Topic: Bitcoinica, Best Thing Since Sliced Bread or Spawn of Satan, Discuss (Read 1657 times)

given the size of the position you announced, I'd say your profitability could be increased.

According to the forum, I am an idiot -- but I have made hundreds on it.

What does that say?

Bitcoinica operates like most any retail ForEx broker. I guess if you're making money, they're way better than sliced bread (up there with wheeled chariots). If you're not making money, they're the spawn of satan. 

Most ForEx traders lose all their money. Most Forex traders blame the broker. They accuse the broker of
- betting against the customer (broker calls this hedging your position
- unfair spreads
- hunting stop losses w/ price spike (broker claims low liquidity)
- excessive slippage (again, broker claims low liquidity)

Of course, regardless of the honesty of the broker, all of the above can happen. Best thing or spawn? Again, boils down to whether you're working well with the system, and making money, or losing it.

You have to adjust your trading to suit your trading environment. If you do not, you'll lose money (and blame it on the broker) Bitcoinica works pretty well for me. It did not at first. I was pissed at them. I lost all of my gains to fucked up things in their interface for the first week. I accused them of stealing my money (In my mind, not online) They've had software disasters that have liquidated tons of customers (and they've refunded too) - they're new, they seem to try hard, and I sure don't get the impression they're trying to steal my money now. They do suffer from low liquidity at times, so I don't use things like trailing stops or stop losses , and I rarely use a market order; the slippage on all the above can be astronomical - I use the Interest Rate page to estimate long/short open interest, watching the rates change will suggest the direction the price action will take.

It's not clear how exactly the bitcoinica pricing bot prices - if it's affected by the inside ask and bid at MtGox, it could dramatically affect the liquidity at the stated spread. There are lots of bots on MtGox that move the inside of the spread really tight, when there's no real order depth for around what appears to be about bitcoinica's spread.

As above, bitcoinica match customer orders against each other until they cannot, then their orders form a "dark pool" (order not on the orderbook) at MtGox. Most ForEx markets have many brokers/dealers connected to the same network, and/or the interbank network. Some of these will form dark pools in the same way, some others are straight through to liquidity providers.  If the bitcoin exchanges would form a network orders would fill faster, and the price would be more stable

If you enter into a very large position, bitcoinica will hedge your position so that they don't lose money. In most cases, retail brokers are essentially traders just like their clients. I have seen this (in the dotcom bust in 2000) fail miserably for broker & customers when the broker's position move against him, causing him to have to sell his own stock in the brokership, which cause its price to plummet, resulting in forced liquidation of the entire business. In hours. Is bitcoinica the spawn of satan? I dunno, what is their real risk exposure? How much leverage are they using, and how much is at risk?

Even though bitcoinica doesn't publish the orderbook (yet, zhoutong said something about this a bit ago) you can tell pretty well what the depth is by watching the spread bounce. The spread is how bitcoinica, and many retail ForEx brokers make money. As a customer you have to understand this, and work around it, or you will lose your money.

Just like any ForEx, if you're using margin you need to fully understand risk, and understand the effects of drawdown when your position moves against you. (The loss on your position added to your equity balance * leverage = drawdown) The higher your leverage, the greater the drawdown per $/฿

One of the biggest reasons for people getting force liquidated is that they're funding their accounts in BTC. This can significantly accentuate the drawdown you experience as your Margin Balance loses value, along with your position, multiplying the effects.

Inexperienced traders, plus leverage, plus low overall market liquidity definitely add up to increased volatility. As more and more bitcoin investment opportunities come online, I'm sure this will diminish. The MPOE (Options) is helping some, as is the GLBSE.

It's actually a requirement of a currency, as far as I can tell, to be able to stand up to speculation. It may seem that your fiat money doesn't change in value, but it most certainly does, due to exactly this type of speculation. In many places, you can use 100:1, 200:1,500:1 leverage. More than enough rope

So....regardless of best thing since sliced bread, or the spawn of satan, bitcoinica, and other brokers offering leverage is good for bitcoin. It shows that bitcoin works like any other money.

There's no "betting" going on, at least no more than any margin trading is a bet.

In theory, if you go long on Bitcoinica, it places a Buy on Mt. Gox and puts the coins in a box with your name on it. If the coins become worth less than they lent you, they'll repossess the box to make sure they don't lose their loan money. Otherwise, you can open the box at any time and take your coins out of it.

Shorts are the same way, except that it places a Sell on Mt. Gox and puts the fiat in your box.

But! Let's say that one guy goes long and another guy goes short for the same amount at the same time. In that case, you don't need to go to Mt. Gox; you can just put Mr. Short's loaned coins in Mr. Long's box, and Mr. Long's loaned dollars in Mr. Short's box.

So, I'd describe Bitcoinica as "margin lending plus a 'shadow' exchange".

While you are looking for sliced bread or spawn, keep an eye out for fraud.
http://en.wikipedia.org/wiki/Foreign_exchange_fraud

Merchants can hedge.  But you have to ask, why would they bother?  Imagine trying to sell the concept of bitcoin merchant trading to a prospective client.  It has its advantages (no charge backs, which customers hate) and not being beholden to PayPal's whims.  But you'd also have to explain the currency can move suddenly, sometimes 20% in a day up or down.  Don't worry, hedging is available.  You just have to learn how it works, trust the intermediary to do the right thing, and devote time to monitoring the market...  Merchants with busy jobs would be lining up for that one.  And they still have to pay the bills in the local government currency.

Sure you can use all kind of strategies to compensate. But that costs money. It also cost to educate yourself about that and to acutally do it. Time is money. Bitcoin transactions are no longer cheap if that cost is added.

Yes, the volatility it induces are really great for merchants.

is it basically an internal betting system?

I think it's quite clever, but don't quite understand how it works. I thought it was margin lending, but that's not the case, is it?

I'll have the Satan sandwich with extra spawn, hold the pickle please  

I think Bitcoinica is fantastic.  However, it gives you more than enough rope to hang yourself with.  Don't use Bitcoinica if you don't know exactly how it works.  Keep your leverage sane, this is one of the most volatile markets in the world.

Bitcoinica is the best way I know of to short BTC. It certainly has increase the trading volume on Mt Gox. I think it's great for Bitcoin overall. I haven't traded there because 1) the price is determined by Bicoinica only and not by client orders 2) with the *, sometimes you can't buy or sell when you want to, real bummer.