Stabalize the LindeX without the help of LL

LL has put the tools in place for the residents of SL to take control of the Lindex and stabilize rates of exchange at lower levels than currently available. How you say? Well I have watched the LindeX closely the last few days; the patience and discipline needed to accomplish this has been displayed by the few currency traders that currently issue limit buy orders and sell by issuing limit sell orders all on the LindeX. The following is an example;

328739 Limit Buy L$200,000 L$200,000 L$350 / US$1.00 2006-05-31 15:13:17 2006-05-31 16:32:00 fill US$571.45 US$571.75
329060 Limit Sell L$90,000 L$90,000 L$331 / US$1.00 2006-05-31 16:31:20 2006-05-31 22:34:49 fill US$272.03 US$262.42
329117 Limit Sell L$110,000 L$110,000 L$330 / US$1.00 2006-05-31 16:35:57 2006-06-01 20:27:11 fill US$333.46 US$321.70

You see a purchase of L$200,000 at L$350/1 on 5/31/06 at 15:13, by 16:35 of the same day two limit sell orders were issued. One sell order was issued at L$331/1 for L$90,000 and the other was issued at L$330/1 for L$110,000. At the time these sell orders were issued the limit sell exchange rate was L$333/1 or higher. That trader had the discipline to wait for the exchange rate to come down to his offer.

This is what is lacking on the LindeX and always has, it is what I have been saying since I started posting on these forums. The sad fact is most residents do have the discipline to wait and have been waiting but there are those who want their money now.

I propose that all those individuals who make large block trades on the LindeX and want their money now defacto hire the currency traders to do their selling for them. How? Sell those large block trades at the market and let the currency traders worry about moving the L$ on the LindeX.

It can't be done today but hopefully by the end of the month it will be possible. There aren't enough currency traders now to give the competition needed to allow the large block sellers a decent exchange rate. The few currency traders now are all waiting for their tier to be raised so they can trade more money during any given 30 day period.

Here is how it would work. Today the best that the eager large block sellers can get is L$330/1 but most of them wont get that because they will offer at a higher rate. The effective exchange rate for L$330/1 is L$342/1 after commision. If that large block seller were to sell the entire block at the market for an average exchange rate of L$350/1 they would get an effective rate of L$363/1 and lose up to 6% of their potential profit.

If enough currency traders were available and the more large block sellers sell at the market the more currency traders there will be (that is how capitalism and free markets work), then competition will force the exchange rate down both on the limit sell side and the limit buy side. The exchange rate only needs ot get down to L$310/1 on the limit sell side for large block sellers to get an equal or better return than they get now. If the exchange rate were to get back to L$300/1 on the limit sell side the large block sellers could instantly sell at an effective rate of L$332/1 and that is compared to the best they could get today of L$342/1. If the exchange rate could be driven down to L$280/1, the large block instant sellers could get an effective rate of L$311/1.

I have been tracking what it will take drive the exchange rate down to L$280/1 and on 6/2/06 that number stood at $55,968. Every day this rate looks more possible since at its worst on 5/23/06 that number was $94,665.

Again this is not possible today and I'm not urging any seller to sell at the market but everyone who does makes it more attractive for those individuals who want to become currency traders and stablize the LindeX.

Day traders buying only at 5% - 7% above market price working to "stabalize" the LindeX? ROTFL

It seems more probable to me, that the structure and amount of LindeX fees combined with a growing number of residents eager to play the day trading game is a constant push to drive the L$s value down. The LindeX is not comparable to stock or currency exchanges in RL, where the relation between the spread and the usual daily fluctuations is much smaller.

If enough sell orders are placed at a given rate they exert a pull that counteracts the push. So if you get enough people to participate in this system it would in fact have a stabilizing effect.

It is competition that drives down the exchange rate not the good nature of currency traders. Currency traders will try to maximize profits and they do that by offering to sell below the current rate to get the highest return. I saw an offer to buy on the limited buy side today of L$335/1, that is competition, ok that probably was a mistake but before all the currency traders ran out of tier there were lots of offers below L$340/1.

The devaluation of the L$ is not caused by a lack of sell orders, exactly.

It does not matter how intense the competition gets. Because of the relatively high LindeX fees, limited buy orders have to be placed well below market price. Otherwise there is no profit for the kids playing day trader.

In the weeks and months to come I think you find that not all currency traders are day traders. Some are currency speculators who seem to be buying large blocks of L$ above L$330/1 and holding for a much lower price. I have also seem L$ millions removed from L$290/1 to L$305/1 in recent days that hasn't resurfaced. There currently is only $55,000 worth of L$ offered at L$280/1 and above and more than one investor watching for a buying rush that will drive the exchange rate below that. When a buying rush comes I expect it will happen between 21:00 and 03:00 SL time so two different days worth of tier are involved. The Europeans are up working at those times, do you know of any Europeans who might be capable of pulling this off?

There are probably a few hundred thousand Europeans who are "capable of pulling this off". The only question is: what would motivate them to do it?

For those who like to speculate a bit with stocks an currencies a bit, there are many markets around with much more possibilities, more convenient fee structures and a lot more volume. So why do it in SL? Personally I would say the only kind of speculants attracted to SL are those who don't dare to play with big boys in First Life. A market with a daily trading volume of 30,000$? OMG

Second Life offers a lot of unique opportunities for creative people interested in new ways of expressing their creativity, doing business and relating to likeminded people all over the world. A currency exchange is none of that.

The reality of trading on L$ for Europeans is that we have two exhanges to go through. Local currency/US$ and then L$.

As Pham says, I can see no reason to speculate on a market with such high fees, such a difficult market in which to trade and tiny volumes. Allied to which, the whole idea of the L$ exchange is little more than casino. Currency speculation requires more than a position against the house and the volumes on the L$ exchange are far to small to ever be able to make a viable margin. It is as effective as walking into the Bank and changing currency in the fond hope that exchange fluctuation will cover the spread. I am sure there are day traders who will argue to the contrary and good luck to them. But for me, I need to hope that this fluctuation covers two spreads. So on any position, through the available route to market I have lost the best part of 10% before I have even started). Would I really place large sums of money on an unregulated exchange, where the currency provider is at total liberty to shut the exchange, issue more currency, change the exchange rates, close the business? It's a great pipe dream, but at present nothing more.

Had I more money invested in SL, then I would be more interested in ways to cover my exchange exposure as part of the 'game of SL', but in reality I would be better off covering my GBP/USD exposure than the GPB/USD/LD triangle. However I am not in that position yet and I could not see myself even if I were, doing anything more than covering my USD/GBP position. Developing a futures market would be of far more interest, but to get there, there is a need for a structured and regulated banking system. Give it time, it may happen, but at the moment, there is no reason as there is insufficient capital and the demand in the market, is by those who are using SL exchange as part of the SL game.

I have proposed on another thread a more comprehensive multi currency exchange system, but this is realistically far too expensive, and the exchange would then have to handle all inter currency exchanges. Not feasible without regulation (regulated by who) and that is not part of the SL story so far.

The reality of the L$, while academically interesting, is 'Caveat emptor'.

Don't invest more into SL than you are happy to loose, if you can make a profit and take real cash out, great, it's what I hope to do. My future investment in LL will be limited and something I am happy to loose. I came here hoping to make a profit and so far I have, but I will be drawing my profits out, once my 'pepared to loose' limit is reached and future growth will be limited to that of a very cautious business development plan, withdrawing at least 60% of what is being left in.

My ROC at present is 85%, which is absolutley fine, having been in game foe less than a month, but the insecurity of the business model in no way would permit a more aggressive investment. That pertains to the L$ exchange as much as the rest of the SL experience.

Good luck with the economics of trading the Linden, but the reality is, (avoiding the aspect of the nature of the game) this is another 'international' trade, with associated currency risks and for a business, that is managed through forward positions, not day trading and only if that risk warrant it.

In business outside the USA, international trade is very much part of life for many businesses and very comfortable for individuals who go abroad for holidays, whereas I guess relatively far fewer US businesses and individuals ever need to use anything other than US$ and it may be this, that drives some of these threads of exchange rate fluctuation to the levels they reach.


Bearing in mind I am UK based and trade internationally, currency fluctuation is part of life and managed. In SL this management is far easier.

I really don't think currency fluctuation is a major headache, particularly as once I have paid for an item to be built for me in SL, I then have no further manufacturing, transportation or distribution costs and depending on the items, very limited storage costs. I am therefore in the bizarre position that once I have negotiated, resell rights and copy rights, I can, if I choose, set my selling price at less than my purchase price and still end up ahead, now if only RL was that simple....

Land price and land scarcity are of far more economic interest, as these are the major determinants in pricing and cost, but again this is mitigated, as my on sell of 'product' for which I can negotiate and determine, is a one off price. The currency fluctuation I can deal with by SL pricing, rather than expensive speculation.

There is also talk on these threads of hyper inflation, but this ingores the reality of how 'copy' 'resell' of items works economically. Land prices may push upwards, but that doesn't mean all goods will push upwards.

I can use a variety of strategies to maintain my desire for consuming within SL without resorting to price hikes, which because of the nature of the game, will make my offerings more attractive, to maintain my Linden requirements (assuming I still have a thirst for purchasing land and custom made resell commodities).

As examples, I can reduce my price to attract retail customers, free fewer prims on rented property, permitting me an additional retail space and at the same time hold rental prices for tenants. Permit more land to be made available for 'events' and sell on more sponsorship. Where I am most likely to meet inflation is in my land purchases and in customised commodities. But by increasing my lands, retail, events and rental attractiveness, my need for Lindens through price hikes can be mitigated.

Not to mention LL can release more land and keep these prices dampened, as well as other simple supply side economics they can introduce.

As I said earlier, exchange rate fluctuation, albeit at a less volatile rate (usually, though not always) is very much part of the non-US residents life experience, be it from oraganising next years summer holiday with a devalued currency or importing/exporting in business, so is managed by using more than one tool.

To the day traders and currency speculators, I hope you get as much out of SL, as those who only use their stipend as a way to spend an hour or so a week on SL and others who spend their time creating and developing the SL items and world

Nowun,

I can't express adequately in words how much I enjoyed reading read your post and for someone who has only been ingame a month you have an excellent grasp of the potentials of SL. I on the other hand have mostly just played but being retired and having both the time and resources to speculate have been doing just that. My investment in SL is for play value only and were I to lose it all will treat it as an entertainment expense. My annual marlin fishing trip to Hawaii costs more than I have in SL but only lasts 2 weeks while I'm going on 2 months in SL and considering buying my own island here to just hang out on if I can "earn" enough on the LindeX currency trading game. I'm not counting the expense of buying and equiping the island just the monthly tier of maintaing it. The initial cost I will treat as a sunk cost just like the initial cost of buying a 2 week timeshare in Hawaii, I'll never get that money back either and it is 20 times the expense of a private island in SL.

My serious investment money is in USA and asian stocks which are held long term and while are much more lucrative than any potential gain I might make in SL are very boring to watch even on a weekly basis. I can't afford to trade stocks like I can play the LindeX currency game because I refuse to pay the capital gains taxes such trading would incur. I pay too much in income taxes now. It has been a pleasure exchanging forum posts with you, good luck in SL.

If we continue exchanging posts I will have to discuss the potential problems we could have in communucation if you are British. I will relay a story told to me by a British Army EOD expert when we worked together on a secret project together during the first gulf war against Iraq.

Anyone who does this is a fool.

Have you seen the Linden Federal Deficits?

Just wait Jamie, hold you Ls for a while and get a better rate in the coming months.

Secondlife has MULTIPLE deficits?!

--
Btw... Oste = bone. Rich = ... wealthy.

"Osterich" therefore... is someone who drinks their milk?

Even if the $L get value gets better in the coming months, one can still make a bigger profit actively trading. Unless there is a significant strengthening of $L in the coming months, ~ more than 20% change. It does not make sense to hold $L.

Just playing the margins/ gap and the non-trader demand and supply of $L, I was able to make a 3 to 5% gain (in USD) per day; 23% return in 1 week or 124% return in a month.

Key is not to put huge orders out there, it scares small traders into leapfrogging instead of waiting their turns.

Is it a sad fact when people enter market buy orders?

What if I want 5 million lindens right now? Should I have patience and enter it as small buy orders to avoid making the linden stronger?

You aren't going to subvert the basic laws of supply and demand with patience.

There is a subtle difference between the limit sell orders that have been around since the LindeX started and limit buy orders that have only been around 2 weeks. I think you meant to say limit buy orders and not market buy orders correct? For the record market buy orders have been around as long as the limit sell orders and are used to fill the limit sell orders. Their most valuable function is giving the new player the ability to purchase L$ for his initial shopping spree that many go on, I certainly did. Currently there is over $30,000 coming into the game daily from market buy orders. That is what keeps the limit sellers getting their USD to pay their bills and provide profits that in some cases support the content providers and real estate developers in RL.

Limit sell orders like I said are used to sell L$ to anyone willing to place a market buy order and currently that is over $30,000 daily. New players should always use this vehicle because it is easy and very fast, also new playes can only purchase $150 in L$ per 30 rolling days so they don't have the ability to play the currency game, if that is their aim, for the first 45 days. The limit sell offerors have a built in market that has always bought from them and this is very good.

Limit buy orders on the other hand are a vehicle for real estate developers and content providers to quickly cash out via a market sell order but they always have the option to place a limit sell order just like they always did. Currently I would suggest that they do just that and did say that in the first post. The limit buy market is just too thin to support much market selling without driving up the exchange rate for the limit buy offers. This happens everytime a large block market seller sells. Look at the current chart in the Daily Summary, you will see spikes in the exchange rates for limit buys whenever a large block is sold at the market. Currently you also see a subsequent spike in the limit sell orders as those currency traders immediately resell the L$ with limit sell orders. These are either thinly capitalized currency traders, inexperienced currency traders or both. What you need and time will provide that are more heavily capitalized currency traders with more disipline who don't need to immediately roll the trade because they only have $500 and it is all invested in the just completed limit buy.

If you have L$ 5,000,000 right now and you want to sell it all quickly I would spread it out over 3 to 5 individual trades of about L$100,000 each at different exchange rates starting from the existing highest rate down 1 LS at a time and watch the market trend. You want to remember that this market uses the first in first out (FIFO) accounting method for determining who gets the next trade. That means if you were the first person to place an offer at say L$325/1 for L$100,000 it doesn't matter that there are L$4,000,000 sitting there when the market gets to that level. The first L$100,000 bought at that exchange rate will go to you. A recent example would be if you were to have placed L$500.000 on 6/3/06 at 23:30 for a rate of L$323/1 there would have been only L$510,000 offered at that rate then and when the market blew through there on the next day you would have sold all of it after the first L$510,000 were sold. Good luck with you sale BTW but do not make market sell offers at this time. You can sell all of it in a few days at much better rates and not spook the market.

Morning Nowun (and greetings from someone working 3rd shift in the US):



I wonder if this can be achived by LL allowing companies with a Serious Interest to license their code. That'd be a HUGE risk for them - probably both sides actually - but can also reap rewards in other companies working on (and perhaps finally fixing bits of) their rather hodgepodge codebase.

Going back on topic somewhat - Caveat Emptor is correct. Most of what I did last year was to help various interesting projects survive. In fact, until approx Jan 06 I accepted L$ payments at the L$250 rate as an alternative to a direct PayPal payment in US$ (in regards to tier assistance payments) as I had no interest in profits for what I've helped out doing. Plus its easier to just sell L$ into the US$-side of the account and have LL grab from that instead of trying to have PayPal paid back into my bank account.

I was not - and still am not - as worried as most about the L$ rate as most of what I've ever done in SL has been social in nature, and not content creation. Nowadays I'm more likely to *buy* L$ than sell it actually, but I have other environments to help now.

--Alan
:link:

Ah here's that thread you asked me about. No I really meant market buy orders.

You claim impatience causes bad things to happen. If I am patient I can get a better rate by entering a limit buy order, rather than a market buy order.

You urge patience on one side and impatience on the other side. That was what I was pointing out.

Limit buy orders are not just for traders. Anyone who wants to get the best rate (and doesn't mind waiting) when buying Lindens should use them.

I don't know why you would suggest that people settle for less than the best rate they can get when buying, but not when selling.

Do you see what I mean?

Second Life is not the place to play day trader. There is much more money to be had trading the Euro verses the U.S. Dollar, or just about anything else against the U.S. Dollar. Of course the Japanese Yen is nice to trade against, because of the interest benefits. In any case, the opportunity in an Linden exchange market is limited by a lack of real world value besides its connection to the U.S. dollar, slower volatility, higher fees than other alternatives, and lack of leverage and short orders. The currency exchange is vital for any type of business to operate in Second Life, but it is not the next best thing to invest in for day traders. There is no incentive to trade only for trading sake on the Lindex without extreme circumstances like what we saw when GOM closed. People aren't patient, because the economic data shows that the general trend for the Linden value against the USD will be down more times than not. Until that changes, people will only be correct if they are impatient on the sell side and extremely patient on the buy side. If sinks start consistently being higher than sources for the entire week combined, you will see the scenario flip with people being extremely reluctant to sell at market price.

I see exactly what you mean now that I don't try to put words into your mouth. I wish I had seen that before this answer is much shorter than the other one. I don't urge anyone to make market buys but it is the nature of the game and a function of the game mechanics. Most market buys are small in comparison to the limit sells that they are executed against. An important difference between the limit sell/market sell duo and the limit buy/market buy duo is on the sell side everybody has L$ in the game to sell. On the buy side however you must have USD in the game to make a limit buy from only one location but can use a credit card to directly make a market buy from a large number of locations.

The market buy is done mostly in lots of L$1000 - L$5000 with lots as low as L$150 personally observed by me. Most limit buys are done in lots of L$20,000 and higher. The small lot market buyers don't want to take the time to place a limit buy order and then wait for it to be executed.

Anyone who tries to make - and think they will always have - a secure real life living on the basis of a computer game is a fool.

Lewis

Ok, time to roll out this thread again to explain the behavior currently on the LindeX. What is currently happening is the big sellers are not selling to anybody and the exchange rate is dropping fast. The market buying volume is about the same it has been the past two weeks but there currently is no selling pressure. Look at the action of the limit buyers (currency traders), They have lowered the asking price from L$339/1 to L$329/1 in less than 24 hours and as long as the sellers continue to withhold L$ the asking rate will continue to drop. Even some currency traders may be holding L$ waiting to see how far the rate will go. This should be great news for all those content creators who were complaining about the raising rate, it is now dropping. Sorry RBD and Jamie it couldn't be helped.

Looks to me like your remarks are unfounded silly boy...
Who's the fool now? Hahhahahah


Don't assume others can't make money just because you can't..




Source: http://www.businessweek.com/magazine/content/06_18/b3982001.htm

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The avatar named Anshe Chung may be a computerized chimera, but the company she represents is far from imaginary. Second Life participants pay "Linden dollars," the game's currency, to rent or buy virtual homesteads from Chung so they have a place to build and show off their creations. But players can convert that play money into U.S. dollars, at about 300 to the real dollar, by using their credit card at online currency exchanges. Chung's firm now has virtual land and currency holdings worth about $250,000 in real U.S. greenbacks. To handle rampant growth, she just opened a 10-person studio and office in Wuhan, China. Says Chung's owner, who prefers to keep her real name private to deter real-life intrusions: "This virtual role-playing economy is so strong that it now has to import skill and services from the real-world economy."
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NO need to worry.. I'm waiting until a big fat buy order is placed at
the right price and then I'll unload my millions into it...