Follow-up to my own post:
It appears that icbit keeps track of who is in each end of all the contracts. This means that if I go broke, the poor guy who was unfortunately enough to trade with me on the exchange will take all the loss. This random distribution of the risk in big lumps is in my opinion unfortunate, it would be better if the liquidations were distributed as evenly as possible among the people holding the opposite position.
Topic: ICBIT Derivatives Market (USD/BTC futures trading) - LIVE - page 10. (Read 97654 times)
This is probably really what happened.
Unlike futures market in the "real world", where the operator knows your identity and can come after you, your losses are limited to the amount you deposit on your margin account. On an ordinary futures exchange, there is in principle no upper limit to your losses, as the exchange operator can drag you to court to get what you owe him. The downside of this limitation of your loss it the introduction of counter-party risk: If your counter-party's loss is limited by his available funds, so is your profit. And yes, this introduces a risk to arbitrageurs. On the other hand, the profit is also above the normal in arbitrage.
We cannot have it both ways, and in a quasi-anonymous bitcoin setting this counterparty risk is probably unavailable, unless the fees are so high that the exchange can afford to assume that risk - but that would probably scare us all away.
Unlike futures market in the "real world", where the operator knows your identity and can come after you, your losses are limited to the amount you deposit on your margin account. On an ordinary futures exchange, there is in principle no upper limit to your losses, as the exchange operator can drag you to court to get what you owe him. The downside of this limitation of your loss it the introduction of counter-party risk: If your counter-party's loss is limited by his available funds, so is your profit. And yes, this introduces a risk to arbitrageurs. On the other hand, the profit is also above the normal in arbitrage.
We cannot have it both ways, and in a quasi-anonymous bitcoin setting this counterparty risk is probably unavailable, unless the fees are so high that the exchange can afford to assume that risk - but that would probably scare us all away.
newminer is one of the traders whose short position was partially closed due to non-paying long-position customers, according to https://icbit.se/margincall worst case scenario
If i get it right, the position was closed of his contract counterparty who got a mcand there were no other buyers. Exactly who he bought/sold fut from? How can this be?
This must not be done under all circumstances. Again this is not a casino but a hedging market instead.
Suppose if it's hedging position and the trader holds another pos in spot market
which in fact he always does because of the init margin and everything is in bitcoins.
This would immediately incur losses. This is not gonna be a futures market.
The position can be forcibly liquidated only in case of not meeting mc requirement. Period.
You can not just deal with this by transfering the risk to the otherside. Can you?
Is this really what's happening? Or did i miss something?
However, the existence of that free option introduces a trading exploit strategy:
Make two accounts
Sell/Buy from/to yourself from the two accounts.
Remove everything except the minimum margin requirement from the account
Get margin called
One account gets a free option, but hope that you get liquidated.
One account gains linearly with price, one account losses is capped at a price
You make free money (at other trader's expense)
Make two accounts
Sell/Buy from/to yourself from the two accounts.
Remove everything except the minimum margin requirement from the account
Get margin called
One account gets a free option, but hope that you get liquidated.
One account gains linearly with price, one account losses is capped at a price
You make free money (at other trader's expense)
This was discussed already a number of times, however the answer is no: At best, you loose only trading fees and end up with non-market neutral position. It is impossible.
Of course this problem reappears if available leverage is too large.
I don't think it's right to impose risk on the exchange itself, so the solution to me is to have some kind of membership structure where the primary stakeholders in the process make the policies. Ideally, interests from both long and short side are represented.
This is the crux of the matter. Those taking the risk must be able to measure and have some semblance of control over it.
However, the existence of that free option introduces a trading exploit strategy:
Make two accounts
Sell/Buy from/to yourself from the two accounts.
Remove everything except the minimum margin requirement from the account
Get margin called
One account gets a free option, but hope that you get liquidated.
One account gains linearly with price, one account losses is capped at a price
You make free money (at other trader's expense)
Make two accounts
Sell/Buy from/to yourself from the two accounts.
Remove everything except the minimum margin requirement from the account
Get margin called
One account gets a free option, but hope that you get liquidated.
One account gains linearly with price, one account losses is capped at a price
You make free money (at other trader's expense)
This was discussed already a number of times, however the answer is no: At best, you loose only trading fees and end up with non-market neutral position. It is impossible.
I don't think Fireball was being malicious, but the lack of downside (worst thing that happens is he liquidates everybody and walks away) can make for negligence. As a short, there is NO way I would have accepted a full session of time to make margin call - it's a free option to the long (if the market goes up he wins, if it goes down, he gets closed out at a guaranteed price). This is immediately OBVIOUS to me because I have downside risk.
I believe the free options given to accounts not in good standing are going to be eliminated.
However, the existence of that free option introduces a trading exploit strategy:
Make two accounts
Sell/Buy from/to yourself from the two accounts.
Remove everything except the minimum margin requirement from the account
Get margin called
One account gets a free option, but hope that you get liquidated.
One account gains linearly with price, one account losses is capped at a price
You make free money (at other trader's expense)
I am of the opinion that if an account goes below 100% margin, they get a warning to bring it back into good standing. If it goes below 75%, it is liquidated at market to prevent this exploit
I brought the calculations (above) showing that for 3 sessions ago that do not fullfilled margin reuirments of Exchange. But contracts are not covered. Since then, the price dropped significantly by the time the contracts are closed.
4 sessions to close contracts - this is a very long time. It is not normal that the loss of such a delay shifted by a few traders.
4 sessions to close contracts - this is a very long time. It is not normal that the loss of such a delay shifted by a few traders.
After getting some distance from the events, I can boil down my issues with it to the following:
Fireball made decisions about liquidation:
1) Unilaterally
2) Without consulting the members with positions potentially at stake.
3) Without clear documentation as to procedures
4) Most critically, with no downside at stake.
The actual problems with the liquidation itself we addressed which are basically two things
5) Too long of a wait to actually liquidate (a full session)
6) Unfair assignment of liquidation to "winners"
5 and 6 we addressed. 3 I hope will be addressed with pseudocode here.
1, 2, and 4 are outstanding issues for me.
I don't think Fireball was being malicious, but the lack of downside (worst thing that happens is he liquidates everybody and walks away) can make for negligence. As a short, there is NO way I would have accepted a full session of time to make margin call - it's a free option to the long (if the market goes up he wins, if it goes down, he gets closed out at a guaranteed price). This is immediately OBVIOUS to me because I have downside risk.
To me, if Fireball continues to maintain (without appropriate downside risk) unilateral control over settlement, clearing, etc procedures more mistakes like these will happen. Now we can't completely avoid mistakes, but we can avoid many of them.
For instance, this one could have been avoided say... if Fireball called one of us when the counterparties were in default and asked for our opinion. Instead he acted unilaterally with no real consultation and no say from the traders. Again, I don't think it was malicious, but he can't lose money on his decision so how can it be precise?
The root problem is we have the decision maker disconnected from the downside of his decisions. There are two possibilities - move risk onto Fireball, or move some decision making power away.
I don't think it's right to impose risk on the exchange itself, so the solution to me is to have some kind of membership structure where the primary stakeholders in the process make the policies. Ideally, interests from both long and short side are represented.
Fireball made decisions about liquidation:
1) Unilaterally
2) Without consulting the members with positions potentially at stake.
3) Without clear documentation as to procedures
4) Most critically, with no downside at stake.
The actual problems with the liquidation itself we addressed which are basically two things
5) Too long of a wait to actually liquidate (a full session)
6) Unfair assignment of liquidation to "winners"
5 and 6 we addressed. 3 I hope will be addressed with pseudocode here.
1, 2, and 4 are outstanding issues for me.
I don't think Fireball was being malicious, but the lack of downside (worst thing that happens is he liquidates everybody and walks away) can make for negligence. As a short, there is NO way I would have accepted a full session of time to make margin call - it's a free option to the long (if the market goes up he wins, if it goes down, he gets closed out at a guaranteed price). This is immediately OBVIOUS to me because I have downside risk.
To me, if Fireball continues to maintain (without appropriate downside risk) unilateral control over settlement, clearing, etc procedures more mistakes like these will happen. Now we can't completely avoid mistakes, but we can avoid many of them.
For instance, this one could have been avoided say... if Fireball called one of us when the counterparties were in default and asked for our opinion. Instead he acted unilaterally with no real consultation and no say from the traders. Again, I don't think it was malicious, but he can't lose money on his decision so how can it be precise?
The root problem is we have the decision maker disconnected from the downside of his decisions. There are two possibilities - move risk onto Fireball, or move some decision making power away.
I don't think it's right to impose risk on the exchange itself, so the solution to me is to have some kind of membership structure where the primary stakeholders in the process make the policies. Ideally, interests from both long and short side are represented.
newminer is one of the traders whose short position was partially closed due to non-paying long-position customers, according to https://icbit.se/margincall worst case scenario
However, I would like to bring attention to the fact, that despite the USD/BTC fall was rather big again, ICBIT handled it much better due to high liquidity, and only small portion of OI had to be forcibly liquidated. Everything else was done using traditional margin calls against the market, so it went rather smooth.
I understand that it always makes traders sad, however, it's much better than the previous time, so we are moving along the good direction. Also, icbitr2, boomerlu and other traders chat participants are providing very useful (and emotional) comments which are going to be wrapped into proposals for actual implementation.
Thank you for trading with us!
However, I would like to bring attention to the fact, that despite the USD/BTC fall was rather big again, ICBIT handled it much better due to high liquidity, and only small portion of OI had to be forcibly liquidated. Everything else was done using traditional margin calls against the market, so it went rather smooth.
I understand that it always makes traders sad, however, it's much better than the previous time, so we are moving along the good direction. Also, icbitr2, boomerlu and other traders chat participants are providing very useful (and emotional) comments which are going to be wrapped into proposals for actual implementation.
Thank you for trading with us!
if i calculate from 4 sessions ago:
My opposite side fullfill margin requirements 2013-05-01 20:00:02 when the course was set 151. Since then, it took three clearing before came Margin Call
We calculate what warranty provision should have been on account: 75%*(20%*151)=22.65
This means that the margin call could not have happened at a rate greater than 151-22.65 = 128.35
margine call at 128, not at 140. please, refund me difference
My opposite side fullfill margin requirements 2013-05-01 20:00:02 when the course was set 151. Since then, it took three clearing before came Margin Call
We calculate what warranty provision should have been on account: 75%*(20%*151)=22.65
This means that the margin call could not have happened at a rate greater than 151-22.65 = 128.35
margine call at 128, not at 140. please, refund me difference
calculating from 02.05.2013 20.00 UTC clearing
opposite trader dont recieve margin call therefore
136.8 - 0,75* (136,8* 20%) = 116,28
this is maximum available price for closing his futures (or lower, if hi had more funds, or it was many opposite partners)
opposite trader dont recieve margin call therefore
136.8 - 0,75* (136,8* 20%) = 116,28
this is maximum available price for closing his futures (or lower, if hi had more funds, or it was many opposite partners)
from rules about margin call:
Every user's balance is continually checked by the trading engine if that user has any open positions. Margin call (forced close) is issued when his balance (actual money in the account plus total variation margin) is less than or equal to 75% of the total maintenance (initial) margin necessary to keep the positions.
Every user's balance is continually checked by the trading engine if that user has any open positions. Margin call (forced close) is issued when his balance (actual money in the account plus total variation margin) is less than or equal to 75% of the total maintenance (initial) margin necessary to keep the positions.
admin, explain to me again. How is it that after yesterday evening clearing by 136.8 at the opposite side there was a margin not count (at this price and purchase contracts were)
that is, it had sufficient reserves at the time (once again, that at the rate of 136)
and today it has dramatically reduced the number of software that is already at the rate of 136 it was impossible to close the contracts, but only to 140
that is, if the course of 136 he carried margin requirements (15%), then it really was to advance Margin Call on 116.
and if margin requirements were not met, why his contract was not closed at night, when there have been wanting to buy for adequate rate?
that is, it had sufficient reserves at the time (once again, that at the rate of 136)
and today it has dramatically reduced the number of software that is already at the rate of 136 it was impossible to close the contracts, but only to 140
that is, if the course of 136 he carried margin requirements (15%), then it really was to advance Margin Call on 116.
and if margin requirements were not met, why his contract was not closed at night, when there have been wanting to buy for adequate rate?
admin! I'm in shock! why I closed the 50 futures on 140?? (At that time, as Bitcoin was worth 85)
I am engaged in arbitration, AND SO THE FUTURES FOR ALL I HAVE BOUGHT Bitcoins
a month ago also closed several hundred at the rate of twice the rate at Gokcen. I swallowed a pill that, although the loss was enormous
I'm arbitration, and under all the futures I bought bitcoins.
I see the clearing in 8utra occurred at the rate of 130.49. HOW my futures then could close at a higher rate?
the more that ever were willing to buy, so I understand it, you are required to change more quickly before my partner, closing futures to someone who did not have enough collateral
Why is the second time I have to myself to bear huge losses (in percentage terms), while the administration admitted mistakes (not relevant market situation margin requirement GO untimely margin call)
Please answer, because if such losses occur without sharp collapse (in contrast to the situation in the past month), then the arbitration between Gokcen and this exchange does not really.
before that, when on April 12, I closed the 200fyuchersov to 143 when Bitcoin was 80, I swallowed it, though, and lost a lot of nested, the more that a month before, I was on these futures suffered loss (here), and constantly added here Bitcoins
But many of those futures, I was selling more on 55, 70, 90. And forcibly bought at 143! (
but I understand that at that time there was a sharp decline, and many have suffered from the fact that at the time were not increased margin requirements
but on the basis of what is now closed my contracts, the relatively quiet market, always with a willing to buy contracts at a reasonable price, and the more that the price is above the clearing price!
I want my money! This is an obvious miscalculation ADMINISTRATION AND I SHOULD NOT BECAUSE THEY SUFFER IN WHICH THE TIMES
I am engaged in arbitration, AND SO THE FUTURES FOR ALL I HAVE BOUGHT Bitcoins
a month ago also closed several hundred at the rate of twice the rate at Gokcen. I swallowed a pill that, although the loss was enormous
I'm arbitration, and under all the futures I bought bitcoins.
I see the clearing in 8utra occurred at the rate of 130.49. HOW my futures then could close at a higher rate?
the more that ever were willing to buy, so I understand it, you are required to change more quickly before my partner, closing futures to someone who did not have enough collateral
Why is the second time I have to myself to bear huge losses (in percentage terms), while the administration admitted mistakes (not relevant market situation margin requirement GO untimely margin call)
Please answer, because if such losses occur without sharp collapse (in contrast to the situation in the past month), then the arbitration between Gokcen and this exchange does not really.
before that, when on April 12, I closed the 200fyuchersov to 143 when Bitcoin was 80, I swallowed it, though, and lost a lot of nested, the more that a month before, I was on these futures suffered loss (here), and constantly added here Bitcoins
But many of those futures, I was selling more on 55, 70, 90. And forcibly bought at 143! (
but I understand that at that time there was a sharp decline, and many have suffered from the fact that at the time were not increased margin requirements
but on the basis of what is now closed my contracts, the relatively quiet market, always with a willing to buy contracts at a reasonable price, and the more that the price is above the clearing price!
I want my money! This is an obvious miscalculation ADMINISTRATION AND I SHOULD NOT BECAUSE THEY SUFFER IN WHICH THE TIMES
Fireball, here's another idea that may help with counterparty risk: Liquidation Auctions.
If somebody is in forced liquidation due to not being able to make margin call, his position unwinds by first chewing through the available liquidity in the market (within limits). THEN, the remaining position is unwound by an open call for bids/offers. This would happen at the current clearings, so people will know to be around for the auction.
You could lock the book to liquidity taking for 5 minutes as the bids/offers accumulate. Then when the auction period ends, you can release the position to be unwound.
Another extension could be you lock the liquidity in the book AT close, but continue to have continuous trading in a separate session (parallel liquidation auction and normal trading, with liquidation only able to insert bids for sell liq and offers for buy liq).
If somebody is in forced liquidation due to not being able to make margin call, his position unwinds by first chewing through the available liquidity in the market (within limits). THEN, the remaining position is unwound by an open call for bids/offers. This would happen at the current clearings, so people will know to be around for the auction.
You could lock the book to liquidity taking for 5 minutes as the bids/offers accumulate. Then when the auction period ends, you can release the position to be unwound.
Another extension could be you lock the liquidity in the book AT close, but continue to have continuous trading in a separate session (parallel liquidation auction and normal trading, with liquidation only able to insert bids for sell liq and offers for buy liq).
a market rebate the way they did it at bitfloor..
I'm up to providing market making rebate automatically, and I feel this is the most natural way for this. If there are any other ideas, I'm eager to listen.
the derivative exchange is in the slightly funny position
it wants to maximize the fee profit, but then again who doesn't?
so it gotta attract the public by offering high leverage
which is as a rule being conditioned by the media for quick profits.
at the same time the market must be formed for these traders in the first place.
coz traders aren't establishing the market by themselves, they can wait, they have got time.
the hedgers are the ones who establish the market because they take the market and lack time
who are they and why don't they have time? their biz is not in the market itself
they would run the btc/cash exchange services which earn a small percentage
but steadily over time building their own biz and other afk merchants.
considering the bitcoin philosophy of decentralization and exchange solutions like localexchange
it could and should be everyone of us! that's the key difference between bitcoin and corporate markets.
but no hedger in the right mind would enter the market which hasn't been developed yet
it's absolutely unacceptable for those who have tight risk limits of their own biz
to be caught in between the market spread or narrow trading limits or insane basis bias or whatever.
so who's gonna do a marketmaking then?
the corporate exhanges sell this right to a dedicated companies.
in exchange for zero fee and exclusive profit opportunities they make out of it
90% of the time during low market volatility they are oblidged to provide mkt liquidity
to a certain extend of course, which is precisely until they make their own profit,
"holding" the market a bit in the periods of high volatility so to speak.
this obscure activity attracts hedgers which bring profitable opportunities for traders because
the derivative market isn't a fucking casino of some sort or another where people rip off each other round and round.
the speculative profit is a percentage which hedgers are willing to share with the market
and in return they want to have peace of mind and their own biz going steady.
so in bitcoin maket everyone of us can be a bank and should be.
that's the whole point of the current paradigm shift.
at the same time having a dedicated mmaker is totally
against the intrinsic beauty of the bitcoin p2p philosophy
i'm not quite sure at the moment why but i have this feeling that
the porper market design and uniqueness of the bitcoin market
can and should do the marketmaking job on their own.
maybe somehow there have to be mmaking opportunities for everyone and
a dedicated marketmaker at the same time? more experiments are required.
i.e. the one of the features which has already been discussed is
a market rebate the way they did it at bitfloor..
more ideas should eventually come up.
stay tuned..
it wants to maximize the fee profit, but then again who doesn't?
so it gotta attract the public by offering high leverage
which is as a rule being conditioned by the media for quick profits.
at the same time the market must be formed for these traders in the first place.
coz traders aren't establishing the market by themselves, they can wait, they have got time.
the hedgers are the ones who establish the market because they take the market and lack time
who are they and why don't they have time? their biz is not in the market itself
they would run the btc/cash exchange services which earn a small percentage
but steadily over time building their own biz and other afk merchants.
considering the bitcoin philosophy of decentralization and exchange solutions like localexchange
it could and should be everyone of us! that's the key difference between bitcoin and corporate markets.
but no hedger in the right mind would enter the market which hasn't been developed yet
it's absolutely unacceptable for those who have tight risk limits of their own biz
to be caught in between the market spread or narrow trading limits or insane basis bias or whatever.
so who's gonna do a marketmaking then?
the corporate exhanges sell this right to a dedicated companies.
in exchange for zero fee and exclusive profit opportunities they make out of it
90% of the time during low market volatility they are oblidged to provide mkt liquidity
to a certain extend of course, which is precisely until they make their own profit,
"holding" the market a bit in the periods of high volatility so to speak.
this obscure activity attracts hedgers which bring profitable opportunities for traders because
the derivative market isn't a fucking casino of some sort or another where people rip off each other round and round.
the speculative profit is a percentage which hedgers are willing to share with the market
and in return they want to have peace of mind and their own biz going steady.
so in bitcoin maket everyone of us can be a bank and should be.
that's the whole point of the current paradigm shift.
at the same time having a dedicated mmaker is totally
against the intrinsic beauty of the bitcoin p2p philosophy
i'm not quite sure at the moment why but i have this feeling that
the porper market design and uniqueness of the bitcoin market
can and should do the marketmaking job on their own.
maybe somehow there have to be mmaking opportunities for everyone and
a dedicated marketmaker at the same time? more experiments are required.
i.e. the one of the features which has already been discussed is
a market rebate the way they did it at bitfloor..
more ideas should eventually come up.
stay tuned..
I was thinking along the lines of something simpler, like the standard deviation of the price divided by the mean, averaged over the last month. Or something like that.
As for margin requirements, this is temporary, and it's going to be fixed properly soon.
Good. We are still in turbulent waters after the last crash, so it is normal that margin requirements are still high - as long as it is a temporary measure, and not the "new normal".
Maybe you should have a "volatility index" and use the volatility during the last month or two to determine the maximal leverage :-)
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