Topic: ICBIT Derivatives Market (USD/BTC futures trading) - LIVE - page 15. (Read 97699 times)

Hi Fireball,

could you please clarify why today's clearing price of the BUJ contracts (04.13) was below the spot price. The spot price was around 142-143 as the screen below clearly shows and the clearing price was 141. How could it be?

In theory, an investor can make infinite profits by taking unlimited positions in an arbitrage. In reality, however, investors must satisfy margin requirements which completely change the economics of arbitrage. We derive the optimal investment policy for a risk-averse investor in a market where there are arbitrage opportunities. We show that it is often optimal to underinvest in the arbitrage by taking a smaller position than margin constraints allow. In some cases, it is actually optimal for an investor to walk away from a pure arbitrage opportunity. Even when the optimal policy is followed, the arbitrage strategy may underperform the riskless asset or have an unimpressive Sharpe ratio. Furthermore, the arbitrage portfolio typically experiences losses at some point before the final convergence date. These results have important implications for the role of arbitrageurs in financial markets.

So there’s an arbitrage. So what? This desk has lost a lot of money on arbitrages. Arbitrages aren’t particularly great trades.
– Treasury bond trader at a major Wall Street investment bank.

Any reason this won't work?

EDIT: Again at todays clearing, the trading range did not move.  This instrument is temporarily deadlocked.

I would disagree with this point, but note that I used the word deceptive and not dishonest. Though I do believe that you have something to gain by doing a manual clearing in that the exchange has reduced risk (this should not be disregarded, as risk is used as a financial instrument), my main point is that the trading range on the site and the definition of a trading session led many users to believe that they would at least have some time to react to >10% market moves.

I want to stress one specific fact, which clearly separates honest and dishonest behavior:
If an additional clearing followed by margin calls happened WITHOUT spot market movement into the same direction (or even worse, into different direction), then it's clearly an abuse.
If the spot market moves and additional clearing is done to adapt to changed conditions (and direction of futures price change corresponds to the spot market price change), then there is no dishonest behavior involved.

I wouldn't go so far as to say that it is a scam, but I believe it is at the very least deceptive practice and I would go so far as to say that it is a breech of contract.  The text on the site defined a trading session is 24 hours, with a maximum trading range of 10%. Fireball, could you provide the original text that was on the site before you updated so that it can be considered? 

I had contracts of BUJ3 with enough money in reserve to handle 10% movement, and had my finger on the button to add additional funds if the clearing proved to move the price down to a range that might put some of my contracts in jeopardy.  The clearing actually moved the price range center from 103 to 106, so I did not add additional funds. The manual clearing I believe moved the price range center to 95, causing a loss of a very large portion of my positions as the price went down to 86. I've since closed all of my positions at a great loss to myself as I've lost all confidence that this site will perform as it says it will without making things up as they go.

I feel that this manual clearing should not have happened according to the definitions laid out on the site at the time. I feel that the exchange did this as a CYA disregarding the fact this is not a provision set forth and agreed upon with its customers. Some sort of compensation is due.

The 24 hour weighted average price (VWAP) showing on Mt. Gox.com website is what gets used for settlement. [Edit: The 24 hour VWAP at the "largest exchange" is what gets used for settlement, but that just happens to be Mt. Gox, for now.]

The settlement occurs at the clearing time (20:00 UTC) on the settlement date (e.g., April 14th, 2012 for BUJ3).   That's from the contract, combined with general instructions from the page describing how ICBIT futures work.  

As far as that number being obtained from a "screen shot", every trade at Mt. Gox is logged and is publicly available.  From that data, you can calculate the 24 hour VWAP yourself.  If you have reason to believe the VWAP grabbed at the time of settlement (20:00 UTC) is not accurate please raise that concern publicly as that would be a problem (as many merchants, traders, and others use that metric from Mt. Gox as well, ... though nobody else has raised concern about its accuracy.)

Of course, there needs to be just "one price" used for settlement at ICBIT.  And that price needs to be known at the time of that settlement day's clearing.   If you believe the use of this 24 hour VWAP is problematic, or whatever issue you seem to have with this metric being used, please clearly state your argument.   If I recollect it seems that you are saying you believe the 24 hour metric at 00:00 UTC (four hours after clearing) should be the metric used and not the number that existed at the time of the 20:00 clearing.  Am I understanding correctly where you believe the issue lies?  If not, please clearly describe what exactly is the particular problem you see with using the 24 hour VWAP that exists at the time settlement (& daily clearing) occurs.