Do any of the Bitcoin exchanges implement trading curbs?

After the big hack of Mt Gox we all became aware that there is nothing in place to prevent "flash crashes." Most stock, FOREX and other exchanges have features like trading curbs or other market volatility procedures to prevent such crashes - so do any of the Bitcoin exchanges have such curbs in place?

Also, if one exchange were to implement such a procedure would it still be effective if other exchanges did not? In other words, if Mt Gox implemented a trading curb and TradeHill did not, would this non-universal curb be effective? Would the effectiveness hold if the scenario were reversed? (i.e. TH has a curb and Mt Gox does not)

David Perry

Posted 2011-09-01T17:49:57.810

Reputation: 13 848

1What does it mean for such curbs to be "effective"? I tend to think they are a bad idea in general, so I'm not sure what characteristics an "effective" trading curb would have aside from preventing the market forces from working... – Michael McGowan – 2011-09-01T18:03:31.007

2An effective trading curb would prevent the market from moving more than a predefined percentage over a predefined period of time. Their purpose is to momentarily stall markets that appear to be moving "emotionally" and allow time for rational thought to kick in. They were implemented in the US exchanges after the big stock market crash and have been very effective at stopping "flash crashes" ever since. Essentially they curb the "oh god the sky is falling sell sell sell" reaction long enough for reason to win out. – David Perry – 2011-09-01T18:06:26.440

2They also prevent absurdities from happening due to bugs or security compromises. Bitcoins sold on Mt. Gox for a few cents a piece just moments after selling for around $10. – David Schwartz – 2011-09-01T18:25:54.997

Answers

Mt. Gox has stated that they now use "circuit breakers" to disable trading pending manual intervention if trading appears suspicious or unreasonable. They reported a few minor incidents where the breakers did trip in the initial implementation due to unusually high, but normal and innocuous, volatility.

My recollection is that TradeHill only has breakers on the movement of Bitcoins out of the exchange. So far as I know, they have no breakers on trading -- at least not that they've announced.

David Schwartz

Posted 2011-09-01T17:49:57.810

Reputation: 46 931

As far as your second question goes, I suppose it comes down to how much volume each of the exchanges have. If a few low-volume exchanges have circuit breakers, but the higher volume one(s) don't, I'm not sure there is any benefit.

As an aside, it is interesting that there are only circuit breakers in one direction on most markets, even though obviously for every seller their must be a buyer (so if one thinks "irrational volatility" is a problem, it doesn't make sense it is a problem only in one direction)

lemonginger

Posted 2011-09-01T17:49:57.810

Reputation: 5 112

1Yeah, I've noticed that most exchanges aren't interested in preventing massive bubbles, only crashes. To some extent I understand the basic logic that +price=good -price=bad so let's stop the bad end, but no bubble is without its crash. Perhaps it's simply harder to tell bubbles from normal rise in price than it is to tell natural devaluation from a crash? – David Perry – 2011-09-01T21:02:54.093