants to sell 10BTC, why should it be traded on Mtgox? It's still being traded, right? Between A and B, although internally (On Bitcoinica). Bitcoinica actually has that 10BTC, so it's not like they are pulling BTC out of thin air to trade with (Which I believe bucket shops do). They could let both trades go through on Mtgox, but that's just wasting 0.25% on fees that weren't necessary in the first place.

[deepceleron]

Most orders are matched internally at Bitcoinica. This does _not_ make them a bucket shop. They only allow internal trades when there's opposing positions canceling each other out. If they need to hedge, they use Mtgox. Bitcoinica does _not_ bet against their costumers.

It would not be wise to bet against customers anyway. In gambling, you know the odds in your favor. For example: roulette - 1:35 odds + your profit (two losing numbers 0 and 00). Or sports book (spreads constantly changing to keep winners vs losers even + your fee). However, we see that in "swarm theory" of trading, the collective intelligence of everyone summed tends to make better decisions than random; when summed together they will have a higher percentage of winning than a baseline and slowly extract money from the house.

Heavy reading: http://personal.lse.ac.uk/ferreird/nenana.pdf

[Mushoz]

Most orders are matched internally at Bitcoinica. This does _not_ make them a bucket shop. They only allow internal trades when there's opposing positions canceling each other out. If they need to hedge, they use Mtgox. Bitcoinica does _not_ bet against their costumers.

It would not be wise to bet against customers anyway. In gambling, you know the odds in your favor. For example: roulette - 1:35 odds + your profit (two losing numbers 0 and 00). Or sports book (spreads constantly changing to keep winners vs losers even + your fee). However, we see that in "swarm theory" of trading, the collective intelligence of everyone summed tends to make better decisions than random; when summed together they will have a higher percentage of winning than a baseline and slowly extract money from the house.

Agreed. But luckily there isn't a single exchange out there (yet) which abuses the unregulated market of Bitcoin to bet against their costumers. Let's hope it stays that way

[old_engineer]

I agree betting against the customers should be illegal, but if person A wants to buy 10BTC, and person B wants to sell 10BTC, why should it be traded on Mtgox? It's still being traded, right? Between A and B, although internally (On Bitcoinica). Bitcoinica actually has that 10BTC, so it's not like they are pulling BTC out of thin air to trade with (Which I believe bucket shops do). They could let both trades go through on Mtgox, but that's just wasting 0.25% on fees that weren't necessary in the first place.

I agree it makes sense from a practical point of view: why bother doing a buy _and_ a sell?  But there are important differences.  When bitcoinica matches order, the two orders would ideally be matched at the halfway point between the buy and the sell price, with an added bitcoinica margin of course.  But instead, they pocket the spread based on the Mt. Gox order book.  The definition of a bucket shop is one where you're making a bet based upon the market conditions, but without actually trading on that market.  That's clearly what's happening here: a side bet/transaction is made based based on the Mt. Gox order book, without actually interacting with the exchange at all.

Also, Mt. Gox  records & publishes the results of every one of their trades.  Bitcoinica does not: it is dark when order matching occurs, hence the title of this thread.

Still think it isn't a bucket shop?  As I said before, anything <100% hedged is a bucket shop under US law.

[antoineph]

 The definition of a bucket shop is one where you're making a bet based upon the market conditions, but without actually trading on that market.  

Thanks, old_engineer, I finally understand why people keep calling Bitcoinica a bucket shop.

[zhoutong]

I agree betting against the customers should be illegal, but if person A wants to buy 10BTC, and person B wants to sell 10BTC, why should it be traded on Mtgox? It's still being traded, right? Between A and B, although internally (On Bitcoinica). Bitcoinica actually has that 10BTC, so it's not like they are pulling BTC out of thin air to trade with (Which I believe bucket shops do). They could let both trades go through on Mtgox, but that's just wasting 0.25% on fees that weren't necessary in the first place.

I agree it makes sense from a practical point of view: why bother doing a buy _and_ a sell?  But there are important differences.  When bitcoinica matches order, the two orders would ideally be matched at the halfway point between the buy and the sell price, with an added bitcoinica margin of course.  But instead, they pocket the spread based on the Mt. Gox order book.  The definition of a bucket shop is one where you're making a bet based upon the market conditions, but without actually trading on that market.  That's clearly what's happening here: a side bet/transaction is made based based on the Mt. Gox order book, without actually interacting with the exchange at all.

Also, Mt. Gox  records & publishes the results of every one of their trades.  Bitcoinica does not: it is dark when order matching occurs, hence the title of this thread.

Still think it isn't a bucket shop?  As I said before, anything <100% hedged is a bucket shop under US law.

Bitcoinica trades 100%. There must be a counter party to every trade. The counter party can be someone at Mt. Gox or someone at Bitcoinica. The counter party is never Bitcoinica itself.

This is how every money changer works, basically.

[zhoutong]

Bitcoinica trades 100%. There must be a counter party to every trade. The counter party can be someone at Mt. Gox or someone at Bitcoinica. The counter party is never Bitcoinica itself.

This is how every money changer works, basically.

Hmm... I've been thinking about this a lot. I still haven't figured it out yet.

When you match orders on Bitcoinica, great you are a broker. This is good.

When you match orders on Gox, you move the market, thus becoming a market maker. Therefor you bet against your customers who are holding the opposite position to your trade at Gox. I don't see any other way to look at it than betting against your customer.

If I'm short and you buy Bitcoins on Gox, you've bet against me. Regardless of when I opened the short position. Even if that short position was matched internally.

I think Bitcoinica would be much cooler if you only acted as a broker. I don't know if that is feasible or not.

All the leveraging in the world wouldn't matter as long as you were only a broker. And you couldn't lose either.

What am I missing?

It's the same. Just imagine a order book of Bitcoinica and Mt. Gox combined. Then you will understand. We can move the market against you, but only if a customer requests to do so. And we hedge at Mt. Gox because we can't get a better price internally.

In other words, if we don't hedge on Mt. Gox, the price will be even higher against you.

The difference between Bitcoinica and a bucket shop is, we don't hold positions ourselves. We have no incentive to manipulate the market. Also, we don't set the prices based on the hidden order book, never.

[zhoutong]

When you go to a bucket shop and lose money, your money goes to the house. But at Bitcoinica, your money goes to the other Bitcoinica user(s), or Mt. Gox user(s). Only the spread goes to Bitcoinica to cover operational costs.

There's no betting at our side.

[zby]

Bitcoinica trades 100%. There must be a counter party to every trade. The counter party can be someone at Mt. Gox or someone at Bitcoinica. The counter party is never Bitcoinica itself.

This is how every money changer works, basically.

Hmm... I've been thinking about this a lot. I still haven't figured it out yet.

When you match orders on Bitcoinica, great you are a broker. This is good.

When you match orders on Gox, you move the market, thus becoming a market maker. Therefor you bet against your customers who are holding the opposite position to your trade at Gox. I don't see any other way to look at it than betting against your customer.

If I'm short and you buy Bitcoins on Gox, you've bet against me. Regardless of when I opened the short position. Even if that short position was matched internally.

I think Bitcoinica would be much cooler if you only acted as a broker. I don't know if that is feasible or not.

All the leveraging in the world wouldn't matter as long as you were only a broker. And you couldn't lose either.

What am I missing?

You have it in reverse.  When you short on Bitcoinica and they don't have a matching order they sell on MtGox (at least this is what everyone assumes they do).  By the way, see also the definition of market maker: http://en.wikipedia.org/wiki/Market_maker

[old_engineer]

Hey Zhou, you know that if you write up documentation on exactly how Bitcoinica works, and post it on your website, you'll get a lot fewer questions, and have less confusion about your site?

If your response to most questions is not an URL that has an explanation, you're doing it wrong.  The best way to do it: every time someone asks a question you haven't answered, answer it, then cut-and-paste your response into an FAQ.

[chsados]

Hey Zhou, you know that if you write up documentation on exactly how Bitcoinica works, and post it on your website, you'll get a lot fewer questions, and have less confusion about your site?

This!~  I was even in #bitcoin-otc yesterday putting up a bounty for a good youtube video tutorial!

[zby]

You have it in reverse.  When you short on Bitcoinica and they don't have a matching order they sell on MtGox (at least this is what everyone assumes they do).  By the way, see also the definition of market maker: http://en.wikipedia.org/wiki/Market_maker

No, you misunderstood me. I'll break it down.

I open a short position on Bitcoinica.

An hour later, Bitcoinica buys Bitcoins on Gox for whatever reason causes them to buy Bitcoins on Gox.

They've just bet against me. Bitcoinica's buy on Gox hurt my short position on Bitcoinica, regardless of what caused them to do it!

Sorry, they are an occasional market maker.

I think they should either be a broker or a market maker, not both.

They would only buy on MtGox if someone bought from them - in that sense they don't bet against you - their position is always neutral.  That is if they are honest.

[zby]

They would only buy on MtGox if someone bought from them - in that sense they don't bet against you - their position is always neutral.  That is if they are honest.

Why they do it doesn't concern me. The result is the same and it is most definitely not neutral. When they decide to match trades outside of Bitcoinica, they have an effect on the market. That effect on the market is either betting against or betting with their customers, depending on if Bitcoinica buys or sells.

If I tell you to go buy 10,000 bitcoins at Gox for me, and you have a short position at Bitcoinica that would be liquidated with a 10,000 bitcoin purchase at Gox, are you going to buy those Bitcoins for me while leaving your short open. No, because you would be betting against yourself. It doesn't matter that I gave you the money to do it.

So why does Bitcoinica bet against their customers when someone else tells them to do it?

Let's be precise what they do can be interpreted as and action against customers, but it is not a bet - because they don't win if you lose (not counting their markup - but let's set this aside for the moment).

Also if you think about it - when MtGox is executing a sell order - while keeping your bitcoins on their accout - they are acting against you, don't they?

[zby]

Let's be precise what they do can be interpreted as and action against customers, but it is not a bet - because they don't win if you lose (not counting their markup - but let's set this aside for the moment).

Also if you think about it - when MtGox is executing a sell order - while keeping your bitcoins on their accout - they are acting against you, don't they?

OK, it's not a bet, but their actions can have a negative impact on their customers. And if that is true, why do they do it? Just so another customer can open their position? Aha... they make money for each position opened.

When MtGox executes a sell order, they are simply finding a buyer for my coins. They are acting for me, after all I'm trying to obtain fiat for my coins. If they don't give me the fiat in turn, well yeah, they would be acting against me. But I'm pretty sure in most cases you can withdraw your money from Gox.

Edit: Ahh... I see what you mean. I misunderstood the Gox example. No, the person selling their coins is acting against me. Which is fine. That's a risk I take holding currency.

It is the same case with Bitcoinica - it is the person buying that bets against you - Bitcoinica acts only as an intermediary.  Just like MtGox it executes orders on behalf of traders.

[zby]

The problem is that they are really opaque - so it is hard to say if they are really doing what they say they do.