A lot of people lost a lof money because they got margin called at ~$2 for a commodity that is worth ~$300.
https://twitter.com/elnygren/status/877660177406865408
On the other hand, a lot of people made a lot money since there are buy orders that wen through at less than 1% of the real price.
Is there any risk or downside to this? Seems like buying a lottery ticket for free.
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[1] ... or someboy fat-fingers an order - although I think in that case I think still the higher bidders would win, wouldn't they?
A number of people with USD on deposit at Mt. Gox, who correctly understood Bitcoin's price to be unsustainably high and were waiting for the correction, are now 3+ years into waiting for a Japanese bankruptcy court to pay out their claims. They are, in the Bitcoin economy, the lucky ones -- the more common thing which happens when exchanges fail (which happens in 20%+ of exchange-years) is for all money (and things of more dubious value) to be lost.
This is different than in more traditional markets, where custody of assets is distinct from being an exchange (you don't wire money to the NYSE to trade there), custodians/brokers are regulated, individual accountholders are insured, and you generally don't have to have $2000 cash on deposit and locked up to keep an order for 1000 of Google at $2 on the books.
I feel like I have to say that professionals very much do have orders far outside the usual trading ranges for various things in the expectation that a fill against that order usually represents a quickly profitable mistake by a counterparty. A major portion of the reason that this is something professionals do and amateurs largely don't is because there do exist cases where orders get filled far away from the market and one's counterparty praises all the spirits of capitalism that someone else was being inattentive to the fundamentals at a time where being inattentive to the fundamentals is a poor decision.
Lots of contexts where this kind of bidding is a good idea. E.g. after a really bad year you can expect big price swings around tax loss selling season (nov-dec), where people take out their frustration on their worst performers. Doesn't always work but if you've already identified a couple of trainwreck stocks that you think deserve a second chance, getting a stink bid filled for one or more of those stocks can make a very big difference later on.
Of course, the Ethereum flash crash is on a different level :-)
Some exchanges do put price bands on some items. Also some exchanges have trading halts when certain price points get hit.
One of them already been pointed out - the counter-party risk. Not only can there be situation like Mt.GOX disappearing with people's money. The exchange can refuse to honor the order specially if they are the market makers.
Some brokers put a time limit on the trades. These are called Good till Cancelled (GTC) limit orders. Like Schwab has a 60 days limit for the GTC orders. I am not sure how the crypto currency exchanges work.
Instead MtGox disappeared, taking my money with them.
Over a long enough time period, the risk of any given crypto exchange being hacked approaches 1.
They sold off my entire holdings for $0.01 - $0 after fees. At the time LTC was trading for something like $25/LTC.
It took about 3 weeks to get anything but an automated response from their support team.
This was the response:
"After further review, this sell was due to a margin call of your margin position on the LTC/BTC order book. A series of large sell orders were placed on the LTC/BTC order book on May 21, 2017 around 1am UTC causing a large price decline which triggered a margin call of your position when your maintenance margin ratio was exceeded.
The trading engine and margin call functioned as designed. The large price decline was due to the relatively low liquidity on the order book at that time."
They eventually refunded the coins.... but a couple of days later removed half of the refund with no explanation. I'm out of pocket by about $1200. I'm still waiting for a response from them on that one.
Why did you have such an order? I can understand a stop loss order at some small percentage of the original purchase price, because you still get something, but one that says "if this currency suddenly becomes worthless, give it away for $0.01" doesn't make any sense.
https://en.wikipedia.org/wiki/Order_(exchange)#Stop_order
>When the stop price is reached, a stop order becomes a market order.
Market value was extremely low due to low liquidity.
This is a risk with stop orders that many investors aren't familiar with.
AIUI, the way margin buying works is, the first, second, and third priorities are repaying the broker, and the moment your collateral looks like it might not be enough they will dump everything without caution to get the money back, which can result in making stupid (in hindsight) trades.
With that said, I do have a hard time believing there were no buyers at a price closer to $25, so that definitely seems shady. But margin buying is playing with fire and I'd say it could have been a lot worse ...
Remember the whale that hunted shorts and longs hours before the ETF rejection? If you do margin trading, you will get rekt sooner or later in this space.
There's the interesting technical side to cryptocurrencies but most people underestimate the entertainment factor.
1- Have 1 million dollars in ETH
2- Place a buy order at a very low price
3- Place a sell order for the 1 million dollars in ETH you own
4- Have a partner fill that sell order
5- Watch the price topple down and your order from 2 get filled
But you can manipulate the markets in a similar way without a collaborator. It's called running the stops and is an old technique.
They do if you work inside one. Just saying that people have done way more for way less money.
1- Someone bought ETH for a ridiculously cheap price during the presale and forgot all about it (https://etherscan.io/address/0x7d551397f79a2988b064afd0efebe...)
2- Realised two years later how much it's worth
3- Decided to cash out having no prior experience of how stock/ForEx/crypto exchanges work, i.e. they were ignorant of the consequences of dumping that much ETH on one exchange in one go
4- Which then triggered a cascade of stop losses and margin calls.
Edit: fuck that, check this out! 7200 ETH at 0.1 USD!! https://api.gdax.com/products/eth-usd/trades?after=6326580&l...
Theoretically because literally everyone doing it got liquidated it probably won't happen again - people wont set up stop losses and gdax will probably introduce a circuit breaker.
It's even possible that the multi-million dollar trade wasn't an accident, and they put a bunch of buy orders in to hunt the margin traders.
It just shows CNBC is not ready for the crypto world. The whole point is the trade info public and distributed.
There was a trade for 3809 as the screenshot shows but also other larger trades. At $.10, there was $2,592.33 in trades now worth ~$7.8M.
Here are the trades in question:
{"time":"2017-06-21T19:30:18.05Z","trade_id":6326580,"price":"0.10000000","size":"134.00000000","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326579,"price":"0.10000000","size":"7203.30515953","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326578,"price":"0.10000000","size":"801.00000000","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326577,"price":"0.10000000","size":"5060.32727547","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326576,"price":"0.10000000","size":"2.87731448","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326575,"price":"0.10000000","size":"3809.73327491","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326574,"price":"0.10000000","size":"2534.39163532","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326573,"price":"0.10000000","size":"50.00000000","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326572,"price":"0.10000000","size":"74.77560000","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326571,"price":"0.10000000","size":"50.00000000","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326570,"price":"0.12000000","size":"220.00047159","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326569,"price":"0.12000000","size":"779.99952841","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326568,"price":"0.12000000","size":"50.00000000","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326567,"price":"0.15000000","size":"295.00000000","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326566,"price":"0.15000000","size":"790.93796645","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326565,"price":"0.15000000","size":"1728.30611742","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326564,"price":"0.15000000","size":"480.75591613","side":"buy"} > {"time":"2017-06-21T19:30:18.05Z","trade_id":6326563,"price":"0.20000000","size":"0.20000000","side":"buy"}
btc still have intrinsic value as it is traded for chinese expating money, scared Venezuelans, American weekend drug users, etc.
etherium exists for the sole purpose of playing investing with btc. everyone I know who owns etherium bought after they decided to buy btc and got a price hike on their investment so they flip btc and etherium instead of btc and usd. because they see it as two things that ever goes up. ha.
this is the most perfect scenario for a pump and dump. intentional or not.
The reason? It's an applications platform, not just a currency. It brings fundamental innovations in decentralized computing that means it can reach places Bitcoin never could. And when that happens, the utility (and price :) of ETH will match.
So unless you are suggesting the Swiss national currency is also not as valuable as bitcoin your hypothesis doesn't hold up.
it's worth more than bitcoin was worth ~3 months ago
