Trialling a new service.

Hi all,

Well I've been working on this idea for some time, researching on how it might work and have come up with a service that I like to trial. Although rather ironically just as I'm about to announce it the L$ strengthened

Its essentially a currency hedging service, allowing you to pretty much short L$ on a margin basis by taking out a currency contract with the in-world service I am developing.

It should help to limit currency risks of the business community, buffering them against any declines in the L$. I suspect it may also become a trading environment for those looking for a way to "short" L$.

Although its based on some trading instrument available in Real Life I would probably say its been adapted to fit the SL environment, so there will be some differences. At the moment don't expect terminals to trade on in SL until I see how the trial works out Although the ambition is to build something that allows people to margin trade both ways, either going long or short.

If people are interested then IM me in game or on this board with your email address, I can send some more details of how it works.

Why don't you just post to the masses how it works? If its a sound business model, then it should be open to public scrutiny or praise. Only Car Salesman hype the selling points, then wisk you into the back room for a one-on-one where you get screwed.

So when does futures trading begin?

Sure, its rather straightforward, just wasn't sure if people had the time span for a long forum post! But here goes...

The service would work like this. Company A wants to offset their currency risk as they believe the L$ will devalue. A Currency Contract is set up, which states that the service agrees to hedge a certain amount of L$ at yesterdays average exchange rate, eg It might be 300L$/US$. A fee is then paid, which consists of the set margin and a fee for each day the contract is active. I'm doing yesterdays average as it should be less proned to manipulation and give an absolute figure to work with. I think if I get into Phase 2 with proper margin trading as it were then this will change to allow day trading.

So Company A wants to hedge L$100,000. The margin is 1% and the daily fee is 10L$. They decide to take out the contract for 100 days. So total fee payable is 2000L$.

At the end of the 100 days the yesterdays average exchange rate is 340L$/US$. They decide to cash in their contract (These is an option to extend it). So the service would pay Company A the amount of L$ needed to match the difference between 300L$ and 340L$ which is about L$13,600. This is the amount of L$ needed to sell at 340L$ to equal the amount of US$ you get when you sell 100K at 300L$/US$.

In some sense its essentially a margin traded product similar to CFD's if you have used those in RL stock markets. Although the slight difference is that the margin becomes the fee and the daily charges still remains. I'm also not going to look at what happens if the currency goes up because with CFD's if that happens you can potentially lose more then you orginally invested due to it being a margin traded product again.

I'm also not buying L$ via Paypal at least until I see how well this works out, so effectively should the L$ devalue then the service will provide the difference between the original value that the contract was created and the new price.

And thats all there is too it

From where are the L$ that you're paying the company coming?


You've got to be kidding. How can you put a valid system in place when you knowingly ignore such an important potential outcome?!

So then what happens if the L$ appreciates in value over the lifetime of the contract? Does the contract expire without exercise, or do you place some sort of "margin call" on the purchaser?

The L$ will come from a variety of sources, my main goal and ambition really is to become much like an investment firm that invests in ventures within SL. I think theres more investment opportunities in SL, which makes it quite viable. Theres also opportunities on Lindex, Slex, or arbitrage between both.


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These questions are very similar. At the end of contract, if the L$ appreciates then it expires without the Company owing me anything for the appreciation. Quite happy to take on that risk because its a trial to try out a few of the basic ideas and sometimes being a loss leader is part of the parcel.

"Margin Calls" would be complicated to implement without having a fully fledge trading system like a GOM or Slexchange in place, although if this trial works out then thats where I want to go with the full features of Margin Calls, Stop Losses etc... And perhaps even being able to trade using other products, like Spread Betting etc...

Will you provide verifiable real-life identification of yourself to your customers?

If the Linden drops in value, where will you get all the money to pay people? Out of your own RL pocket?

Well I wish you luck. Personally though, were I looking to use this service I would be extremely wary. The lack of details ("The L$ will come from a variety of sources..." doesn't cut it for me) is a big turn-off.

Sorry for the delay in posting an answer, had my folks down for a few days and haven't had a chance to write a comprehensive reply. I also wanted to confirm a few things first before I answer.

First off, yes I'm happy to provide identification if people are interested. Even happy to phone and chat with people. I also created a company about a year ago for just this kind of thing and that will be tied into this initial trial. Again that gives you a thread of investigation if you wish to check the Companies House records.

If the L$ drops severely in value, then yes there are funds in RL to handle it, I've put a budget together for the trial phase. Ideally the aim is to be self sufficient but I don't think that will happen until the full-on trading environment is built. As I said previously the aim is to reinvest into ventures in Second Life and use those profits to fund this idea. I also have external funds coming from some retail operations that I do in the real cash environment of Project Entropia.

No worries. I fully understand that its all about risk and what you are prepare take.

For me the risk is what to invest in to generate those sources of L$. Second Life has ample opportunities and for me the lines of investment would be things like Cyberland or Korvai's IPO, trading and arbitrage opportunities on Lindex/Slexchange. Theres also as I mention in the above post external sources of funding, coming from my involvement in Project Entropia. Ultimately I want to become bit like a investment bank, providing investment in new ideas in Second Life and providing more advanced trading tools.

Although that is very much down the road and I want to try something a bit more different. At the moment its very small steps. Hired a designer to work on a website and just refining the ideas at the moment.

i dunno why but i am totally suspicious about these "brassing money games"

i don't like them in RL either.