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Prices only move because of successfully filled orders. It is extremely unlikely that the bid side of the orderbook is completely empty. The worse case is that

by verroq 9y ago

Prices only move because of successfully filled orders. It is extremely unlikely that the bid side of the orderbook is completely empty. The worse case is that longs may get liquidated substantially below their liquidation price, depending on the exchange, loss is either socialised or paid thru the insurance fund. At no point would the exchange be bankrupt. Coinbase/gdax is a joke of an exchange and handles nowhere near the volume of bitmex or bitfinex.

JumpCrisscross 9y ago
> It is extremely unlikely that the bid side of the orderbook is completely empty It still happens quite often. In practice, the buy-side order book doesn't vanish. It just goes from $19k, $19k, $19k to $17k, $9k, $2k. The liquidating exchange hits the $17k, and then the $9k. Now you have a trade at $9k which (a) prompts further forced liquidations and (b) causes everyone to panic. > loss is either socialised or paid thru the insurance fund Insurance fund? Who is insuring Bitmex? [1] https://support.bitfinex.com/hc/en-us/articles/115004555165-Intro-to-Margin-Trading https://support.bitfinex.com/hc/en-us/articles/115004555165-...
- verroq 9y ago
  https://www.bitmex.com/app/insuranceFund https://www.bitmex.com/app/insuranceFund And cascading margin calls are possible, but it seems like all exchanges except for gdax/coinbase have a strategy to handle it.
  - JumpCrisscross 9y ago
    > https://www.bitmex.com/app/insuranceFund https://www.bitmex.com/app/insuranceFund That isn't an insurance fund. It's BitMEX's reserves, re-branded. In the event of a crash the value of these assets would fall. If the price drop is large enough, it could burn through these reserves. It is prudent that BitMEX seems to be holding reserves. This is what good exchanges do! But consider why Goldman Sachs is requiring 100% margin while Bitfinex is doing the same at 30% [1]. The additional risk is borne by the exchange's (or in GS's case, broker's) equity. When that runs out, the exchange (or broker, as applicable) busts. We separated broker-dealers, who can lend on margin, from the exchanges in the equity markets for a reason. > it seems like all exchanges except for gdax/coinbase have a strategy to handle it Based on what? [1] https://support.bitfinex.com/hc/en-us/articles/115004555165-Intro-to-Margin-Trading https://support.bitfinex.com/hc/en-us/articles/115004555165-...
pishpash 9y ago
Lending rates on bitfinex imply a huge counterparty risk. Somehow I believe what that tells me more.
physguy1123 9y ago
Prices can move without filled orders no problem as orders get cancelled. If market makers start pulling out, the order book can become extremely thin. For the passive traders that stay in they'll probably react much more strongly to trades on the book, so even if some liquidation makes it through much won't. Look at the GDAX ethereum crash for a recent real-live crypto example.

by verroq 9y ago

JumpCrisscross 9y ago

> It is extremely unlikely that the bid side of the orderbook is completely empty It still happens quite often. In practice, the buy-side order book doesn't vanish. It just goes from $19k, $19k, $19k to $17k, $9k, $2k. The liquidating exchange hits the $17k, and then the $9k. Now you have a trade at $9k which (a) prompts further forced liquidations and (b) causes everyone to panic. > loss is either socialised or paid thru the insurance fund Insurance fund? Who is insuring Bitmex? [1] https://support.bitfinex.com/hc/en-us/articles/115004555165-Intro-to-Margin-Trading https://support.bitfinex.com/hc/en-us/articles/115004555165-...

verroq 9y ago
https://www.bitmex.com/app/insuranceFund https://www.bitmex.com/app/insuranceFund And cascading margin calls are possible, but it seems like all exchanges except for gdax/coinbase have a strategy to handle it.
- JumpCrisscross 9y ago
  > https://www.bitmex.com/app/insuranceFund https://www.bitmex.com/app/insuranceFund That isn't an insurance fund. It's BitMEX's reserves, re-branded. In the event of a crash the value of these assets would fall. If the price drop is large enough, it could burn through these reserves. It is prudent that BitMEX seems to be holding reserves. This is what good exchanges do! But consider why Goldman Sachs is requiring 100% margin while Bitfinex is doing the same at 30% [1]. The additional risk is borne by the exchange's (or in GS's case, broker's) equity. When that runs out, the exchange (or broker, as applicable) busts. We separated broker-dealers, who can lend on margin, from the exchanges in the equity markets for a reason. > it seems like all exchanges except for gdax/coinbase have a strategy to handle it Based on what? [1] https://support.bitfinex.com/hc/en-us/articles/115004555165-Intro-to-Margin-Trading https://support.bitfinex.com/hc/en-us/articles/115004555165-...

pishpash 9y ago

Lending rates on bitfinex imply a huge counterparty risk. Somehow I believe what that tells me more.

physguy1123 9y ago

Prices can move without filled orders no problem as orders get cancelled. If market makers start pulling out, the order book can become extremely thin. For the passive traders that stay in they'll probably react much more strongly to trades on the book, so even if some liquidation makes it through much won't. Look at the GDAX ethereum crash for a recent real-live crypto example.