
GDAX will restore the balance of margin called users with company funds - tstyle
https://blog.gdax.com/eth-usd-trading-update-2-216a3b946ef6
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amazingandyyy
this is how GDAX can be a unicorn!

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hnaparst
This is not a real company. I have support requests from May 23 that still
have not received any response.

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nihonde
This business of correcting errors to keep incautious crypto-speculators whole
is going to kill ETH. Let the people who trade on margin fall. At the end of
the day, the critical stability of the currency depends on people like me, who
speculate with disposable income, and not on suckers with margin accounts. I
have a lot invested in this currency, but it's still less than a quarter of my
YTD gain on actively managed mutual funds. If ETH drops to USD0.01, my account
sits still until we hit sell pressure again.

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Hekatron
I think we are in for a huge pump on GDAX, because they now have to buy a
shitton of ETH to make their customers whole(or if they give them cash, the
customers will be buying a ton of ETH to get their holdings back)...and they
will be buying it from GDAX exchange, add that buying pressure to the EEA
announcement later this month that will give it an extra boost, and we'll pass
the ATH and then its up to the next level up

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vii
It seems that the price plummet only occurred on the GDAX ETH-USD market. Even
the GDAX BTC-ETH market hasn't the spike. Normally there are many bots
ferrying liquidity between these markets so this suggests that the ETH-USD
market was not giving willing traders a chance to place orders. Their first
blog post indicated it was working perfectly, in which case a design rethink
is in order.

Coinbase regularly goes down when there is heavy trading. Very decent of them
to publicly refund people for this incident, but given they have regular
Ethereum trading issues, they should be quicker to suspend their market and
more humble about the technical issues they're facing

~~~
modeless
This was not a technical issue. Everything worked exactly as designed. A large
market sell order reduced the price to a level that triggered other sell
orders (a combination of "stop-loss" and forced liquidation for margin
positions) in a cascade. This was a flash crash that was over within a few
seconds, so other markets did not react.

The issue is that there are a lot of inexperienced traders on GDAX right now
and they were recklessly trading on margin and/or setting stop-loss orders
without understanding the possible consequences.

~~~
vii
During the crash, if the market were functioning normally, people could have
bought cheap ETH in the ETH-USD market and sold it at nearly the normal price
via the ETH-USD and BTC-USD markets all without leaving GDAX. Their outage
page has the grace to mention that there were slowdowns.

A few seconds is normally long enough for liquidity to transfer between
markets and this time it wasn't. That's the issue

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ryen
Seems like a good mea culpa, but time will tell how they really feel about
making good on these promises.

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danmaz74
Mea culpa for what? For greedy traders* not understanding the risks of margin
trading?

( *) I'm playing with small money on poloniex as a greedy trader. I made +400%
in 3 months, but I don't expect to be refunded if I lose everything for a
mistake I made. I would only hope for a refund in case of a bug-related issue.

~~~
jnwatson
Losing your entire account is not a normal risk of margin trading. They were
way too quick on the margin calls.

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danmaz74
Depends - if you go long on X and your collateral is all (or mostly) X, then
it's a normal risk to lose everything.

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mrleiter
This is really a curious instance. Those people whose savings have been wiped
out have been hit so hard because they had stop orders, not limit orders. The
main difference is that once the stop point has been reached, a stop order
becomes a market order and then is filled at market rate. So yes, a stop order
at, e.g., 300$ turns into a market order for 300$ and it may be that you are
filled at 1$ if there is huge market movement downwards.

Moral of the story: even if you do not grasp basic financial instruments, in
cryptocurrency you can still be saved because of reputation.

~~~
justinjlynn
This is the basic definition of moral hazard. If the exchange had reason to
believe a trader didn't even know the basic characteristics of the orders they
were placing what business have they engaging with them at all?

~~~
shizzlest
one has to wonder why the exchange gives away their own money. trying to make
the speculators feel that everything is fine and dandy in crypto gambling land
?

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modeless
This is interesting because it gives them a huge incentive to prevent this
from happening again, if it costs them millions of dollars each time. I wonder
what changes they will institute?

~~~
jzwinck
Presumably a circuit breaker. Many exchanges have these now. The Japanese
stock exchange has a particularly nice one which pauses every 3% for people to
think about what they are doing. That makes stop loss orders behave more in
line with people's expectations.

~~~
JadeNB
> The Japanese stock exchange has a particularly nice one which pauses every
> 3% for people to think about what they are doing.

Sorry, as a non-finance-savvy person: 3% of what? (I guess also: what is a
'circuit breaker' in this context?)

~~~
BenchRouter
If the index (presumably the Nikkei, similar to the S&P 500) drops 3% in a
single day, the stock exchange will stop all trading for a period of time.

This gives people the chance to cool off and not sell blindly in a panic,
hopefully returning behavior to normal.

It also gives people the chance to intercept automated systems (stop-loss
orders, things like that) if it's clear that e.g. it's a "flash crash" and not
a more legitimate (for lack of a better term) drop.

It's a circuit breaker in the same way that a regular one works: It stops all
activity (all trading) in order to protect the system (the economy) in the
event that too much current is flowing through (too many sell orders, or too
much volatility in the market).

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kev009
I had around $151k at the day's value wiped out as one data point (my fiat
cost basis on entry was lower, not my life savings but not a trivial amount
for me). Had a very busy week and didn't grok it was gone until Thursday
afternoon. It actually felt cathartic to feel the feeling of losing $150k in
the sense I was thinking "ok if I can accept dealing with that failure I can
deal with any business fiasco when I start one".. and now somewhat surreal to
get it back.

~~~
shizzlest
"not my life savings but not a trivial amount for me"

sounds like you really should consider lowering your stake in this crypto
gambling

~~~
shoo
> An investment operation is one which, upon thorough analysis promises safety
> of principal and an adequate return. Operations not meeting these
> requirements are speculative.

> We must prevent our readers from accepting the common jargon which applies
> the term "investor" to anybody and everybody in the stock market.

> Outright speculation is neither illegal, immoral, nor (for most people)
> fattening to the pocketbook. More than that, some speculation is necessary
> and unavoidable, for in many common-stock situations there are substantial
> possibilities for profit and loss, and the risks therein must be assumed by
> someone. There is intelligent speculation as there is intelligent investing.
> But there are many ways in which speculation may be unintelligent. Of these
> the foremost are: (1) speculating when you think you are investing; (2)
> speculating seriously instead of as a pastime, when you lack proper
> knowledge and skill for it; and (3) risking more money in speculation than
> you can afford to lose.

> In our conservative view every nonprofessional who operates on margin should
> recognise that he is ipso facto speculating, and it is his broker's duty to
> advise him as such.

> The true investor scarcely ever _is forced to sell_ his shares, and at all
> other times he is free to disregard the current price quotation. He need pay
> attention to it and act upon it only to the extent that it suits his book,
> and no more. Thus the investor who permits himself to be stampeded or unduly
> worried by unjustified market declines in his holdings is perversely
> transforming his basic advantage into a basic disadvantage. That man would
> be better off if his stocks had no market quotation at all, for he would
> then be spared the mental anguish caused him by _other persons'_ mistakes of
> judgment.

\- Benjamin Graham, "The Intelligent Investor"

Note that Graham is largely talking about common stocks - interests in
potentially profitable businesses with real world assets than have a value
independent of the current market price.

Betting any amount of capital on exchange rate changes of currencies? On
cryptocurrencies? ...on margin that forces you to sell if the market price
fluctuates? ...when the market price itself is largely/entirely based on
speculation? This is not classifiable as investment activity, and arguably not
classifiable as intelligent speculation either.

~~~
lmilcin
Exactly my thoughts. You invest based on your belief in true value. You
speculate to exploit volatility.

If you are investing you don't want stop loss order. Your belief is that long
term it will bring you returns regardless of temporary volatility.

If you speculate, it's your fault you used that or another strategy. You may
call yourself lucky to get your "investments" back from the exchange but
understand that this is being paid by other users of the exchange, in the long
run.

I hope this is going to be a valuable lesson for a lot of people who do not
really get what this game is about.

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nodesocket
Wait I'm confused... The market moved dramatically and quickly, which can
happen dealing with something as speculative as cryptocurrency, and yet they
are refunding people? Did I miss something? Isn't this part of the risk
investing?

~~~
kev009
It takes a few hundred ETH to have worthwhile leverage.. so they probably
risked losing a substantial amount of trade volume and liquidity with the
fiasco aside from loyal customers and early adopters. It wasn't just the
natural market forces. They directly manipulated the market by stopping
trading, and indirectly during and after the event with a variety of system
issues that are not comforting.

IMO this move to replenish traders was a mature business decision that many
tech companies would have failed at let alone crypto companies. There is
massive money in the long game for Coinbase/GDAX, and providing real and
imaginary assurance could cement them to become the Visa of the next decades.

~~~
civilitty
That's the rub with BTC: technical and security problems have historically
plagued BTC companies with huge amounts of money lost. GDAX giving a FDIC-lite
guarantee sets them far apart from the rest, even if their customer service
and interface is inferior.

~~~
shizzlest
i dont think that will work. wait until real sums are involved and see what
happens. its not a business model to pay users for their own mistakes unless
the system is rigged in some way anyway. just my opinion.

~~~
obstinate
My immediate thought was whether someone might be able to induce the behavior.
That combined with self-dealing (owning both the buying and selling accounts)
could extract significant profits from an exchange that is willing to make its
customers whole.

I would never do such (I consider it unethical, but more to the point I have
neither the capital nor risk tolerance to pull it off), but I wonder if
someone might. Or perhaps already has.

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nugget
They must be making a lot of money to be able to do something like this. I
understood it to be millions of dollars.

~~~
TrainedMonkey
This really depends on how many stop loss orders were there and how users are
refunded. I.E. will people be refunded in current price of ethereum or in the
amount their stop loss order was set to be executed on?

The number could be fairly manageable.

~~~
Gaessaki
I'm wondering, do you suppose there is some sort of insurance for these types
of eventualities?

~~~
civilitty
Not off the shelf, no, not to my knowledge. This would probably fall under
some kind of liability insurance contract and there are plenty of companies
that would structure it for you. However, it would be a very complicated and
expensive contract with the insurers demanding lots of financial and security
audits as well as due diligence by field experts.

I've worked on an insurance deal in aerospace with an unproven launch vehicle
and from where I was siting, it was just a guessing game based loosely on
existing data and some invasive due diligence. These deals work because the
insurance company is itself insured by other companies that spread the risk
around enough that even a claim for the maximum amount wouldn't do much worse
than wipe out a few months profit. No one insures for such large amounts with
small unproven companies so the biggest risk for both parties is a systemic
failure like AIG.

