dislogue

Books, culture, fishing, and other games

September 28, 2003

Yesterday I Couldn't Spell "Arbitragier," Today I Are One!

It's from the French (good things are not French, they are from the French, they've left their Frenchiness behind!).


ar·bi·trage (ärb-träzh)
n.
The purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy.

intr.v. ar·bi·traged, ar·bi·trag·ing, ar·bi·trag·es
To be involved in arbitrage

[Middle English, arbitration, from Old French, from arbitrer, to judge, from Latin arbitrr, to give judgment. See arbitrate.]

The American Heritage® Dictionary of the English Language, Fourth Edition
Copyright © 2000 by Houghton Mifflin Company.
Published by Houghton Mifflin Company. All rights reserved.


arbitrage
n : a kind of hedged investment meant to capture slight differences in price; when there is a difference in the price of something on two different markets the arbitrageur simultaneously buys at the lower price and sells at the higher price v : practice arbitrage, as of stocks

WordNet ® 1.6, © 1997 Princeton University


My selldown of my isk stock in EVE Online has proceeded so well that temptation has overcome me. I've started bidding on isk lots offered at attractive prices. So far I haven't been the lucky bidder that runs off with a steal, though. I bid about 200 million is in varied lots so far, but all moved up out of my buy range. Since I would be buying purely for resale in smaller, more tightly marketed lots, stepping above a certain price increases both my risk and decreases my profits, a bad combination.

My plan is to establish a selling range, done for the moment, work up my reputation, which is coming along nicely, as a trustworthy dealer providing excellent service and good communication with customers. Then knowing what I can sell for I can determine a buy range where I will make a small, but significant when done in volume, profit.

Good communication is needed because there can sometimes be minor hitches in trades. The key is to communicate effectively by email so that all parties are comfortable things can be worked out. So far my efforts in this area have resulted in my most positive feedback entries. To my jaundiced eye, "A+++++++++++" is not as good as "good communication" or "this guy is great, I recomend" (sic). It takes no thought to just type in an "A" followed by a string of pluses. The other two actually express more definite and particular opinions on the service they received. That said, 80 characters worth of feedback will always be a bit terse.

In online trading, even more than in face-to-face, service is reality. When the goods are virtual, when there is no "face" or brick and mortar storefront, when even the handle could mask a criminal scammer, all the emptor can caveat upon or of is the service record of the seller. I can already see that repeat business can be a great tool for more sales. I've had several buyers come back for more. Others have said in feedack that they plan to buy again from me in the future.

I've started studying the competition a bit more too. I see one major dealer (in EVE isk and also in SWG credits) is into using instant messaging as a major tool. As a security professional IMs make me shudder. I'm not at all sure I want to go there, even with up-to-date patching on my systems and a firewall (of sorts) between me and those of nefarious intent. But I can see the advantages from a fast service standpoint. Still, I do pretty well with email. I keep it open on one system when I have open auctions and check for mail constantly.

He also claims 24/7 service, which suggests "he" is actually a team, probably global. It's easy for three people in evenly spaced time zones to set up a schedule so that someone is always online. It's easy to form the connections online to accomplish that too, especially in the virtual worlds. And, as corollary, it's easy to scam someone who is attempting to set up that sort of structure, as is also very apparent in the virtual worlds.

It's a brave new world in which the brave people prosper—if they survive. But maybe there's a place for the less brave and more careful too.

In any case my plan on the buy side is to eyeball the auctions closing within the next 24 hours daily (schedule permitting) and dump maximum bids (with my limit as the maximum) on any isk offered that is below that mark that appears to be from a reasonally competent seller. I will be more careful with big lots than small ones, simply because the risk is greater if it's a scam of some sort. Scammers rarely work in nickles and pennies. They go for the big kill because they know it will end the reputation of their current mask, forcing them to restart the process of creating a new one to set up the next Barnum-born buyer.

ebay mechanics are great for this buying tactic. The software bids automatically up to my max for me, but doesn't bid more than necessary to achieve the current high bid. So I can make my bids and forget them until they fail or succeed. I just need to ensure my total bids don't exceed my total capital available for "inventory." I do that as I bid, but my sales to date have given me a pretty decent stash to work with, and once I have isk on hand to resell, I will probably slow my bidding until a lot of it has moved. This will help keep me from chasing downturns, a good side effect.

As a result of my recent trading, I also had a player contact me offering to sell me isk in 100 million lots at a reasonable price. I'm interested. But there's risk in that this could easily be a scam, so I'm proceeding cautiously. I plan to ask that he share risk on the transaction, or assume it, since I have a track record he can check, he has none that I can find. If he will transfer me the isk up front, and let me pay as soon as it's received, I'll definitely do business. Once one trade is done I will be open to more normal, pay-in-advance activity.

I sold my second EVE account, but payment is delayed. The buyer said he miscalculated and won't have the cash until Wednesday. That's no big issue for me, so I told him Wednesday is fine. The account is now closed, in any case, so I'm incurring no additional costs. I'll just transfer it once I get the payment and he can reactivate it with his own credit card and billing information.

How much do I expect to earn for all this? Not that much. Reading Play Money's recent entries is a good measure of my expectations. Oh, I can probably feed myself on the income. I certainly can't pay my mortgage, nor even add the amortized full costs of the computers and network fees. I might be paying for my food and a significant share of those infrastructure costs though. In other words, hundreds of dollars per month, yes, thousands, no. Are thousands possible? I believe so. If one makes it a full-time business, and operates it as such as some appear to.

It's a small part-time job, as it stands. While it pays about what working weekends at retail wages might, while requiring a lot more time, it's also a lot more interesting, and fun. In a sense the business part is another game to me. I've started my own business in the past, and ran that for five years. It had its elements of fun, and it certainly was interesting, but it was a lot more stressful. And considering all the time and the net revenue I took from it, I'm not sure that was actually all that much more profitable than this might be. I did create some jobs for other people with that business, though, and I aim to avoid that with this one. Managing people takes the fun right out of business for me. And then there's the huge (proportionately) extra burden of government paperwork when one takes on employees... no thanks.

One interesting thing about this is that it could be largely automated. Shoot, it could be entirely automated. That's no fun though.

Is this truly arbitrage? Not exactly. Since I intend to stock, and I split larger (wholesale) lots into smaller retail-sized ones (aiming for impulse buyers), I am more like a retailer. If this proceeds, I'll move more in that direction, in fact. I add value in the way I package the isk, and in the service I provide (I can buy from slowpokes and sell with my fast delivery).

But arbitrage, or wholesale buying, in this case, does provide a service to sellers (if not to buyers) in this market. We level up the prices. When I put in my bids, very often, in fact usually, I bump the bid on that item one notch higher than my maximum bid. There is someone else out there willing to pay more than I am, maybe a trader working on a thinner margin, or maybe retail customers planning to use the isk in game. By bidding I kill the "steal" prices. This firms up the market so that price trends are more apparent. In a sense it serves the average buyer in the process. When an average price can be easily determine (i.e. all the items you check work out to roughly $2 per million isk), the buyer knows who is trying to take advantage with an absurdly high price, thus who to steer away from. Arbitragers play a big part in establishing what is the market price based on current demand and supply levels.

And to think, now I are one! You can thank me for providing a valuable public service to capitalism. Virtually, that is.

Posted by dan at September 28, 2003 01:13 PM
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