◤PUBLIC SERVICE ANNOUNCEMENT
A stop-limit order is executed at a specified price, or better, after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy or sell at the limit price or better.
This is a stop order (aka how you can end up selling your Ether for $0.10 each). With a stop order, when the stop price is reached, a stop order becomes a market order.
tl;dr - Stop using stop orders. Stop-limits orders are much safer.
◤WHAT PEOPLE ARE TALKING ABOUT
So what happened? This.
Yesterday at 12:30pm PT, someone dumped several million dollars worth of Ether (ETH) on the GDAX ETH-USD order book. According to GDAX, this sale of ETH resulted in orders being filled from $317.81 to $224.48, translating into a book slippage of 29.4%. The result of this slippage was about 800 stop loss orders(remember, we just talked about these) and margin funding liquidations.
WTF is a Margin Liquidation?: Investopedia says - "Liquidation margin applies to investors or traders who use margin (leverage) to increase the potential profit of a trade. When the equity of a margin account falls below the liquidation margin level requirement, the broker may automatically close any open positions in the account."
How does that actually work?
- Dmitriy has 10 dollars. Scienceguy has 2 dollars.
- Scienceguy to Dmitriy: Can I borrow 10 Dollars, I'll pay back 11 next week.
- Dmitriy: Sure.
- Scienceguy predicts bull pennant, buys 100 chocolate bars for 10 dollars.
- Dmitriy observes that the price of chocolate bars is falling. Now Scienceguy's bars are worth only 9 dollars.
- Dmitriy to Scienceguy: Are you crazy? I want my dollars back. NOW!
Thus, Scienceguy is forced to sell chocolate bars and pay 11 dollars to Dmitriy. Dmitriy's little sister did similar deals with other people. They all are forced to sell, driving the price down. Now people are getting nervous. (Credit to this guy for the ELI5)
Was this attack premeditated? Who knows. What we do know what is that GDAX increased their margin funding days before this happened.
Long story short, the price of ETH temporarily dropped as low as $0.10. Pay your respects to these fallen soldiers.
YOU MIGHT BE ASKING YOURSELF, with the Coinbase/GDAX service outages, where was Coinbase/GDAX in all this?
Oh, and Comcast is trying to get into the blockchain space.
◤THINGS I LIKE
Harvard Business Review: Blockchain - What you need to know.
Spooky mysterious upcoming Litecoin announcement from MIT.