I have always been very skeptical of companies that allow "shorting" in the BTC markets. In the stock market, when you short, someone is lending you a share which you sell and buy back later, while paying interest to the lender. In the Bitcoin market, I have seen no such offering which means that you are engaging in a synthetic short position. A synthetic short means that you are trading against the broker which can be a recipe for unscrupulous behavior.
Ah, I see. That makes sense; my understanding of shorting was on the share-lending basis but can see how BTC ones have not been doing that for the most part.
The best way to use the order book is to start with two questions: 1) How many coins will I be trading and 2) What is my expected return on investment. For example, if you are trading the moving average crossover system on an hourly timeframe and expect to earn 3% on each average trade, but you are trading in such a size that you will cause the market price to move 5%, you have inadequate liquidity and need to change your approach.
Ah, I had already been doing that.
I either make bids/offers at my desired price and wait to see if they fill or, if there are orders for more than the amount I'm looking to buy/sell at roughly the right price I use that price in my profit calculations.
Now about BTC/EUR. I don't think I've ever looked at a chart of any other currency vs. BTC, but I'm pretty sure that I know what it shows. Due to triangular arbitrage, all BTC pairs will essentially show the same price movements. For example, if BTC/USD starts rising, but BTC/EUR isn't moving, traders can sell their BTC for USD, convert USD into Euro, buy BTC and lock in a "risk-free" profit. This relationship virtually ensures that as long as money is allowed to freely be exchanged, price movements across currency pairs will be similar. Since the moving average crossover system is a trend-following strategy and the trends will be similar, it doesn't make too much sense to me to change to a less liquid pair.
That makes sense. My approach to get around my concerns of lots of automated trading has been to set my clock a little fast. Pablo thinks there are few bots yet on Gox though. Regardless, I'm moving some my automated trading to BTC-E due to their much lower fees! The difficulty there is of course the liquidity. I'll ask him how the bot handles that actually.
I did try arbitrage, but due to the difficulties of moving fiat in and out of the crypt-exchanges in a timely manner (especially Gox) it was impractical given the relatively small amount of funds I was willing to commit. To get a useful return I'd have had to have several tens of thousands of Euros in flight at any point to balance things on the different exchanges! This led me to conclude that the reason that BTC is higher on Gox than BTC-E and BitStamp (which now has twice BTC-E's volumes btw!) was the difficulty getting cash out.
Kate.
