Lindex trading 101 for the uninformed.

I realize that many of the people who trade on the Lindex to convert their Lindens to USD are not expereinced currency traders and neither am I but I can do simple analysis and have done so on the last 30 days historical data. Anyone with a spreadsheet can duplicate this in 20 minutes.

I looked at only total volume, lowest daily selling rate and average daily selling rate. I used total volume divided by the average daily selling rate to estimate the actual USD comming into the game via the Lindex. I was only interested in weekly trends since to me the Lindex trades on weekly cycles. My cycles start on Mondays and end on Sundays. I used the lowest daily selling rate plus 1 Linden to determine if you could have sold all your Lindens during that week. The reason for adding 1 to the lowest daily selling rate is because all the Lindens offered at that rate were sold sometime during that week. Here are the results.

For the week ending 4/23/06 every Linden offered at L$299/1 was sold, any offered at a higher rate lost money. For those of you who sold at a higher rate you can calculate how much money you lost by panicking. I not trying to help those sellers, I'm trying to help sellers who don't know how to trade the Lindex and want to learn. There was $174,622 spent during that week.

For the week ending 4/30/06 every Linden offered at L$300/1 was sold. The total USD spent that week was $182,157.

For the week ending 5/7/06 every Linden offered at L$298/1 was sold. The total USD spent that week was $197.133. I hope those merchants holding Lindens being called foolish by the few nervous Nellies are paying attention. Look at what the trend of USD comming into SL is.

For the week ending 5/14/06 every Linden offered at L$304/1 was sold by 5/13/06, the lowest rate for 4/14/06 was L$305/1 to sell every Linden offered. The total USD spent that week was $184,828 and that sports fans is the primary cause of the recent rise in the exchange rate, the reduced amount of USD being spent.

Can I predict how much will USD will be spent this week, not really but my money is on a number much closer to $200.000 than $190,000. Yesterday over $30,000 was spent and that is the highest Monday of the data I analyzed.

Svar:

This is exactly the kind of data analysis we need! Keep up the good work.

As the SL economy grows, it is clear to me that there will be a need for virtual world economists and market analysts. Perhaps we can find a business opportunity in this?

L$ has broken the 300 resistance very harshly sweetie, and apparently there s no sign of it returning. And, say if it returns, 300 would be the support and not reisitance, giving clues to further rise, unless LL does something to break the support level. If you know the markets, you know what I am saying.

But unfortunately, I don't think even LL knows what is it doing. and if they do, then I smell a fish market.

svar,

you are not accounting for supply and demand. there is more supply on the lindex than the demand. sellers have much tougher competition than buyers. therefore sellers do not control the price. buyers do. that is why the price is going down. L$ is paper. those holding on to L$ while others rush ahead to sell are holding paper, not money. cash is king. don't get caught holding paper.

so players who sell cheaper are not losing money as you put it. they are making money, whereas those who do not sell are losing money because holding means with time the perceived value of their paper is going down.

the best thing for sellers to do is to adjust prices of their new products regularly to reflect the curent exchange rate.

You missed my point. I'm not telling anyone not to sell, what I was trying to get accross is by rushing to sell quickly people who do sell are losing money by not timing their sale. Many people have sold at rates 5 to 10 Linden greater than they needed to to complete the sale. Some people don't have a clue how this market works, this thread was an attempt to educate those people who want to learn. If a person wants to sell and can sell at L$318/1 but decides to time the market and actually completes the sale at L$313/1 they feel like they gained 5 Linden per dollar and then currency trading becomes fun instead of a painfull experience.

it is because there are too many people wanting to sell in a rush in comparision to people wanting to buy in a rush. if there as a rush to buy all the orders would be bought up and the L$ would move the other way. the fact that people selling in a rush exist is an indication that there is little faith in the L$'s value.

i see your point though, about selling too far low, but it's probably what people need to do to make the fast sale - to get the speculators/grinders to buy them out right away.

I think the people doing the low selling want a guaranteed sale and don't have the time to watch the market, my real surpose was like I said before, educating those who want to maximize their return on the Lindens they want to sell. We can't stop people selling at any price they want (L$360/1 today for instance) but if new buyers outnumber new sellers the value of the Linden rises. Conversely if the new sellers outnumber the new buyers the value of the Linden falls as long as the new sellers offer their Linden above the last selling rate. You can't blame the new sellers who want to complete the sale for doing that either without knowing the market they are just trying to complete the sale.

When people propose that no one offer above a fixed exchange rate so the value of the Linden will rise they are asking sellers who may need the money to delay the sale for days or even weeks for the good of the community. I think the last time I checked that was how communism was supposed to work and we all know how that turned out.

i don't know about communism, but collusion is supposed to be illegal in the US.

I agree. I also don't see that the current 'panic' selling is necessarily unwise or foolish behaviour. If I was holding the Lindens I was a couple of months ago, modest as that was by other's standards, I'd probably be taking L$315 or whatever was going, right now I'd want US$. I just see that as prudent, until I see if LL does start selling L$, how and how much, and what it's effect is, and ignoring that, you can't miss which direction the momentum has been for a long time now. Selling now could appear very wise, if it went to eg L$351.

Oh and yes, adjust your prices people if it's affecting you! Then you get your price wherever the Lindex is.

I agree with Fade, just a jargon correction. where he said momentum, say trend. But important thing is how common sense sees things, as in Fade case and also jauani. But as they say, common sense is not common.

Maybe that announcement scare could be alleviated if we all started trading currency externally to the lindex, or somewhere where linden wasn't selling; I guess that still wouldn't do anything if they sold cheaper though, unless the whole population was in on it which is impossible, damn nevermind.

I guess what we need is a massive recruitment of new players who are willing to buy, maybe the SL sellers should try to get people outside of SL to join and buy their stuff. To up the value(for the sellers, at the buyers expense) we just gotta have more buyers than sellers, we either make the existing people buy more by taking away their stipends and hoping they don't leave or make their own content, or we get more people in here buying until L$ are scarce and sell for higher.

So bring your friends into this game, make them stay, be nice to newbies, convince people to buy off the linex. Buy now before you wont be able to get as many for your dollar, its gonna dip, panic panic buy buy! Heh, maybe we should induce a panic the other way, make people paranoid that they will get less and less for their dollar as time goes by. Personally I will not be the first one to make this gamble, not until I have some reason to beleive it will switch directions, as soon as I find that clue I will buy up as many as I can hopefully before the dip happens. But with the internet and the statistics, I'm sure everyone will know when it happens and have the same idea, especially with all the businessweek people in the game now. Actually, it is kinda intimidating all these business people riding these statistics playing this game with big money, maybe I'll just stick to what I know, making computer stuff.

This idea of making a way for SL stuff to be sold out of game is a very interesting possibility and may bring the desired effect on L$. LL should listen to it and see if they can make a way for that. However, the idea is raw, and would need an exhaustive analysis of all pros and cons before committing.

However, one thing my friend. I hear many people saying "sellers shouldn't sell lower" just like you suggested. Markets don't work like that. you can't tell either seller or buyer when to sell or buy and when not, and on what price. this is folly, and people who suggest that let it be shown that they know little about markets and economy in a free market (capitalist) society. The buyer or seller would do their respective trade when and at what price they see Max profit, or Min Loss. This is the POLICY that should be designed to watch collective interest.

let me give you an idea. A free market is a game of survival of the fittest. Dog eats dog. Everyone is watching their INDIVIDUAL interests. (don't confuse "individual" with "personal": a groups interests are also INDIVIDUAL interests of the group, basic organisation theory for reference). Propagating Collective Interest over individual interest is far fetched ideal socialist slogan that doesnt work in the society we live in. If a seller sees statistics and thinks that the value would decrease over time, how would you convince him not to sell? By saying that it is good for everyone? would you, yourself, accept this reason to hold you from selling if you are convinced by your analysis that the value would go down over time? Absolutely not. and if yes, then good luck cos soon you d be bankrupt, no offence.

I do agree that bringing more people would be good for the game, but at the moment we have already a high rate of new players joining, so thats not really the issue.

What do you think?

As the number of new residents increases, the proportion of buyers in the market should increase over time. There is no way of calculating any meaningful ratio of how many new residents must join SL to produce one new buyer.

In general, basic market theory shows that as the population size of the potential market increases, there will be more buyers and sellers. Of course this obvious. How the proportion is split between sell-side and buy-side depends on many factors. However, it is clear we need more residents in SL to help establish a more balanced market.



Correct. Read my post in this thread to learn more:

/130/a3/106211/5.html#post1038600

That's not quite true.

In the real world when you want to change currencies, you take it to the Post Office (or your local equivalent) and the exchange rate you get is set for you in advance.

Although large trades might move the currency value back ond forth, if every individual who wanted to sell a currency triggered a slight change to the selling price the result would be chaos.

Chaos, thy name is Free Market!

The Lindex is an open market currency exchange. It is not a currency converter or money changer.

What you are talking about is a currency converter or money changer. The rate at which a licensed currency converter can buy or sell your currency is determined by the exchange rates set on the open market. A given local currency converter will set their rates based on the open market.

Of course, at times their advertised rate will differ with the currency exchange market. If the difference lasts too long, they change their rate. Even among currency converters, the rates may vary due to competition.

There is no such thing as a fixed rate currency in an open market. Therefore, there is no such thing as a fixed rate with a currency converter. It may be advertised as fixed, but that is a marketing term. The rate will change if certain conditions are met.

The same thing happens with "fixed" rate credit cards. If you read the Terms and Agreements, you will see that they can and will change the rate when necessary.

Exactly. The converter acts as a broker on the open market. The rate can change, but because the brokers deal large amounts of currency at a time on that market, the rate of change is slowed down.

If there are ten people in the Post Office queue, then the post office gives them the same rate of exchange for all their money, and then sells/buys all that money in a single block on the open market. If the Post Office worked like LindeX does, then the tenth person in the queue would get a worse rate than the ninth because all of them, dealing individually, would have undercut each other.

At the moment as others have pointed out, this is not likely to change because it's a buyer's market for L$ and it's in the interests of buyers for the price to go down.

Yumi:

Are you suggesting that the Lindex switch from an open market system and act more like a currency converter?

If so, who would run the open market so that the Lindex brokers (i.e. the currency converters) could buy and sell Lindens or US$? There has to be an open market somewhere.

Since the Lindex is the open market, perhaps you're proposing that some entrepreneurial residents establish a currency converter business and absorb the market risk so that the average resident is sheltered from the vagaries of the market.

If that is the case, I guess that could happen but I would not expect anyone to jump on the opportunity at this time since the market is too young and unproven.

These currency currency converters already exist: AnsheChung.com and IGE.

Great point! There you go,

Bloop,

you are involved in discussion but i totally ignored it, y'know why? Coz, I dont have time to teach people the basics. I expect them who post in these threads to know them already. that time and ink should be saved for more meaningful discussion.

The problem is.. they both take a cut, and they both have the same problem when selling on the open market, so their rates are always worse.

What they'd do is this:

LindeX operates as it currently does except only amounts of 1 million Linden or more can be bought or sold.

For smaller trades, LL operates a sub-LindeX where Linden are bought and sold instantly. LL stock this sub-Lindex with Linden by buying them from the market - or, to minimise risk, they "earmark" a block of Linden on the free market, start selling printed Linden up to the value of the block, then when they're all sold, use the US$ to pay the seller of the block, and destroy the Linden sold in the block (thereby removing a number equal to that which they earlier printed). LL sets a fixed price in this store based on the value at which they bought or sold the Lindens on the free market, plus a fee. Of course, other residents could run similar businesses themselves by buying their L$ stock off LindeX.

This would act to stabilise the Linden market because only a substantial trade could enter the free market and affect the value.

Aren't the rates you get at banks and RL currency exchanges always worse then what you could get if you were trading directly?

It's a moot point, since AFAIK you can't trade directly.

Yes, you get a slightly worse rate, but it also means that the value of currencies doesn't crash at the start of every Summer because everyone wants their holiday money now.

In Second Life I can! Just one of the great things about SL that doesn't need fixing.