Quote from: ptd on December 10, 2010, 11:02:26 PM

Quote from: MrFlibble on December 07, 2010, 12:41:11 AM

Could someone post a worked example perhaps? Including profit, loss and disastrous loss modes?

We will suppose that BTC has deflated to 1 BTC/USD

Suppose someone buys 10 BTC at 2:1 margin, it costs him $5 and mtgox pays the other $5. The $10 dollars is then sold at 1 BTC/USD. Then one of four things can happen:

* The order is fulfilled, mtgox takes a higher percentage of the transaction than normal because he provided margin (but not 50/50 because he took a lot less risk than the trader)
* The price of BTC in USD falls so mtgox automatically sells the order at the current market price, takes the money for his stake and passes the rest on to the buyer (who makes a loss)
* The price of BTC in USD can fall so fast that mtgox is not able to regain his lost capital (this is the only way that mtgox can lose money)

Mtgox has to sent his margin to a level that prevent the third point happening.

Yes, exactly.

And on the point of "falling fast" people should realize that price is not a continuous function. It only exists where there are offers and that means that price can fall through any level instantaneously. So it isn't solved by MtGox giving them priority. The important thing is regular depositors funds aren't used for this without their consent thinking that a large enough swing can't happen or something.