Bitcoinica charges for open positions, pays you for storing funds on them

[M4v3R]

Check out "Interest Rates" tab on their site:

How does interest rate affect you?
Currency account USD balance
We pay you interest every day based on USD Buy interest rate, compounded daily.

Currency account BTC balance
We pay you interest every day based on BTC Buy interest rate, compounded daily.

Long BTC/USD position
We charge you USD Sell interest, and pay you BTC Buy interest every hour.

Short BTC/USD position
We charge you BTC Sell interest, and pay you USD Buy interest every hour.

Oh, and APY means "Annual Percentage Yield".

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[zhoutong]

You're faster than our official announcement (which will be posted later)!

It's important to know that we sometimes pay for open positions as well. For example, we pay interests for short positions at this moment.

[zhoutong]

Today's interest rates:

[realnowhereman]

Is this related to the new "swap" column; and "unrealized swap" summary item?

[zhoutong]

so ppl who started LONG at 2 will be kinda "forced" to liquidate or they will have to pay fees for that position

It's not significant. At current rate (which could be highest in history), it costs $0.21 per hour to maintain a 5,000 BTC long position start at $2, or just $5.04 per day, or just 0.7% of unrealized profits per month.

[M4v3R]

Zhountong: please do make an official announcement explaining all the terms and possible situations for your users, because when I looked it up first I was confused really hard (and I'm still not certain that I understand fully how this works).

[zhoutong]

Is this related to the new "swap" column; and "unrealized swap" summary item?

Yes, exactly. But they don't count towards your currency balance until February 16 UTC.

So if you close your position before we start settling the swaps, you won't be affected by this change.

[zhoutong]

Zhountong: please do make an official announcement explaining all the terms and possible situations for your users, because when I looked it up first I was confused really hard (and I'm still not certain that I understand fully how this works).

Sure, I will do it in a few hours on the forum. Thanks for your support!

[ThePok]

Wait, do i understand tha right? You are paying 17% anno, for my usd balance on Bitcoinica?

[legitnick]

Can someone explain this to me like I'm 5?

[zhoutong]

Wait, do i understand tha right? You are paying 17% anno, for my usd balance on Bitcoinica?

Yes. You're right. 17% risk free. Paid daily. But the interest rate is a variable, depending on the supply and demand of money.

We are short of USD now, and that's why the interest rate is so high.

[elux]

Yes. You're right. 17% risk free. Paid daily. (...) We are short of USD now, and that's why the interest rate is so high.

Would be time to head for the bank. Except... Are you insured against any losses of deposited funds?

[realnowhereman]

• You deposit 100,000 USD at Bitcoinica
• Bitcoinica lifts the "*" and uses your USD to buy BTC for leveraged long risk takers
• Leveraged risk takers lose when market moves against long risk takers
• One week later, you want your 100,000 USD back
• Oh dear #1.  Bitcoinica can't just liquidate random positions to get you your 100,000 USD; this is therefore not a demand-deposit account.  You'll have to wait for those longs to liquidate.
• Oh dear #2.  The BTC bought with your 100,000 USD are no longer worth 100,000 USD.Withdrawn

I'll say it again: Bitcoinica is backing its users net imbalance (at best).  That means they are relying on their users to make a net profit.  If their users make a net loss, then Bitcoinica makes a net loss.  When it's their own reserves... well whatever; but this new plan is to use your money instead of their own as reserve.  What happens then when their users make a net loss?.Withdrawn.

[zhoutong]

• You deposit 100,000 USD at Bitcoinica
• Bitcoinica lifts the "*" and uses your USD to buy BTC for leveraged long risk takers
• Leveraged risk takers lose when market moves against long risk takers
• One week later, you want your 100,000 USD back
• Oh dear #1.  Bitcoinica can't just liquidate random positions to get you your 100,000 USD; this is therefore not a demand-deposit account.  You'll have to wait for those longs to liquidate.
• Oh dear #2.  The BTC bought with your 100,000 USD are no longer worth 100,000 USD.

I'll say it again: Bitcoinica is backing its users net imbalance (at best).  That means they are relying on their users to make a net profit.  If their users make a net loss, then Bitcoinica makes a net loss.  When it's their own reserves... well whatever; but this new plan is to use your money instead of their own as reserve.  What happens then when their users make a net loss?

When Bitcoinica users are making net losses, the losses are deducted from their own accounts. You still get your $100,000.

[realnowhereman]

• Oh dear #2.  The BTC bought with your 100,000 USD are no longer worth 100,000 USD.

When Bitcoinica users are making net losses, the losses are deducted from their own accounts. You still get your $100,000.

Yes; I was too hasty with that point.  Withdrawn.  I've gotten my Bitcoinica issues the wrong way around.  My worry is that you can't cover profits; not losses... but that's been covered in a different thread, so let's not reopen it here.

My other point stands though...

• Oh dear #1.  Bitcoinica can't just liquidate random positions to get you your 100,000 USD; this is therefore not a demand-deposit account.  You'll have to wait for those longs to liquidate.

Are you going to operate some sort of 10 day notification period for withdrawls?

Are you going to assume all deposits are fair game for use as reserve, or will it be opt-in?

[da2ce7]

this is bound to help solve the liquidity problems on bitcoinica... and a very natural and smart solutions...

Z  +1 on the swaps 

[naima53]

Zhountong:  you have plans to create its own exchange? I think it will help the inflow of fresh money ..

[zhoutong]

Zhountong:  you have plans to create its own exchange? I think it will help the inflow of fresh money ..

No, there're no plans for independent exchange now. We will continue using Mt. Gox.

[zhoutong]

• Oh dear #2.  The BTC bought with your 100,000 USD are no longer worth 100,000 USD.

When Bitcoinica users are making net losses, the losses are deducted from their own accounts. You still get your $100,000.

Yes; I was too hasty with that point.  Withdrawn.  I've gotten my Bitcoinica issues the wrong way around.  My worry is that you can't cover profits; not losses... but that's been covered in a different thread, so let's not reopen it here.

My other point stands though...

• Oh dear #1.  Bitcoinica can't just liquidate random positions to get you your 100,000 USD; this is therefore not a demand-deposit account.  You'll have to wait for those longs to liquidate.

Are you going to operate some sort of 10 day notification period for withdrawls?

Are you going to assume all deposits are fair game for use as reserve, or will it be opt-in?

When our customers have deposited a lot of money into Bitcoinica, we will set out a fixed reserve for withdrawals and liquidation of positions during redflag events. We will make sure that everyone is able to withdraw on demand. And we have also got a Trusted Mt. Gox account that allows $100,000 of withdrawals everyday.

[zhoutong]

Official explanation of the Bitcoinica's Interest System:

https://bitcointalk.org/index.php?topic=63694

[eldentyrell]

Can someone explain this to me like I'm 5?

Dear little legitnick,

Since you are five years old, you should not be using Bitcoinica.

Happy?

[stochastic]

Can someone explain this to me like I'm 5?

From here

When you open a trade, you sell one currency and buy another. Since the currencies charge different interest rates, you can either collect interest (positive swap) or pay interest (negative swap).

If you borrow a low-rate currency to buy a high rate currency, you should earn interest. If you do the opposite, you pay.

Let's say you are trading USD/JPY. If you want to long USD/JPY what you are in fact doing is buying USD with your JPY. However, since you don't actually have any JPY, you need to borrow it first and use a part of your margin as collateral for that loan. Once you have borrowed the necessary amount of JPY, you can use it to buy USD and there is your trade. Now, since you actually borrowed the JPY, you have to pay interest on that loan at the prevailing rate until you have paid back the loan (closed your trade), and since you are holding USD, you are being paid interest on that sum for as long as you are holding it. The difference between what you are paying and what you are collecting in interest is what your swap will come out to be.