thoughts on the Lindex as a "currency trader"

I do a little day trading in real life, specifically I do trade currency. However, I do not trade large-scale in the Lindex, perhaps 1000-2000$USD maximum so far. I did request their "currency trader" limit, just to experiment with trading this virtual currency.

Reason why I do not trade at a larger scale, is LL's profit-killing fee of 3.5% on the sale of Linden dollars, which leaves the seller with about a 1% maximum, 0.1% minimum profit, on what would have otherwise been a great trade. This fee is insanely high, no remotely comparable equivalent exists in real world currency trading.

The small upside of trading on Lindex is that it is (nearly) risk-free because the rates pretty much never change, especially not in a dramatic manner. Thus, this profit, though miniscule, is essentially predictable.

Why are the fees so high?

The reasoning I see on LL's side, is they must have put a high value on the idea of keeping the Linden dollars value stationary as possible. Maybe just to give predictability to the players, which is a great thing to aim for & if their was a lot of trading going on, the Linden could fluctuate wildly. (Alternatively, perhaps it is just an easy way for them to achieve short-term profit gains, while unwittingly they lose out on the greater benefit of attracting many investors, gaining them a larger floating capital.)

The downside of this artificially induced stability is it makes potential investors in the currency, like myself, only marginally interested in trading Lindens. If these fees were removed, larger-scale investments in the Linden logically follow, which would give the Linden a stronger value.

Perhaps LL would then have trouble, as without a doubt, the Linden would soon no longer be a game token, it would become a real world currency. Real world laws would then apply and I imagine this could become quite complicated for LL. I can't really speculate what would happen to them in this situation, if it would be good or bad situation for LL -- which is really the bottom line after all.

Any experiences with currency trading on Lindex, or thoughts about it? - post them here

It's there money, they are business, they want their cut.
Only way I could see selling or trading Lindens as profitable is the following;
You have a service, you make tons and tons of trillions of Lindens.
You've spent all you can in SL and want to start to turn those trillions of Lindens into real cash.
I thought about spending money on buying and selling but I thought long and hard about it and came up with this idea.
It would only be profitable and not wasteful if I already had the lindens in first place that I had already earned.
Personally spending real cash to buy and trade Lindens is basically in my opinion wasting money but its your money.
The only person getting majority of profit would be Lindens Lab. Its basically like gambling, the house is always going to win.
Yet I probably could think of more entertaining and rewarding things to do with 1k to 2k usd if I had it to spare personally.
For me if I had 276000 Lindens I would make 27k in textures and turn around sell them for fair price and hope enough people bought them to make a profit.

That large cut is there precisely to discourage day trading scum

Reason being, day traders take from teh overall economy without contributing anything to teh comunity.

Incidentally, that take is no worse than what you might expect from a typical high street money changer, oncce you take their comissions and spread into account. Real day traders don't use high street exchange rates. But then, you knew that anyway, right?

Actually, even if there was a 1% fee, the only thing that would happen is that the gap between the buy and sell would close. With a stable market, you will never have the big profits that currency traders would be looking for. You might be able to make a few dollars per trade, but you need a big investment, and there are much better ways to make money.

I've been trading lindens for a few months now, and I find my profits average out to .47% per flip. I can usually flip at least 10-12 times a month, which comes to 5-6% per month. That's not to shabby in my book, considering the risk is pretty small.

It's designed to keep the float within a very narrow range, basically. LL wants to maintain that kind of control over the Linden value for several of the reasons you mention, rather than turning the Linden into a truly floating currency.

Lindex is not the only place to 'trade' lindens


its cheaper and you get better rates over at SlExchange.com

The LindeX buy/sell fees cover both the costs of credit card transactions (not sure if LL has PayPal costs?) and any costs associated with fraud.

LL has stated that recently for at least one month the LindeX wasn't profitable for them to run due to increasing fraud, so be happy they're not increasing the fees.

Currency traders only negatively impact the exchange rates so why should LL encourage behaviour that would only damage the economy for the overwhelming majority?

Currency traders do not negatively impact the exchange rates.

They keep a steady supply of lindens ready for people like you to buy or sell.

Yes, exactly. The trading range would narrow precisely to the point where all you could make would be pennies, like now.

When I started trading the LindeX there were no limit buy orders possible and every market buy was via a credit card so LL was charging the sellers if L$ the fee they were charged to accept credit cards. I believe at that time LL operated the LindeX with little to no profit since they were prohibited from selling new L$ on the exchange. The exchange rate hovered around L$300/1 until LL made a couple of announcements that panicked the market. I don't remember the order of the announcements but they stated that Limit buy orders would be made available and LL would be selling a small amount of new L$ every month to help stabilize the exchange rate. Those announcements drove the exchange rate to about L$337/1 before it started to retreat. Once the rate started down and content creators were comfortable that holding L$ was potentially profitable the rate dropped below L$300/1 rather quickly and LL increased the amount that Supply Linden could sell every month. That slowed the rate of decent until people realized that Supply Linden was maxed out one month and people held again driving the rate to the present levels as Supply Linden was given authority to sell $1,280,000 worth of L$ every month which has stablized the market since about October of 2006.

Hmm. I just compared, and at least for both buy and sell orders of 15K L$ at current market rates, LindeX was better.

I believe Supply Linden does that quite adequately. And if demand is such that he cannot supply enough, the value of the L$ will rise, making teh market inherently self-regulating. Currency speculators just aren't needed in the present setup.

...do you not understand how limit orders work?

Supply Linden only sells new L$, he can't buy any L$ so if the currency traders went away there would be no limit buy orders to sell against when content creators made market sells. That was the situation that existed when I came into the LindeX and every Sunday night the sellers of L$ would fight each other with successively higher bids on the limit sell orders. With a large amount of L$ sitting in limit buy orders visible the content creators know they don't have to fight each other for an invisible demand of their L$.

The currency traders provide the buy orders for people who want to cash out. Linden Lab just sells lindens, they don't buy. Without the traders, no one could cash out.

There are around 1k people who earn over 200 dollars a month, and several hundred that earn real life wages of over 1000 dollars a month.

I bet there are around 10k people who cash out on a regular basis.

And I bet there are several 10k's of people who cash out to cover tier.

I will wager that these people that cash out are the best and brightest of Second Life. The top designers, top builders, and top scripters. We would lose a lot of them if they lost their incomes.

Sorry, but that's nonsense.

Traders sell with a limit sell order just the same as the large majority of business owners and it's regular consumers that fill those limit sells with market buy orders.

Madness I say!

Why the rush to sell those linden dollars? I would have thought anyone cashing out on a regular basis would limit sell those L$...

Yes, I agree that the Trader fills the orders of the business owners and consumers.

So a large business owner limit selling isn't detrimental, but a trader limit selling is?

How in the world do you differentiate the two?

That is correct. What limit buy orders and currency traders did was smooth out the market. Look here and select all if that isn't slected. https://secure-web10.secondlife.com/currency/market.php What you see with the big run up in exchange rates was the result of business owners overbidding each other for the invisible supply of potential market buy orders. The final spike in rate increases was the result of the two announcements I mentioned earlier, then the rate began to settle as the supply of limit buy orders increased and business owners could see the actual demand of their L$. The vast majority of big business owners still sell their L$ with limit sell orders, they just don't compete with the eager beavers because those people tend to sell with market sell orders. I'll say it again LL knew what they were doing when they instituted the limit buy orders and allowed Supply Linden to sell unlimited amounts of new L$. Look at the same graph and everything from October on is almost a flat line.

Yeah, I do. That's the only way I buy Lindens on the LindeX.

But then the question is why would the limit orders be better on one exchange while market orders better on the other? Neither one charges extra for limit orders, as far as I know. I could imagine the exchanges being out of balance, with one being better for buyers and the other for sellers, but traders should quickly fix that.

If you're comparing the comission rates on a fixed limit order, then there's the appearance that SLExchange is cheaper - no commissions. But that doesn't do any good if the order can't be filled. Right now, SLX shows the best sell rate (from the buyer's perspective) at 279.6, meaning a buyer would have to bid 275.1. But it's easy to get a buy at 276 on the LindeX, and not too hard to get 277. For a $50 US buy order, I see the math as:

SLExchange: 50 * 275.1 = 13755 L$
LindeX: 49.7 * 277 = 13766 L$
49.7 * 276 = 13717 L$

It's hard to compare the actual rates over time. My last LindeX 277 order was filled in a day, but that's not always the case. I've had one take a week, but I was also lucky enough to fill a 278 order. That open sell order from SLExchange is for less than 9K Lindens, so this example couldn't be filled entirely at that rate (though that wouldn't change the relative positions for the above example). So how quickly you need the money can factor in, as well as the float on your cash until the order is filled.

This doesn't take into account the large fee that SLExchange takes just for depositing cash with them via credit card, something that's free for LindeX. If you're already keeping cash with SLExchange, and buying small quantities of Lindens, then SLExchange is better. But if you need to add the cash I'd guess that Lindex is better at all but the tiniest purchase orders - unless you're willing to deal with a check, money order, or premium PayPal account to avoid the SLExchange deposit fees.

I've never sold, so I'm not really sure what rates one could get in practice on the LindeX. It looks like I'd have to give up 284.2 lindens to get a $1 US on SLExchange. But a quick check with the LindeX calculator, for 10K lindens sold at a limit of 267 shows proceeds of 36.13, which works out to 276.7 lindens per $1, much better than the SLExchange rate.

Please correct me if my math is wrong. I don't claim to be an expert at this.

Currency traders buy the same amount of L$ that they sell so they dont help people either those who sell L$ from their successfull shop or those who buy L$ to play the game.
Also currency traders dont magically create money, so the profit they gain must come from causing worse rates to buy and sell for others.