LindeX Spread

Historically, the spread on the LindeX has been 11L$. In other words, the difference between the Min Rate and the Max Rate on any given day, as shown on the Market Data page, would be 11. The exception would be when the L$ was about to change value, in which case one or the other rates would change first, so the spread would be either 10L$ or 12L$. This would rarely last more than 3-4 days, sometimes just 1 day, and then the other number would change to bring the spread back to 11L$.

But for the last week, the spread has stayed at 10L$. I think the reason for this is just that the L$ itself has become more valuable, so it takes fewer L$. But I wonder whether any changes with the XStreetSL acquisition are driving this. So can anyone comment on whether this change in the spread is related to XStreetSL in any way, or purely a function of the value of the L$?

PS The effect of the smaller spread is to raise the break-even point for currency trading, making it harder to get a good return.

Does $1L really make that big of a difference????

Yes, it does. Do the math.

Specifically, go to the LindeX and try the following:

1. What would it cost to buy the following quantities of L$ at the given prices? (You must enable the advanced features to submit limit orders.)
a. 10,000
b. 50,000
c. 100,000
at:
275 L$ per USD (the price some time ago)
269 L$ per USD (the price now)

2. What would you get by selling the same quantities of L$ at the following spread prices:
264 L$ per USD (the price back when the buy price was 275)
259 L$ per USD (the price now)

3. Juggle the price up and down by 1L$/USD and see what happens.

The question to be asking is this: If you place a buy order at current prices, and then when it's filled, you turn around and sell it (assuming the prices haven't changed), how many do you have to buy and sell (roughly) in order to turn a profit?

I cannot.

Why not?

Ask her what 1 + 1 equals

Would it matter if there just were no way to make any return at all? I mean, theoretically, the LindeX could be managed to lock a constant rate, with a spread exactly equal to the 3.5% cash-out fee. Would it really matter?

I know some folks make a little profit on currency trading, and what little there is of it is very easy money, but it can't really be that interesting. It's not that I'm some RL gold-standard advocate or anything, but I'm just uninformed about why it's important that the L$ rates float the tiny bit that they do, or that the spread be any greater than the cash-out fee.

Whether it does or doesn't may not matter except to those traders. I suppose you could also ask whether it really matters if clothing seams line up, or that there are limits on what you can do on an openspace sim.

But understanding why the LindeX fluctuates the way it could matter a good deal. If the only reason the spread has changed is that the L$ is increasing in value, then it's probably not much of an issue. But if there are other reasons involved, then those reasons represent a risk to people running businesses and accumulating L$, or people who depend on fixed L$ rental rates, and so on. It similar to understanding any noticeable changes in land prices.

Keep in mind that I'm not complaining about this. I'm simply asking whether the XStreet acquisition is playing a role. If the answer is no, fine. If the answer is yes, then that's a big deal.

I dont think the Xstreet acquisition has much to do with it honestly. From past experience I would say it has alot more to do with SUpply Linden not selling as a much (It was stated recently that they were going to let the L$ increase in value a bit over time). And the fact that people are spending less L$ so retaillers are selling off less.

I have noticed the spread shift seems to be driven from the sell side with the buy side shifting later to catch up.

When the spread was 11 you could make 30 or 40 % in a year just flipping money back and forth. It was such a sweet deal and of course I had it all automated so it was just like a money printing machine. I guess it's over now though.

Now we're at 10 you can still make, say, 6% in a year if you're lucky which is still pretty good in the real world scheme of things but of course the risks are so astronomical that it's smarter to just put the money in a real world bank, uh, or on seconds thoughts under your mattress.

One problem is this. Zee is actively buggering around with the currency so it can't settle out. People know it is moving downwards so they pre-empt it. People trying to buy at 270 are going to give up and just plonk it down at 269 instead causing a massive buildup at that level.

The other problem is that as the value decreases from 265, to 264, 263, and now 259 then the spread of 10 becomes relatively wider and wider. Because the important thing is not the absolute size of the spread but the percentage of the spread compared to the absolute bid or offer. With us down at 259 it is now finally possible to make the aforementioned profit flipping cash at 10 wide. I expect some currency traders are now working the spread of 10 and cackling with glee as they flip L$100,000 to make L$10 in a week or whatever the hell it is now. Back when the rate was 265 it was literally impossible to make even a single penny flipping a 10 wide spread. SL residents are not widely known for their risk analysis skills but some of us that realise that a 0.05% profit per week is not worth all the risks involved in owning the L$ (exchange rate shifting, real world currency markets, LL going bankrupt, becoming illegal, crazy tax nonsense, whatever else).

Lastly, I'll take this opportunity to spam my site where I record the movements of the LindeX in excruciating historic details http://ninjaland.net/tools/lindex-market-data/

Wait, one last thing, as I mentioned in my blog Supply Linden has not really been decreasing the amount of L$ he sells. here are the records we have

Month L$ sold by Supply Linden
Jan 100,826,152
Dec 179,176,138
Nov 76,965,450
Oct 43,742,257

You can find more raw data from the now vanished economic stats page on SLs website here http://ninjaland.net/data/ and kinda here http://ninjaland.net/stats/

Elanthius, I think it's fair to argue that Zee has been buggering the Lindex... rather buggering with the Lindex, since the day they started manipulating the currency artificially, they can make 1 L$ worth fish if they really want it to. Since they control all valuation of the currency until they actually let it alone and inflate to it's norm ,which may very well be 1 linden being worth 1 usd or more, then only a fool would take it as a serious currency. It's easy to say that the Linden Dollar is worthless but I'm sure there's a way to give it worth in a way that will give it a fair value without price fixing it.

Are you sure? Let's do the math.

1. Start with US$1000, subtract $0.30 fee, convert to L$ @ 275 = L$ 274917
2. Convert back to US$ @ 265 = US$ 1037.423
3. Collect only 96.5% of that (the rest is LL's 3.5% fee) = US$ 1001.11

[
In other words:
x = 1000.00
B = 275
S = 265
math.floor((x - 0.30) * float(B)) / float(S) * 0.965 = 1001.11

Another way of looking at it: because you can specify only exact L$ amounts for buying or selling and not US$ amounts, to confirm that buying L$ 274917 would indeed cost you exactly $1000.00:
y = 274917
B = 275
math.ceil(100 * (float(y)/float(B) + 0.30))/100. = 1000.00
]

So the round-trip conversion of $1000.00 would net you $1.11

Now, for some reason, the secondlife.com Sell L$ page tells you something different. If you have limit orders enabled, and plug in the quantity L$ 274917 and exchange rate 265, it will tell you:

Estimated value: US$1,037.43
Estimated proceeds: US$999.81

The top number is right, the bottom number seems to be incorrect. If you do the math 999.81/1037.43 = 96.37%, equivalent to a 3.63% fee, not 3.5%

I'm not sure why the Javascript on the Sell L$ page underestimates the actual proceeds. You might indeed get something slightly different than exactly 3.5% due to rounding errors, because of multiple counterparties buying small amounts off your larger sell order. But if you check your LindeX Exchange Transaction History page, you see that in practice the fee deductions might vary from 3.47% to 3.53%. Perhaps a deduction equivalent to a 3.63% fee corresponds to a worst-case scenario, if all the counterparty buys were minimum buys of $2.50 and every single rounding error went against you. Probably there's somebody out there who would file a class-action lawsuit if LL promised them a certain amount and they ended up getting shortchanged even a penny on a thousand-dollar transaction. So on the webpage, LL puts a super-cautious underestimate of the likely actual proceeds.


Executive summary: you could indeed expect to make a little currency trading profit off a spread of 10, even when the exchange rate bid/ask was 275/265.

OK, that's true I guess. You could indeed make 0.1% profit. Of course if you're on the wrong side and the exchange rate shifts one point you lose 0.4% of everything. And you are risking US$1000 in order to make US$1 across a period of about a week so it's still pretty bonkers.

The result of the math will depend on the size of the investment. That's because the fee for buying is independent of the size of the investment, but the fee for selling isn't.

Change it from $1000 to $100.

1. 275 * $99.70 = 27418 (rounding up to be generous)
2. 27418/265 * 96.5% = $99.84

In other words, a loss of 16 cents instead of a gain of $1.11.

There's always going to be a break even point. With a 10L$ spread, the break even point is much higher than with an 11L$ spread. You need to invest much more to get the same return on investment.

I suspect that the spread will stay where it is as long as people are willing to play the spread at this range.

I agree that the break even point is higher for a 10 point spread. But I disagree that you can get the same returns with a larger investment.

10 is .0386 of 259

11 is .0425 of 259

LL takes .035 each trade, so profits are roughly:

10 is .0036

11 is .0075

So theoretically, decreasing the spread to 10 cuts your profits by more than half.

In reality, I get about .0021-.0022 profit per trade with a 10 point spread. Why this is, I have no clue.

edit- calculating the spread from 269 gives .00217, so that is about right, i must have used the wrong end of the spread

Since Supply Linden only sells, he can't dictate the spread, he can only influence the buying price. I would think it is the majority of the larger traders that dictate the spread. If enough of them decide that a 10 point spread is enough for their profits, then that's where it will stay.

The Resident Geek has a button that I love. It says, "2+2 = 5, for sufficiently large values of 2"

This past week the buy-sell cycle has been taking 3.6 days to complete, and I have made a hair over 0.2% profit on each cycle (with a 259/269 buy sell price). That's on a bit over a million L$ per trade. That comes to a 20% annual return. Not a license to print money, but not shabby either. The spread has been getting tighter and the trades are taking longer to complete. If it keeps heading that way, eventually I will give up as not worth the risk.

It would be interesting to see what would happen if *all* the currency traders leave the
Lindex, and just Supply Linden, and people who need to buy and sell for non-trading reasons are left. Us traders are a stabilizing influence on the market, as we provide a supply of buy and sell orders to match the non-trader demands.

Interesting.

Call a bit over $L 1M to be, say, 4000 USD. 20% of that is 800 USD. Not bad. So call it roughly twice a week, or 100 transaction cycles per year.

Say you spend 10 minutes messing with each cycle (checking: "is it done yet?" and that kinda stuff). 1000 minutes, or call it 16 hours.

800/16 = 50 bucks an hour. Or if you are a bit more efficient, call it 100 bucks an hour. Not bad.

Also... 4.3 weeks per month x 2 transactions is 8.6 transactions, or 4000 USD x 8.6... that's 35k USD worth of transactions a month you are doing, cashflow~wise. The real winner is our service provider, who gains 3.5% of 35,000 monthly: about 15,000 USD a year in service fees from your efforts. Not bad!

My guess is you have currency trader level 4 on your account? Level 3 can't clear more than 30,000 USD in cash flow a month.

I'm at business owner level 3, meaning I can sell $L all day but can't buy more than 5000 USD/mo unless I petition for higher settings or something.

* * * * *

I'd thought about doing this with some of my $L revenues, but it's dicey. Ultimately decided against it.

First, as a land baron, unlike Wall Street I have to have a huge chunk of my reserves labeled "don't mess with this no matter how slick something sounds." I stick to that. Because, well, fake land on the internet has already sated my appetite for risk.

My guess is that Linden Research will eventually twiddle things a little bit to recover that % for themselves if they reasonably can. If they haven't already.

My problem is I keep lining up L$500k or something to flip through the market and then I realise I'm about to risk L$500k to make L$1000 and I bottle it.

Realistically it's a lot less than 10 minutes per trade because you can just automate the thing and never look at it.

Desmond:

Its around 10 minutes per trade, or 20 min per cycle. Takes me about 5 min to record a closed trade, and enter another one, and around 5 minutes over the course of a trade to check when it finishes (I can guess fairly well how long it will take, but not exactly). For which I net $8 US, so it works out to $24 an hour for my time. Too bad I cant do it all
day long at that rate

Currency trader 3 is my level, which allows $30,000 per day, and $320,000 per month in trading. Lately I am nowhere near my limits, cause the trades take too long to complete.

Elanthius:

You are only risking L$500K if you think the lindex can go to zero or infinity, or will close entirely. The only time I *havent* made a profit on a trade is when the lindex shifts to a new standard buy or sell price (ie from 260 to 259 sell price). In that case an order might not ever complete, so I cancel it and start trading on the new range.

As long as the market is well behaved (meaning the trading range at most will shift by one L$ at a time), I see my risk at most as about 0.4%. Whats more variable is how long it takes to finish a cycle, and thats been getting steadily worse.

Considering right now you can get a 24% dividend from *real* real estate:

http://finance.yahoo.com/q?s=CLP

I am not far from giving up on lindex trading.

(Colonial properties owns apartments, shopping centers, and office buildings, and is currently trading at 1/6 of book value...a huge discount)

Oh, and maybe *you* can automate it, Elanthius, I am not that savvy on web programming. I have a spreadsheet to track my trades, but I check status and enter new trades manually.

the title of this thread is riveting!

it's killing me not to google a girlie crotch shot and PhotoShop "LindeX" right on the center flower.

I can't claim any familiarity with this sort of investment, let alone this specific one, but my knee-jerk reaction is that if you believe that book value, I know a major international insurance and investment company you may be interested in.

I noticed something strange yesterday; I went to sell L$ and was looking at a quick-sale value of L$268/USD; now it's back down to L$258 or so... anyone know why we would see a 24-hour hiccup like that? Maybe LL released a bunch of L$ or something?