Quote from: cypherdoc on December 21, 2011, 04:42:55 AM

Quote from: zhoutong on December 21, 2011, 02:18:19 AM

Quote from: cypherdoc on December 21, 2011, 02:15:00 AM

Quote from: zhoutong on December 21, 2011, 12:01:40 AM

Quote from: DonnyCMU on December 20, 2011, 08:17:55 AM

Let me get this correct... So when the price spiked up and people were trading on Mt.Gox at $4.5, Zhoutong's genius matching algorithm put the buy price at a $1 spread and force liquidate people's position at $4.9 Huh

??

So when all these forced buy bitcoins are actually bought in Mt.Gox market at any price around $4.1-4.5, the all difference goes into Bitcoinica's pocket?

I've been Zhoutonged good!!!

Can you send an email to support@bitcoinica.com about this? We'd like to compensate you on this.

While it's true that our algorithm sets the price by balancing and predicting the benefit and the risk, after all the trading, there's no point of predicting, and we can clearly see that the prediction was wrong. So we are perfectly okay to refund you the "unexpected profit" we made from you.

I hope this explanation makes sense.

to be honest, i don't see any explanation as to why or how you determined "unexpected profits".

If we liquidated the customer's assets at $4.50 but we charged the customer $4.90 for it, I would say $0.35-$0.39 should be the unexpected profit.

On the other hand, if the customer's assets shouldn't be liquidated at the price of $4.50 instead of $4.90, the better solution is to reverse it.

how did your algorithm make this mistake?

At the point of $4.50, there were a lot of forced liquidations, stop orders and market buy orders, and there's almost no depth beyond the price until $4.90. So the algorithm decided that the price should be set at $4.90 to minimize the risk for Bitcoinica based on the actual situations.

Then there are sell orders and price decreased, so the algorithm relaxed and lowered the spread. And the previous high were proven wrong.

It's important to know that currently we always have a chain of forced liquidations, because forced liquidations will push the price to trigger more forced liquidations. We will just make sure that they are fully hedged in the market and the prices are reasonable.