del

[deepceleron]

This is now the "eavesdropping on zby and Holliday" thread.

[1715142495]

1715142495

[EuSouBitcoin]

Alright, I thought about it some more. I think I was on the right track before, but focusing on the wrong thing.

The problem with Bitcoinica matching positions outside their own market is that they can run out of reserve. This leads to the * which can signal large players to push the market drastically in a certain direction.

The system can be gamed and because of leverage it can harm Bitcoinica and their customers.

If a huge majority is long on Bitcoinica, we get a * on the buy side.

This signals a whale to sell a shit ton of Bitcoins on Gox, knowing it will force liquidate people (since Bitcoinica is hedging on Gox).

This allows the whale to spike the price drastically, and rebuy his coins at a much lower price. All at the expense of Bitcoinica and it's customers (especially those with high leverage).

To add insult to injury, when everyone is long and there is a *, this guy can still short, correct?

So he opens a small short position before spiking Gox, and profits here as well.

This would all be prevented if Bitcoinica keeps all it's trades in house.

Only Bitcoinica controls the Bid Ask on Bitcoinica. On Mt Gox the interaction of buy and sell orders determines the Bid Ask. Bitcoinica could just move the Bid Ask on Bitcoinica to go stop hunting (a common practice in Forex) but this might make some of their customers mad and leave. So Bitcoinica does the next best thing, they sell a lot on Mt Gox to drive the spot price down and flush a lot of weak long positions out of their positions on Bitcoinica. I think the whale IS bitcoinica, although it could be someone else and even a bitcoinica client trying to screw Bitcoinica. As Forex has little regulation and BTC none, traders should think about what they are getting into before trading with large amounts of money. Caveat emptor.

[pirateat40]

If you sell 50 BTC at Bitcoinica's Bid Price $6.30 and someone is buying 50 BTC at $6.54 you would never do that transaction on Mt Gox, you do it in house.  The only time Bitcoinica goes to the Gox is when more people are going in one direction than they can profit on in house.  Understand?

[Bigpiggy01]

Yes, and this is what allows a whale to game the system hard. Because it's known when Bitcoinica is unbalanced. *?

Hey, I don't mind all that much, the whales aren't getting my Bitcoins or my fiat. I just thought it might be a concern for some if the market is so transparent to a whale.  Wink

+1 I couldn't have said it better, after Zhoutong openly admitting that he does not hedge every order I have cancelled all my business with him. Atm the only thing Bitcoinica is good for is a squeeze indicator.

[Mushoz]

Yes, and this is what allows a whale to game the system hard. Because it's known when Bitcoinica is unbalanced. *?

Hey, I don't mind all that much, the whales aren't getting my Bitcoins or my fiat. I just thought it might be a concern for some if the market is so transparent to a whale.  Wink

+1 I couldn't have said it better, after Zhoutong openly admitting that he does not hedge every order I have cancelled all my business with him. Atm the only thing Bitcoinica is good for is a squeeze indicator.

Source please? AFAIK every order is hedged, except for orders for which there is a counter-party on Bitcoinica, canceling each other out?

[Bigpiggy01]

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.

[Mushoz]

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

than

-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.