Quote from: jzcjca00 on April 30, 2013, 02:14:02 AM

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast. Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this. I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141. I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200. Whenever one of my buy orders executes, I immediately place a sell order $3 higher. Whenever a sell order executes, I immediately place a buy order $3 lower. As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair. If it goes outside of this range, I wait for it to return. History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200. That's 25% return on investment per year. Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000. They would probably not make nearly the same return, because their action would dramatically reduce the volatility. That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

You could benefit by having a more sophisticated strategy which allows you to make more money and also will not run out of BTC or fiat whatever the price does. If the anti-volatility group wants to be more effective, you could develop your own version of the aricie trading bot which was set up and made open source for the explicit purpose of reducing volatility. I don't know whether it is working at the moment, but the source code is available so it gives you a good starting point and an insight into more effective market making strategy.

The main pointer for your approach is to have smaller orders near the current market price and bigger orders further out. Actually, thinking about it, the aricie bot might be hamstrung by the new restriction of 6 orders per minute at gox. It is still worth looking at, though, to see an implementation of a market making alogrithm.

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