Curriculum·S201 Market Structure and Price Formation·about 32 min
Who is on the other side
By the end of this lesson you can
- →Name the five participant types you trade against and what each one is optimizing for
- →Explain why the counterparty on any given fill is usually the party who wanted it more
- →Identify the structural advantages a counterparty can hold that are invisible from the interface
- →State your own edge in a sentence, or conclude honestly that you do not have one
Sophomore · enrolled learners
This lesson opens with Alameda's exemption from the FTX liquidation engine.
- What happened
- The CFTC's February 2023 complaint against Nishad Singh, FTX's director of engineering, alleges that Alameda Research, the trading firm affiliated with the exchange, was exempt from FTX's auto-liquidation risk engine and could not be liquidated on FTX under any condition, through exemptions hard-coded by various, sometimes redundant means. An 'allow negative' flag on Alameda's account let it execute transactions without the assets to cover them, a related 'can withdraw below borrow' function let it withdraw what it had borrowed, and its borrowing limit was ultimately raised to approximately $65 billion; the complaint calls the result an essentially unlimited line of credit. At Bankman-Fried's 2023 criminal trial, FTX co-founder Gary Wang testified that the feature letting Alameda withdraw funds it did not have was rolled out on 31 July 2019. Customers who took on too much leverage, trading in the same books, were auto-liquidated by the exchange.
- The decision point
- Nothing on the interface distinguished this counterparty from any other. Every trader on that venue could see the book, the price and their own position, and none of them could see that one participant was operating under different rules in the same market. The information that would have changed how they sized and hedged was in the exchange's source code.
What you will be able to answer
- →Name the five participant types.
- →Who is usually on the other side of your fill?
- →What advantages are invisible from the interface?
- →What is the honest test of an edge?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.cftc.gov/media/8226/enfsinghcomplaint022823/download
- https://cointelegraph.com/news/alameda-had-unfair-trading-advantage-special-access-to-ftx-funds-cftc-filing
- https://www.axios.com/2023/10/10/ftx-sbf-gary-wang-trial
- https://www.sec.gov/newsroom/press-releases/2020-321
- https://www.coindesk.com/research/market-spotlight-the-19-billion-liquidation-that-shook-crypto
Confidence high·Volatility medium·Reviewed 2026-10-22·Owner unassigned
Contested
The details of Alameda's exemptions come from the CFTC's complaint against Nishad Singh (allegations) and from Gary Wang's sworn testimony at Bankman-Fried's trial. Describe them as alleged in that complaint and described in that testimony rather than asserting operational specifics beyond what they support. The complaint dates the 'allow negative' functionality to 2019 and an alert-instead-of-liquidation feature to August 2020; Wang dates the withdrawal feature to 31 July 2019. Bankman-Fried's defense argued the privileges followed from Alameda's role as a market maker, and Wang agreed in part that the auto-liquidation exemption did.
This lesson describes participant categories and structural advantages, and it deliberately makes no claim that any current venue operates this way. Do not let a revision imply that a named venue has undisclosed privileged participants without a source that establishes it.