Traders lost millions in ethereum crash(motherboard.vice.com)
motherboard.vice.com
Traders lost millions in ethereum crash
https://motherboard.vice.com/en_us/article/heres-how-traders-lost-millions-in-the-first-ethereum-flash-crash
23 comments
As far as I know you don't have any input into how a margin call is executed. The exchange confiscates the loaned assets and sells them as a market order. I could be misinformed but I spent several years building FX order books and this is how margin calls were handled on those systems.
As far as I know you don't have any input into how a margin call is executed.
I'm not all that familiar with FX (despite having traded), and I have no clue how it works with blockchain thingies. However, for the couple of brokerages I've dealt with (Fidelity, for example) you do get a choice in how it is executed for equities. Fidelity gives you the dreaded "courtesy call", and you've got three days to cough up cash to make up the difference, the stock bounces back in those three days such that you're not in margin trouble, or after three days Fidelity sells it as a market order if neither of the first two takes place.
But this scenario? Man, it just sounds skeezy. One single sell order at a low enough price, and your whole account gets liquidated at rock bottom prices without you being able to do anything to mitigate it. The skeezy part comes from the fact that there was someone on the other side who bought your coin thingies at fire sale prices, and moments later made a fuck ton. Considering that there's no equivalent to the SEC for blockchain coins that I'm aware of, it sure sounds ripe for market manipulation. I don't know enough to walk through the details of how it might work, but seems to me you use a confederate to enter a sell order at $0.10, and you have an outstanding buy order for one ButtLoad of coins at $0.10. Your buddy's order goes through, and seconds later the rest of your outstanding order is filled when the margin calls hit.
(As an aside, I swear I've seen this happen with equities. One weird order goes through at a way-too-convenient price, say $24.95, when it's been trading at $26-$27 all day. My conspiracy says the $24.95 hits all the stop orders sitting at $25, then turn around for a quick couple of bucks profit. I have absolutely no evidence that isn't circumstantial, though.)
I'm not all that familiar with FX (despite having traded), and I have no clue how it works with blockchain thingies. However, for the couple of brokerages I've dealt with (Fidelity, for example) you do get a choice in how it is executed for equities. Fidelity gives you the dreaded "courtesy call", and you've got three days to cough up cash to make up the difference, the stock bounces back in those three days such that you're not in margin trouble, or after three days Fidelity sells it as a market order if neither of the first two takes place.
But this scenario? Man, it just sounds skeezy. One single sell order at a low enough price, and your whole account gets liquidated at rock bottom prices without you being able to do anything to mitigate it. The skeezy part comes from the fact that there was someone on the other side who bought your coin thingies at fire sale prices, and moments later made a fuck ton. Considering that there's no equivalent to the SEC for blockchain coins that I'm aware of, it sure sounds ripe for market manipulation. I don't know enough to walk through the details of how it might work, but seems to me you use a confederate to enter a sell order at $0.10, and you have an outstanding buy order for one ButtLoad of coins at $0.10. Your buddy's order goes through, and seconds later the rest of your outstanding order is filled when the margin calls hit.
(As an aside, I swear I've seen this happen with equities. One weird order goes through at a way-too-convenient price, say $24.95, when it's been trading at $26-$27 all day. My conspiracy says the $24.95 hits all the stop orders sitting at $25, then turn around for a quick couple of bucks profit. I have absolutely no evidence that isn't circumstantial, though.)
> I have no clue how it works with blockchain thingies
This has nothing to do with blockchains. All exchange transactions that I know of happen off-chain. (This is not a criticism of anything you said; rather, it's a confirmation that your experience and knowledge do transfer to this situation.)
This has nothing to do with blockchains. All exchange transactions that I know of happen off-chain. (This is not a criticism of anything you said; rather, it's a confirmation that your experience and knowledge do transfer to this situation.)
This looked like one sizeable market sell that wiped out a large portion of the buy orders on the book, leaving the remaining buy orders starting the way down at ~$210. This (somewhat predictably) triggered a bunch of people's stops, causing their ETH to be sold at market and pushing the price down even further, triggering more stops, and so on and so on. People should really have paid attention to that not-so-fine print when GDAX added stops because it clearly said that they'd cause a market trade, meaning that if you set a stop to trigger at $250, you would not be guaranteed to get $250, but instead get whatever the highest remaining orders on the book would be.
(Disclaimer: I am not a market specialist, I just read carefully before I go clicking on things.)
(Disclaimer: I am not a market specialist, I just read carefully before I go clicking on things.)
"The golden rule of investing -- regardless of asset -- remains not using more than you can afford to lose."
I agree with this point, but it is also
important to distinguish investing from speculation/gambling.
Coinbase has been totally unreliable. In last two weeks there was a number of days when their entire website went down.
By extension I imagine GDAX can't be much better.
I would not leave a bunch of open orders involving a significant sum of money on an exchange like that; or pretty much any crypto exchange. I don't have enough trust in the quality of their software. Buy when you want to buy, sell when you want to sell. Don't speculatively trade in a thin market on a platform that makes you take all the risk.
Writing production quality matching engine with tools to prevent such blood-bath is hard. At the very least GDAX could disallow orders that wipe the market and have some circuit-breakers.
Also, in the name of transparency they could release a matching engine log (anonymized) so if the people want more answers they could find them there.
By extension I imagine GDAX can't be much better.
I would not leave a bunch of open orders involving a significant sum of money on an exchange like that; or pretty much any crypto exchange. I don't have enough trust in the quality of their software. Buy when you want to buy, sell when you want to sell. Don't speculatively trade in a thin market on a platform that makes you take all the risk.
Writing production quality matching engine with tools to prevent such blood-bath is hard. At the very least GDAX could disallow orders that wipe the market and have some circuit-breakers.
Also, in the name of transparency they could release a matching engine log (anonymized) so if the people want more answers they could find them there.
I wonder if enough important people lost money that they will do another hard fork of the block chain?
This is a very different situation from the DAO hack you're probably thinking of. Most of the losses were off the blockchain, in GDAX exchange accounts.
I actually don't see how its different. This was caused by an individual resulting in people losing money. The question then becomes how much lost money or WHO lost money is enough reason to pursue a hard fork?
What would the continuation of the current Ethereum called in case of another fork?
Ethereum Legacy?
Ethereum Legacy?
What about the automated buy orders that were set up at the floor of the drop? Many people lost money, but some made out like a bandit.
Supposedly someone bought $720 at 10 cents and then it went back up making him $2 million.
Oh yes, it was right there in the log. Whoever that was is probably still trying to wrap their head around that it actually happened (and checking with an accountant because the IRS will be wanting a little chat).
I don't know much about any of this stuff but my first though was if it is possible to see if the majority of buys at the low price were to one location or wallet (or however that works) or how many automated buys are set for weirdly low values.
You think the person who had those buy orders in just happened to get them fulfilled by coincidence?
Don't you think the most likely explanation is that they were the ones that caused it by purposely margin calling leveraged traders?
Don't you think the most likely explanation is that they were the ones that caused it by purposely margin calling leveraged traders?
If they did they personally lost quite a bit of money in the process. Just the initial sell resulted in a very large number of their coins selling for below the market average (because there's more exchanges than just Coinbase/GDAX). Those ten cent buys won't make up that difference.
How do you know that?
FWIW - I've set ridiculously low buy orders on Bitcoin exchanges and had them filled by flash dumps and I wasn't the one who caused the crash.
Crypto markets are notoriously volatile. This isn't the first nor the last time this will happen.
Crypto markets are notoriously volatile. This isn't the first nor the last time this will happen.
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The golden rule of investing -- regardless of asset -- remains not using more than you can afford to lose.