Topic: How profitable are exchanges? - page 10. (Read 15830 times)

Insider arbitrage is fine in my book. They are providing liquidity and market participants are benefiting by having their order filled at limit price.

The cost of moving money from one exchange to another exchange isn't free nor cheap nor convenient. If the exchange is providing this service because they can move larger quantity of money at fix cost, then they are adding benefit to both the exchange and all users on the exchange.

 

They are hella profitable even when fee is lower than 1% fees have always been big (bigest?) bussnies for every company/service.
They could make way more if they could keep their exchange funcional and safe and most of the time regular income is way better than one time big income.

I seem to recall the guy who owns mcxnow in chat saying he made about $30,000 profit per month.  He would make more but spends alot to keep the site running smooth/new features etc.  This was before he scammed people with the fee shares. Im assuming he now makes less money.

How exactly?  To the people watching the logs, those insider trades would be indistinguishable from normal trades.

Without the insider trades, an outsider would occasionally see a difference in price lasting long enough for him to exploit.  With insider trades, there would be fewer such opportunities; and when one appears, before the client can execute his trade there would appear another trade exploiting the difference and eliminating it.

Specifically, for example: the outsider sees that on exchange A the highest bid is 450$, on exchange B the lowest ask is 440$. He submits a buy order on B for 440$, but before it gets executed, someone else buys that offer; his own order just lands on the book, unfilled, while the lowest ask on B has jumped to 455$.  How can he tell that the buy that succeeded was insider arbitrage, rather than a normal trade at B, or A-B arbitrage by a luckier competitor?

Mostly these sites are badly managed, we have seen it with Gox and more will unfortunately follow...

Easy for an experience trader to detect this, as they watch the price on multiple exchanges at the same time.

With no regulations and no auditing, exchanges could make lots of money besides the fees that they charge.

For instance, by delaying the trade logs for a couple of seconds, they can intercept client trades and "steal" some of their money.  Suppose that the lowest ask is 500$/BTC and the highest bid is 480$/BTC. Supose that Alice posts a sell offer of 1 BTC at 485. One second later Bob, who still cannot see Alice's offer, posts a bid for 1 BTC at 495.  Normally Bob's bid would be filled with Alice's offer, and he would save 10$.  But the exchange operator sees the two crossed orders, and inserts between them a buy order of 1 BTC at 485 (that takes Alice's coin), and a sell offer of 1 BTC at 495 (that fills Bob's bid).  The two transactions show up in the log and everything seems normal, and both Alice and Bob are happy that their orders got filled so promptly -- but the 10$ now goes to the exchange, instead of Bob.

Similarly, if two exchanges agree to show their order books to each other, a couple of seconds before they are posted to the public, they can exploit all opportunities for arbitrage between them.  Any client who tries to do arbitrage will then find that the prices have always shifted against him between the time that he places an order and the time that it gets executed.

There must be many other tricks, even more profitable than these, that exchange operators can pull.  I suppose that zero-fee exchanges, like Huobi and OKCoin, get their revenue from such insider trading.  Iam told that such tricks are totally illegal for regulated stock and currency exchanges.

Obviously, any money that the exchanges make, from fees or otherwise, must come out of their clients' pockets.

all about the transaction the more transactions you do in the exchanger, the greater benefit you because exchangers only take advantage of the difference in value buying and selling coin

The day we will truly see how profitable an exchange really is, is when one is bought out. When we see how much it sells for, we can tell how profitable it really is..

Offering equity would, in itself create huge amounts of additional expenses (shareholder relations, reporting, and the like) and most exchanges would not likely be able to fetch a valuation that could account for taking on those additional expenses. 

That is huge profit for an exchange. No wonder no major exchange want to offer equity.

They generally take 5% of the pot up to $3 USD.

They've dealt almost 100 billion hands so you can imagine how much money they've made.

They actually just sold the company for 5 billion.

I don't know about the other exchanges, but monthly revenue for BTC-E is somewhere in the range of BTC2,000. That means around $1.2 million per month and $15 million per year. Don't know the net income.

Want to elaborate a little on this?

They ought to be profitable, yet over half have failed.

They quietly make big money, just like pokerstars who takes a rake off of each pot that is played in poker. 

You still need to consider things like DDOS protection, leasing servers, customer service/support and the like

Assuming AML/KYC compliance is around 15k USD a month. This is probably less than 1 week of trading fee for the main exchanges.
 

Exchanges likely wish to keep as much money in bitcon as possible as if they pressure the price of bitcoin then trading volume would generally decrease, meaning less profits.

Exchanges likely have more expenses then you think.

The AML/KYC piece is probably one of their largest, if not their largest expenses. They need to hire people who are familiar with or train them to be familiar with identity documents from pretty much every country in the world. They need to have enough of this staff in order to look at identity documents from each of their customers.

Should be glad there are now more exchanges vs MtGox monopoly a year ago.