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Price drop was most likely caused by cascading margin calls. As exchanges add more sophisticated features (such as trading on margin) amateurs continue to suff

Price drop was most likely caused by cascading margin calls. As exchanges add more sophisticated features (such as trading on margin) amateurs continue to suffer and learn expensive lessons. Many Bitcoin advocates will heave at the idea of any form of regulation, Bitcoin unfortunately appears to be most attractive to libertarians. Yet their fellow advocates are suffering all around them for it. As an example, any leveraged trading instrument regulated by the FSA in the UK is plastered with warnings about leveraged trading, in a (admittedly probably lacking) effort to warn amateurs of the dangers. I see no such warnings on Bitcoin exchanges offering leverage.

STRML 12y ago
Part of the issue is that most exchanges will liquidate your entire position in the event of a margin call, rather than simply liquidating enough to bring you back above maintenance margin.
- GregorStocks 12y ago
  Why do they do it that way? Just because it's simpler to implement?
dreamdu5t 12y ago
Are you one of these amateurs? Do you have these anecdotes sourced somewhere or did you just make them up? The price fell so that means we should have warning labels on the website because clearly everybody trading this thing is an amateur? Can you produce one person who trades on margin without knowing what a margin is? Give me a break.
smrtinsert 12y ago
Can't wait till they allow derivatives!
- STRML 12y ago
  You joke, but that's coming soon (shameless plug - I co-founded BitMEX, https://www.bitmex.com/app https://www.bitmex.com/app, currently in a competitive simulation), and we completely understand the risk to casual users. Bitcoin has a remarkably low barrier to entry compared to most forms of investment, and the average user can easily get swindled. Leverage is a powerful but dangerous thing, but it is needed for legitimate business use, such as hedging held BTC. I agree that there needs to be a big warning on the box. We're working on a series of articles explaining margin trading to the layperson as well as an interactive introduction, but above all, investors need to take responsibility and be aware of what they are doing when they put their money on the line.

STRML 12y ago

Part of the issue is that most exchanges will liquidate your entire position in the event of a margin call, rather than simply liquidating enough to bring you back above maintenance margin.

GregorStocks 12y ago
Why do they do it that way? Just because it's simpler to implement?

dreamdu5t 12y ago

Are you one of these amateurs? Do you have these anecdotes sourced somewhere or did you just make them up? The price fell so that means we should have warning labels on the website because clearly everybody trading this thing is an amateur? Can you produce one person who trades on margin without knowing what a margin is? Give me a break.

smrtinsert 12y ago

Can't wait till they allow derivatives!

STRML 12y ago
You joke, but that's coming soon (shameless plug - I co-founded BitMEX, https://www.bitmex.com/app https://www.bitmex.com/app, currently in a competitive simulation), and we completely understand the risk to casual users. Bitcoin has a remarkably low barrier to entry compared to most forms of investment, and the average user can easily get swindled. Leverage is a powerful but dangerous thing, but it is needed for legitimate business use, such as hedging held BTC. I agree that there needs to be a big warning on the box. We're working on a series of articles explaining margin trading to the layperson as well as an interactive introduction, but above all, investors need to take responsibility and be aware of what they are doing when they put their money on the line.