[elnygren]

It takes two to tango.

A lot of people lost a lof money because they got margin called at ~$2 for a commodity that is worth ~$300.

https://twitter.com/elnygren/status/877660177406865408

On the other hand, a lot of people made a lot money since there are buy orders that wen through at less than 1% of the real price.

[captainmuon]

Wait, so basically I could create a buy order for $2, leave it sitting there, and wait until there is another crash [1]? If there is no crash, then nothing happens. For good measure, do it for every currency on the exchange.

Is there any risk or downside to this? Seems like buying a lottery ticket for free.

----

[1] ... or someboy fat-fingers an order - although I think in that case I think still the higher bidders would win, wouldn't they?

[patio11]

Is there any risk or downside to this?

A number of people with USD on deposit at Mt. Gox, who correctly understood Bitcoin's price to be unsustainably high and were waiting for the correction, are now 3+ years into waiting for a Japanese bankruptcy court to pay out their claims. They are, in the Bitcoin economy, the lucky ones -- the more common thing which happens when exchanges fail (which happens in 20%+ of exchange-years) is for all money (and things of more dubious value) to be lost.

This is different than in more traditional markets, where custody of assets is distinct from being an exchange (you don't wire money to the NYSE to trade there), custodians/brokers are regulated, individual accountholders are insured, and you generally don't have to have $2000 cash on deposit and locked up to keep an order for 1000 of Google at $2 on the books.

I feel like I have to say that professionals very much do have orders far outside the usual trading ranges for various things in the expectation that a fill against that order usually represents a quickly profitable mistake by a counterparty. A major portion of the reason that this is something professionals do and amateurs largely don't is because there do exist cases where orders get filled far away from the market and one's counterparty praises all the spirits of capitalism that someone else was being inattentive to the fundamentals at a time where being inattentive to the fundamentals is a poor decision.

[lmm]

They call this "catching a falling knife", or more charitably "buying the dip". The conventional wisdom was that you shouldn't do this, because if it crashes to below $2 that's more likely to be because it's worth $0 than because of a glitch, and you're more likely to lose your money. But it's absolutely something you can try, and I wish someone with serious backing would try - I suspect the conventional wisdom isn't true any more.

[jbooth]

The conventional wisdom was for stocks, which are much higher volume, liquidity, etc, and aren't a newfangled math experiment.

I think with these coins it could be a decent bet that we'll see this happen again in the next year or two.

[lmm]

> The conventional wisdom was for stocks, which are much higher volume, liquidity, etc, and aren't a newfangled math experiment.

If anything that means the conventional wisdom should apply even more, no? It seems more likely that Ethereum would go all the way to zero than whichever company it was that traded at $.01 during the flash crash (Proctor & Gamble?)

[jbverschoor]

The trades caused by the flashcrash of apple were halted and reversed.

A central institute isn't always bad

[lmm]

Whether reversing those trades was good is not at all clear-cut. Some argue it punished those who were willing to make markets during unstable conditions (because their profitable trades were cancelled and their loss-making hedges weren't), whereas such trading is something we ought to be encouraging.

[HalteMich]

Agreed. And these are speculative investments, not currencies.

[headcanon]

The downside is that when you put in a limit buy the exchange puts your money into escrow until the order is cancelled or filled. Since a crash like that is unlikely to happen (first time on that exchange I believe) it just means you have money tied up when it could be put to better use

[unknown_apostle]

"unlikely"

Complexity fattens the tail. Ethereum must be one of the most complex things out there.

It's been live for 1 year on GDAX and then it went for a 3000x round trip. What does that tell you about odds?

[lordlimecat]

It tells me that its a terrible investment decision and that I am better off at the blackjack table. At least casinos are regulated.

[koolba]

And they could reverse the trades and null them out on both sides. Just because the order gets filled doesn't means it'll complete. Until you get the asset, sell it, and get your cash out of there, you're still at risk.

[unknown_apostle]

Yes it's sometimes called a stink bid.

Lots of contexts where this kind of bidding is a good idea. E.g. after a really bad year you can expect big price swings around tax loss selling season (nov-dec), where people take out their frustration on their worst performers. Doesn't always work but if you've already identified a couple of trainwreck stocks that you think deserve a second chance, getting a stink bid filled for one or more of those stocks can make a very big difference later on.

Of course, the Ethereum flash crash is on a different level :-)

[lordlimecat]

>>Timing the market

>Doesn't always work

Thats putting it lightly, you're describing some form of survivorship bias. If it were that reliable and simple the major active fund managers could score reliable index-beating returns just off of Nov-Dec.

As it turns out, rules like that don't work, which is why passive index funds inevitably win out over attempts to time the market.

[unknown_apostle]

"survivorship bias". Bullshit.

In the specific example I gave, I talked about putting in stink bids for burned down companies you already wanted anyway, during the 1 or 2 month window when its stock has a big chance of getting another kick in the teeth for simple fiscal reasons.

The cost for trying this is pretty much zero. The worst that can happen is that the price never hits the bid and then you have to be content with the regular price. If it does work, you may get an additional 30% or whatever discount on the company.

If the rest of the story doesn't work out, it won't be caused by the extra discount. So stink bids literally do help performance and active investors do put them in and a lot of them do suck for a lot of reasons and these tax loss selling waves do happen despite everyone knowing about it because they are caused by regulations.

"passive index funds inevitably win out over attempts to time the market" This is a totally different discussion, not about the chance and impact of getting a low bid filled, but about efficiency of markets and whether people who beat some chosen benchmark are lucky or skilled.

But maybe there is a relationship. Let me ask you this: do you think Wall Street has ever had a good idea (like ETFs) and didn't take it way too far? Like 3x inverse Venezuelan Beaver Cheese ETFs? If there is a demand for passive index funds, Wall Street will indulge. But to make a passive index fund you need an index. And so they have been puking up a whole circus of indexes. With some of these indexes, especially ones that involve small companies, I wonder what will happen during the next serious drawdown. And so we can get back to the subject of stink bids.

[kasey_junk]

Of course. But there is tons of risk there. If you get hit on it's way to nothing you are out your $2 per coin.

Some exchanges do put price bands on some items. Also some exchanges have trading halts when certain price points get hit.

[thisisit]

Not really, there are risks attached to it.

One of them already been pointed out - the counter-party risk. Not only can there be situation like Mt.GOX disappearing with people's money. The exchange can refuse to honor the order specially if they are the market makers.

Some brokers put a time limit on the trades. These are called Good till Cancelled (GTC) limit orders. Like Schwab has a 60 days limit for the GTC orders. I am not sure how the crypto currency exchanges work.

[SimonPStevens]

Yup. I did this once. I had $20 sitting on MtGox in a $1 buy order. Had a crash happened I would have picked up 20 bitcoins (which would now be worth around $50,000).

Instead MtGox disappeared, taking my money with them.

Over a long enough time period, the risk of any given crypto exchange being hacked approaches 1.

[maxerickson]

You risk your buy going through and the price never recovering to above $2.

[yebyen]

If you bought 1000 ether at $2, you'd be out $2000. If it is a glitch and the price does recover, you've made about $340,000. (Sounds like a scenario out of a post from the sub-reddit /r/LateStageCapitalism, doesn't it!)

Of course if you do this on every exchange, you multiply your risk by the number of exchanges, and your reward probably only comes out of a single one of those exchanges, unless it is the real deal "flash-crash" coin-wide permanent glitch-out end-of-the-world everything's hosed and the price is never coming back, in which case you lost $2000·N which sounds a little worse.

[m3kw9]

The risk is if you buy and continues to fall to 0.02 cents and stays there.

[michalu]

"commodity" :)