Topic: ICBIT Derivatives Market (USD/BTC futures trading) - LIVE - page 16. (Read 97687 times)

starik69, your personal views are completely meaningless in regard to futures clearing process. What is important is contract specifics laid out in the contract description. If there's nothing about "additional clearings to change the price range" there it means the breach of rules upon which the trader in opening his positions and calculates the risk it involves.

Now the "additional clearings" are mentioned in the trading session description so everybody can prepare for it and take into account that it can happen at any time making the price range wider. Daily price range is effectively illusory and it's better to assume it doesn't exist and the futures price may change as much as the spot price or even more at any time .

It was same unexpected as spot fall from 95 to 75. I cannot imagine how futures trader would not expect to loose almost all his overleveraged money on April contract in such circumstances. I think if someone plays high risk instruments with such volatility he must be happy that exchange ever not stopped operations at all.

Force closing only occurs if you do not have funds to cover the losses over dips. The advertised trading range per session is 10%, and I had enough funds to cover any dips in that range. Furthermore, I did not purchase most of those contracts above 100, that is the price they moved to, and your position moves to whatever the price is at each clearing. I had additional funds in my offline wallet, and would gladly have funded the account further to prevent closing of positions, but unfortunately the manual clearing was completely unexpected and gave no opportunity to do so.

bV, you bought two weeks contract above 100 and the spot price fall to 75 - what other than forced closing of such positions you expected?

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.

I really like the twice daily clearing at uniform intervals, both trading ranges 10%.

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.

Agreed on the lack of concern for transparency and professionalism.  I pointed out how the settlement price determination wasn't per-contract for March, only to be ignored.  Future contracts have not been updated to reflect actual settlement process.  Settlement price determination is done by "taking a screenshot".  Fees are too high.  I'm cutting out too.

The other worth mention thing is that sometimes some small newbie order is fulfilled at unrealistic price - much lower/higher than actual best price. If that happens shortly before the clearing this price will be taken as the base price for the clearing and might force many margin calls on much bigger players.

In other scenario it is possible to manipulate variation margins by doing the same intentionally. It can be done currently as well but more often clearings mean that the risk of it is increased. For example a small order for 1 contract fulfilled shortly before the clearing would affect margins of all traders with thousands of contracts.

I think much more reliable would be to take as the basis price for the clearing not the last price before the clearing but some average during the day or simply drop the most extreme prices to avoid this problem. Then clearings twice a day would not increase the risk of margin calls caused by a single small mistaken/newbie/intentional order.

Indeed, we appreciate that you care for managing the risks.
Could you please elaborate a bit about what exactly the risks are in such a situation?

Let's assume that there was a real crash on the spot market, so futures are now very much in contangio.
I was under the impression that the margin requirements and the size of the trading range are chosen in a way, that every move within the trading range can still be covered by the margin (used as collateral). Is this assumption still correct?

Then, in our hypothetical scenario, for each loosing long position there is an corresponding winning short position. Thus, in case the trader being long doesn't provide additional collateral or is unable to close his position (since no one wants to buy at a rate way higher than spot), the often mentioned "worst case" automatism kicks in: the long trader's position will be closed against some other suitably winning position.

Is this the risk you are referring to? So this would basically be a risk for the trader, but not endanger the balance of the platform, correct? In an indirect way, it is harmful to the platform, since the winning trader will be unhappy or even loosing his hedging mechanism. Personally, I think this risk for me as trader is acceptable, since it is well known and somewhat comparable to a general counterparty risk.

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and btw, thanks for clarifying this situation regarding the additional clearings!

I would also like to see the avoidance of ad-hoc clearing, I see a few options:

1. Do nothing.

2. Guarantee no unscheduled clearing, with no other changes.

3. Guarantee no unscheduled clearing AND increase the frequency of scheduled clearing (e.g. to twice per day).

4. Allow unscheduled clearing, but with additional controls, for example requiring a minimum spot price time above/below threshold price range before clearing is triggered, with plenty of notifications in advance etc.

5. Others... let's hear em

I certainly welcome a more defined clearing process and avoidance of ad hoc clearing.

After long discussion in the ICBIT chat, a proposal is made to change the risk management of the exchange. To get a broader overview, I'm posting it here.

It is proposed to get rid of "additional clearings are possible" definition at all, and instead perform clearing twice a day, at uniform time intervals (e.g. 20:00 UTC and 08:00 UTC). This should make risk more predictable for traders and for the exchange too.

Ichtyo - 8 hours is a huge risk. Margin requirements should be significantly increased to allow waiting for such long time. We are doing really strict risk management now, it's the only way to remain honest and pay everyone what they earned.

Bytheway, by popular demand I added a line there at https://icbit.se/futures saying
Please note, the ICBIT exchanges reserves the right to perform additional clearings to enhance trading range in rare occasions (mostly, when there is a strong, more than 10% move on the spot market).

This does not justify any manipulation of the trading ranges on the futures. This is a feature. Even if the spot price collapses, the future trading span will walk down in a moderate pace. The trading ranges must not react hastily to such flash crashes as yesterday.

I welcome that you'll set up clear rules for such additional clearings. Moreover, I'd urge to build in a strong damping factor.
For example, if there is a decline of more than the current trading range span, and if this decline lasts more than 8 hours, then an additonal clearing would be adequate IMHO. (This would allow 2 additional clearings per day)

currently, the additional clearings are a scam.

I have lost all of my financial confidence in icbit - this is no less than the second major round of huge price "manipulation" this time fueled by the apparently new automated margin call execution - This is definitely resulting in losses to smaller investors. this coupled with the "additional clearings put investors at far more risk than intended - this is theft. The nonchalant attitude of icbit suggests they have something to gain from this.

I believe that I can no longer trade at icbit. The lack of concern for investors' money is flagrant and alarming.

I'm applying some updates to the system atm, please excuse short downtime.

Thank you.

Allright, proposal nr.2 accepted. I will outline the draft of the rules soon.

My proposition is

1. remove trading range at all or
2. provide clear rules for "additional clearings" which change the trading range so users can calculate the risk

If you do additional clearings arbitrarily you effectively change the trading range at will. Many people have margin calls that they wouldn't have if additional clearing was not done because spot price dip was short lasting. In effect they feel that arbitrarily done clearing "margin called" their accounts. No clear rules for additional clearings justifies their feelings.