I'll try to break this down for you in simplest terms.
This is an orderbook:
People place buy and sell orders on the book for the price they are willing to pay for BTC... or sell their bitcoin for.
BTCChina is calling these people "makers" and is paying them a very small microbonus if they place an order "on the books" and leave it there until it transacts. These orders are called "Limit Orders"... the people who place them are only willing to buy BTC if price is under the limit they have "bid".... conversely... on the sell side of the book... they're only willing to sell BTC if the price is at least the price they're "asking".
Exchanges like to see their orderbook "populated" with limit orders because it promotes an active exchange environment... hence the
*NEW* "bonus" for placing limit orders at BTCChina. In the image above there isn't much "population in the orderbook"; its easy to buy or sell $1000 of BTC for about $795/btc but if you wanted to buy or sell $250,000 worth of bitcoin in the next 10 minutes (market order)... you'd probably go to some other exchange... because there aren't enough offers near the middle to get you a fair price... you'd have to dig deeper into the orderbook, to find someone to exchange with... and you'd get a less fair deal.
So in this way... market orders are different. People placing market orders
don't put anything on the books... they
TAKE the best deal OFF of the books. BTCChina
penalizes people for doing this with a micro fee.
Before the "maker-taker" program everyone got charged a fee... didn't matter if they placed "limit orders" or "market orders"; at BTCe exchange for example.. the fee is 0.2% for all transactions... both the buyer and seller pay the fee... regardless of who
made the offer and who
took it.
follow?
In order to make any money day trading in the "old paradigm" you had to buy low and sell high...
and have enough "margin" to cover your fees associated with both buying and selling. So at BTCe you would need 0.2% + 0.2% = 0.4% margin to make a "day trade" break even.
In the "maker taker" paradigm... You could buy and sell for the same price... over and over and over again... and if you could manage to do so by ONLY placing limit orders... well... then the exchange would reward you for being a market "maker". And if your volume was high enough... those micro bonuses rewarded would stack up into a nice stash... even though you traded
without a profitable margin.
However its difficult to do that because you have to wait on someone else to buy and someone else to sell back to you at the same price... and if there isn't much volatility... if the price stays the same... well... then there isn't much volume and you really don't make much on fees.
Enter some moron w/ 100BTC and a bot that places market orders whenever it sees what it perceives to be a "good deal" on the books. I'm not sure exactly how this market order bot was coded... but something of the effect... "oh shit... good deal... buy" "wait no never mind... sell" "oh shit... good deal... buy" "wait no never mind... sell" "oh shit... good deal... buy" "wait no never mind... sell" ad infinity...
and in the past... by placing this market order he was such a big fish with his 100 BTC order that he actually moved the market.
Well our limit order genius noticed this bots actions and decided to exploit it... so he enticed the bot to buy "into" his limit sell order... then sell into his limit buy order... over and over and over again...
The limit order bot and the market order bot went to war for 2 hours like this... each armed with 100 BTC.
Limit order man got 0.1% bonus for every transaction...
Market order bot got stuck w/ 0.2% fee for every transaction...
BTCChina netted 0.1% on every transaction...
over the course of 2 hours... at 3 AM China time... this war of market order vs limit order bots each with only 100 BTC to spend... caused 50,000 BTC worth of transactions to occur.
Each transaction getting a little smaller... and smaller as the market order bot ran out of funds...
100 Buy
100 Sell
99.8 Buy <<< less 0.2% fee lost in transaction
99.8 Sell
99.6 Buy <<< less 0.2% again
99.6 Sell
...
99 Buy <<< less many more fees
99 Sell
98 Buy
98 Sell
97 Buy
97 Sell
...
90 90 <<< less many many many more fees
80 80
70 70
...
40 40 <<<< right about here, about 90 minutes into the bot war... I realized what was happening
30 30
19
18
17
16
15
14
13
...
3
2
1
....
I suspect the owner of the market order bot was sleeping.
The owner of the limit order bot was glowing!
so we do the math:
50,000 BTC of back and forth transactions x 0.2% fee
=
100 BTC
fee for the owner of the market order bot!
0.1% bonus = 50 BTC
bonus for the limit order bot!
and the difference leaves:
50 BTC in profits for BTCChina
now... if you "please easily"...
You should be laughing your ass off about now.
. . . http://www.youtube.com/watch?feature=player_detailpage&v=RkhZ4h9DrTo#t=4752
