Topic: Bitcoinica for newbies (Read 975 times)

Hi etrader did you forget the link ? can't see it

Hey btcgoldsilver. I found this site that has some Elliot Wave Analysis you may like.

Awesome help Ichthyo. Thanks very much again for all that, will give it a shot and see how it goes if bitcoinica ever comes back. My main interest in this is to learn some trading techniques, bitcoinica seems to provide quite a nice entry point. Haven't seen much in the way of technical analysis of bitcoin charts but will be fun trying my own.

cheers.

Thats an obvious conclusion, but bitcoinica doesn't work that way. The funds you put in your currency account and the active position are really two distinct things.

What actually happens is that

• bitcoinica summs up the current value of your currency account. This incurs the current BTC/$ rate, so this value is constantly changing
• bitcoinica then uses this so called "margin value" to back your actions
• when you open a position, you allways get a loan from bitcoinica. If you go long, they lend you $$, if you go short, they lend you BTC
• the leverage fractor determines how much credit you get. If you leverage 1:10, bitcoinica lends you 9 times the amount of the margin value you have provided
• but bitcoinica monitors your losses! When your losses equal to your margin value (i.e. your losses have eaten up all the money you have provided initially), then your position will be force liquidated. Congratulations, you've been ZHOUTONGED.

you see: bitcoinica never takes much risk. You do.



...just to pick up on your example: Lets assume $/BTC = 5.0 so your 30 btc are worth $150
So this is your margin, i.e. the value (or liquidity) you provided to bitcoinica
Now, with 1:2.5 leverage, bitcoinica grants sufficient loans to you to make up 2.5 times that margin value, i.e. $375

Consequently, now you're allowed either to go long (buy BTC) for $375 --> 75 BTC at max, or you may go short (sell BTC) for the same amount. If you choose not to use that much, the "tradeable amount" shows you the remainder of that amount, i.e. what you still might use for further orders. But beware: when the BTC rate drops, the original BTC you put in will loose value, an thus your margin and your tradeable balance are reduced. This might force you into liquidation more quickly than you might expect at first shot. Thus it's good advice allways to leave some reserve in and assume the worst possible movement of the market.

Another important detail to note is the point when you're actually realising losses or profit: This only happens when you completely close an active position. At this point (and only then), all the profit/loss and additionally the swap (interest) you need to pay for bitcoinica's loans are summed up and added/subtracted from your currency account. As a consequence, when the market moves in an unfavorable fashion, but you're sure this will be temporarily, you might temporarily reduce your position without closing it completely. Of course this is some kind of gambling or betting, and it's easier to create losses then actually make profit, unless your moves are careful and you're aware of the big picture as far as the market situation is concerned.


Hint: open a 1 BTC position and then just do the math and try to understand the values indicated by bitcoinica. Rest assured, it's quite straight forward. And you never loose more than you've put in at first instant, so don't put in more then you're prepared to loose.


Cheers,
--Ichthyo


PS: for a more theoretical introduction look at http://en.wikipedia.org/wiki/Margin_trading

Hi Ichthyo thanks very much for taking the time to write that. It does make things much clearer in my mind, very appreciative for your time. At risk of still sounding noobish.. So because all my currency fund is currently in BTC that means the only trade I can do to start with is to go short? (unless i exchange some BTC for $)

I guess the best way is to start trying it with small amounts. (when the site eventually comes back up, and assuming I still have my funds). I think you've given me enough understanding to try my first position when the charts look ripe for it. Shame i didn't go short the other day!

I'm still unclear how big a trade you can do.  eg with my 30btc at 2.5 leverage could i sell all the bitcoins in one position ?would that leave no margin and therefore be dissalowed? Or I'd have to leave a certain amount in my currency account? How do i estimate these sort of factors?

cheers

Hi btcgoldsilver,

right at the moment bitcoinica is taken offline, due to a security break and proabably a theft.
This is the second time it's happening to them, and the last time they covered all losses and just continued business as usual.

Having said that -- trying out bitcoinica is an valuable experience, if you're able to control yourself and know the risk.
The most important thing to understand is that you're allways working agianst the spread (the difference between the buy and sell rates). This spread is the real market spread increased by some amount, which is the fee bitcoinica is taking its profit from.

The point is: you have only one position in your account, and the buys and sells do match and neutralise each other.

Thus, if you start with a buy order, you're automatically going long. Your buy is executed at the current buy rate, as shown on the page. When you later place an sell order with the same amount, that sell order is also executed at the current sell rate, and it will cancel out your position. If the sell rate is higher than your previously used buy rate, then you make profit. Otherwise bitcoinica makes profit and your loss is covered by the funds you put in at start.


You go short by selling BTC. Later, you'd close that position by buying the same nominal amount of BTC back. Thus, basically you open that short postion with a sell order and close it with a buy order.

Now what you want is a stop loss. That is, you want to close that position automatically.
Thus you need a suitably sized buy order, which is executed automatically at a rate which you can set up up front. This kind of buy order is called a "stop" order. Thus, you'd edit the rate in the input field, and choose "stop" as a type and then enter that buy order as well. Obviously the rate you enter needs to be above the current buy rate (otherwise that order would be executed immediately).


Placing a stop loss for a long position is basically the same logic, just all directions swapped.
You open the long position by buying, thus you close it by selling. Thus your stop order needs to be a sell order.
And it needs to be below the current selling rate, otherwise it would be executed immediately.

So far for the mere mechanics. Does this make sense? Do you need additional explanations?


Maybe you've noticed allready the twist, which makes bitcoinica tricky and risky to use: The spread is your enemy. If you go long, you buy at the buy rate, and the corresponding sell rate is allways lower. Thus, you immediately start out with a nominal loss on your position. Only if the marked moves up considerably, so the current sell rate goes above your opening buy rate, then you start making profit. Add to that the fact, that BTC rates are volatile and allways swinging up and down. So, unfortunately the result is that you can't set up a sensible stop order right at start, without that stop order causing a loss to you if it is actually executed. Only when the marked has moved to that extent that you start making considerable profit, then you can adjust your stop orders so that they prevent any loss and really protect your positions.

Having said that, you really need to set up stop orders whenever you walk away, even if they mean you could make losses. See it the other way around: the stop order prevents you from making more losses. Of course, its a matter of experience to set that stop order so far away as to make it unlikely that they execute accidentally, but not so far away that they ruin you 

• market - the order is enqueued and executed as soon as possible, taking just the current rate
• limit - the order is executed only when it stays within the given limit
  
  • for buy orders: if the actual price is below
  • for sell orders: if the actual price is above
• stop - see the explanations above. Basically here it is the price which triggers the order becoming effective
• trailing stop - well... please forget about those, they are extremely dangerous and difficult to manage and rarely usable.

The little target checkbox is a convenience shortcut for placing a limit order with the current rate. Useful if the market is moving heavily, because then with a mere "market" order you might end up with quite a different rate during the (usually short) delay between placing an order and the actual order execution.

hope that helps
Cheers!
Ichthyo

Can anyone tell me some basics about trading on bitcoinica for a total beginner?

I don't want to hear, 'don't do it or you'll get zoutanged' I'm aware of the risks and curious to try it out.

At the moment I have deposited about 30btc in there but haven't seen any interest appear yet, thought I would have by now its been a few days..

if i wanted to go short on bitcoin and put a stop loss on that how would i do it?

If I wanted to go long on bitcoin and again put a stop loss how would i do that?

I'm a little unsure what the order types are and what the little target checkbox is for

Thanks for any help