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Machete Visor
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Posted - 2010.03.18 22:50:00 -
[1]
I'll explain how they could work without too many changes to the current interface. Maybe we can build support for it and get the designers to implement the features. The market should start basic...
Modify the contract screen to allow for a 'delivery date'. This allows two parties to contract for the future delivery of a product at a specified price (i.e., a "forward" contract). It would allow miners and manufacturers to lock in expected profits.
In the US deregulated energy markets, this happens all the time OTC - the time periods they use are usually: spot (we have this), next hour, next day, 3 day (I think) next week, next month, 6 months, 1 year.
I would suggest for eve: 12 hr, 24 hr, 3 day, 1 week, 2 week, 1 month.
The mechanics are fairly simple: physically deliver the contract on the specified date/time (or have it in stock) and collect cash. If delivery doesn't occur, full cash isn't available, then the non-defaulting party receives a net cash settlement (contract price - market value) directly taken from the wallet. But... these wouldn't be called 'financial weapons of mass destruction' if it were that easy...
The contract creates a significant 'default risk'. If the price drops, and you are long (i.e., a buyer), you have incentive to get rid of all your cash and default on the instrument and avoid direct debit. That is bad. The same goes if the price increases and you are the seller.
How to mitigate?
Obviously full collateralization of the initial notional would do the trick, but would also make the market too expensive I think. In reality, no one does this.
Instead, implement an upfront collateral %. Lets say it is 10%. Each party posts 10% at the beginning, if one defaults, the other party gets the 10% (a really sophisticated system would use daily margining or a variable collateral amount by contract... baby steps).
This helps, but it actually introduces a new underlying variable: volatility. If the price of the underlying item swings by more than 10%, it is STILL profitable to default. So we can now speculate on volatility!
But doesn't someone get screwed if a default occurs? Yes, yes they do. Therefore, as a final backstop, create a 'market standing'. Defaults lead to reduced market standing, while settlements are increased standing.
A counterparty specifies the market standing they are willing to contract with in the contract.
Viola! It doesn't eliminate the risk - that wouldn't be fun - but it mitigates it. And without changing too much of the interface and code.
Once it is implemented, you can see how we can build on to it... exchanges, swaps, options, etc etc.
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Block Ukx
Forge Laboratories
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Posted - 2010.03.18 23:02:00 -
[2]
The main problem is interest. I've been trying to sell mineral futures and forwards for a long time, but the vast majority of people aren't interested on them.
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Atima
Minmatar Sebiestor tribe
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Posted - 2010.03.18 23:14:00 -
[3]
Give us a graph with candlesticks and usefull timeperiods. Let us customise it.
With this I think we could spark more interest.
However i dont think there is high enough volume for short term trading within eve? /shrug
Im interested but as block said, not that interested untill the features are provided. |
Varo Jan
Caravanserai Consulting
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Posted - 2010.03.18 23:40:00 -
[4]
Quote: The market should start basic...
It *is* basic, idiotically basic, so basic that talk of introducing derivatives is futile, premature, and pointless. You do realise there isn't even an API for existing contracts?
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Liang Nuren
The Aduro Protocol Talon Alliance
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Posted - 2010.03.18 23:42:00 -
[5]
Yes, I would support the introduction of this.
-Liang |
Machete Visor
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Posted - 2010.03.18 23:45:00 -
[6]
I've thought about how to sell futures / forwards using the current contract system without any modifications...
It would require a lot of legwork in terms of modifying contracts to reflect new prices or adding new contracts... it would incur a lot of fees and time.
The simple way is to do it 'off-system' in the forum but then, like bonds, you have overheads with maintenance, some type of audits, etc.
You are right, under the current system it is too much of a hassle to get the volume.
I also think the contract interface could be made a little bit better and that would facilitate easier trading (i.e., displaying historical numbers, easier to sort, etc).
But the key thing that would increase volumes is the standardization of the contracts. Minerials would clearly be the most liquid product. I think manufacturers who are tired of mining would eat it up once they realized it is available (remember, a very small % of the 50,000 people playing read these forums for new features). Miners would want to lock in profit would provide the supply.
MD would provide the speculation.... |
Ave Volta
Perkone
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Posted - 2010.03.18 23:59:00 -
[7]
Originally by: Varo Jan You do realise there isn't even an API for existing contracts?
Indeed. Lets get a contract API working first.
Also as Block said, I'm not sure about the demand, although demand would probably increase if you could do it all in-game.
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cosmoray
Bella Vista Holdings Corp
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Posted - 2010.03.19 02:43:00 -
[8]
I will start a derivatives market right now.
Any person can buy any amount of minerals from me at current mid Jita price (difference between buy and sell) minus 10% for delivery in 6 months, or 1 month after expansion (which ever is later)
September 1st delivery or 1 month after patch (which ever is later):
Isogen = 49 ISK Mexallon = 1800 ISK Megacyte = 27 ISK Nocxium = 70 ISK Pyerite = 6.63 ISK Tritanium = 2.67 ISK Zydrine = 970 ISK
You can buy any amount at full price for delivery, or buy an option to purchase a certain number of units.
An option would cost 10% of the value of the trade, and on execution day you would have to come up with the other 90% of the trade value or lose the option money.
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Block Ukx
Forge Laboratories
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Posted - 2010.03.19 03:23:00 -
[9]
Nocxium Future 83 ISK ea, delivered April 18, 2010. 5% margin deposit.
(Note: Price subject to change)
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Machete Visor
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Posted - 2010.03.19 06:06:00 -
[10]
10% embedded delivery cost? Ugh.
Block - on your future, what is the mechanism? Is it just a verbal agreement? If so, how do we ensure you are here on the delivery date or that you will deliver (or cash settle)? Counterparty risk goes both ways. Paying you a 5% margin when you are free and clear to default is a complete.... scam.
The only reason brokers can charge margin IRL is because they (1) supply access and (2) have legal accountability and are not an ephemeral internet toon.
anyway, the two posts above prove my point. the market won't become liquid until the terms/conditions are standardized.
But I think it has the potential to be huge.
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Protheroe
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Posted - 2010.03.19 08:29:00 -
[11]
Originally by: Machete Visor But I think it has the potential to be huge.
Could you give some more detail on why you think that? |
Taua Roqa
Minmatar Woe Hole
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Posted - 2010.03.19 11:59:00 -
[12]
Could someone please explain to us n00bs what a derivative is, and how one would look in eve please :P?
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Atima
Minmatar Sebiestor tribe
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Posted - 2010.03.19 12:12:00 -
[13]
You authorise a future transaction.
I.E.
I am going to want 10meelion tritanium to build shuttles in 1 month when my BPO is out of production.
But im scared the prices will change :(
so I buy a future.
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Miners plan minin' for the next 6 months. Tritanium is at an all time high but they know the market is not stable and they want to lock in this profit for 6 months.
So they sell a future
Best I can think of it
Also while all the suppliers/producers are doing this you also have speculators thinking : in 6 months price is going up. I'll buy a future / falling = selling.
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RAW23
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Posted - 2010.03.19 12:40:00 -
[14]
Didn't someone do this a few months ago but rapidly shut down due to lack of interest?
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Dzil
Caldari SafeHouse Investments of Tautology
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Posted - 2010.03.19 13:02:00 -
[15]
Originally by: cosmoray I will start a derivatives market right now.
Any person can buy any amount of minerals from me at current mid Jita price (difference between buy and sell) minus 10% for delivery in 6 months, or 1 month after expansion (which ever is later)
September 1st delivery or 1 month after patch (which ever is later):
Isogen = 49 ISK Mexallon = 1800 ISK Megacyte = 27 ISK Nocxium = 70 ISK Pyerite = 6.63 ISK Tritanium = 2.67 ISK Zydrine = 970 ISK
You can buy any amount at full price for delivery, or buy an option to purchase a certain number of units.
Fail.
Dzil's Corp Sales - 200m |
ChrisIsherwood
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Posted - 2010.03.19 13:05:00 -
[16]
I like the idea. Even nicer if you could do exchange contracts for 100k ISK plus BPO ME0 in exchange for ME 50 BPO next month.
But the question is which would be easiest to get started: contracts in the way EVE uses the word or contracts as in commodities contracts.
The latter would be either a standardized contract for a few specific commodities -1m trit or a basket - 1% of the minerals for one T1 BS - delivered in Jita on the 15th of a specific month or every Wed DT. If you sell a contract, you have the obligation to provide the minerals - either they are purchased from Jita sell or you forfeit a large collateral. So you either buy or sell a future stream of minerals. Or you can speculate on trends - Buy April trit and sell June if the IER changes go through.
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RAW23
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Posted - 2010.03.19 13:29:00 -
[17]
Edited by: RAW23 on 19/03/2010 13:29:11
Originally by: cosmoray I will start a derivatives market right now.
Any person can buy any amount of minerals from me at current mid Jita price (difference between buy and sell) minus 10% for delivery in 6 months, or 1 month after expansion (which ever is later)
September 1st delivery or 1 month after patch (which ever is later):
Isogen = 49 ISK Mexallon = 1800 ISK Megacyte = 27 ISK Nocxium = 70 ISK Pyerite = 6.63 ISK Tritanium = 2.67 ISK Zydrine = 970 ISK
You can buy any amount at full price for delivery, or buy an option to purchase a certain number of units.
An option would cost 10% of the value of the trade, and on execution day you would have to come up with the other 90% of the trade value or lose the option money.
100mil units of megacyte at 27 isk please. Money to Cosmoray or an alt?
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Block Ukx
Forge Laboratories
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Posted - 2010.03.19 13:30:00 -
[18]
Originally by: Machete Visor Block - on your future, what is the mechanism? Is it just a verbal agreement? If so, how do we ensure you are here on the delivery date or that you will deliver (or cash settle)? Counterparty risk goes both ways. Paying you a 5% margin when you are free and clear to default is a complete.... scam.
A future is a verbal agreement recorded in the Futures exchange where the futures buyer pays a 5% margin. Mineral volatily can easily exceed 20% in a month, so I'm assuming a larger risk than the future buyer. Usually delivery is done via a contract, so no need for me to be present the delivery day.
The Futures buyer has to trust that BSAC will deliver on its promise. We hold a huge Mineral Reserve, so we have the minerals available for the transaction. We have conducted multi-billion trades as a third party for more than two years without a single complaint.
Here is an link to a previous Futures attempt.
BSAC Mineral Market Manipulation (MinMa) Information Desk |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2010.03.19 14:37:00 -
[19]
Edited by: SencneS on 19/03/2010 14:39:28 A lot of us in here understand this, know what it does, how it works and how to use it. The problem is we as people in CCP's eyes make up a fraction of the population so tools being added to the game to use this would see a limited set of usage.
Remember "Free Form" contracts. That would be PERFECT for something like this, the issue IS CCP wouldn't enforce them, even though they enforce all other contracts created. Relying on the general public to get something like this in EVE means that 98% of EVE's population could care less about this type of thing.
There are two type of people that would use this, capital produces and Traders, why, because Traders like to gamble, Capital Produces know when their stuff comes out and often how long until they need to buy up millions of units of any material way ahead of time.
Every other form of Industrial construction takes less then 1 day to produce items that consume any significant amount of minerals. Battleships, even if you want to make 50 of them, takes only a few days. So the consumption of minerals by produces is quick from Raw materials to finished goods.
Capital produces are different, Building something takes a long time, you install a job and even an Orca the smallest capital, spits out in what 5 days. However the capital Cargo bay, the most used component takes 8 hours to produce just 1 unit and the Orca takes 37 units of that(ME0). Assuming they produce all sorts of capitals they's have multiple BPOs So Lets make em rich! 4 of each.
An order still takes 3 Days to produce the capital components required and 5 days to produce the Orca. 8 Days between Raw materials and Finished Product, and that's an Orca.. So the market for something like this would be used by Traders who could really screw you over, or Capital produces. Everyone else's production time even on a major scale is short.
Worthy cause, just no demand yet :(
Amarr for Life |
Machete Visor
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Posted - 2010.03.19 14:47:00 -
[20]
Block - the purpose of a contract with standardized terms / conditions is so that I don:t have to take you at your word.
If you want to do the verbal contract thing, how about giving me 5% on any notional you desire?
Any way - this is easy to implement with the current contract system (i.e., no free form) by just allowing one field to be changed - delivery date. Think of it as a combo courier / exchange contract.
Whoever had the BPO/BPC forward trading idea... thumbs up.
Would also work for people grinding out missions for LPs and named items. Or ship developers. Think of it this way - I will deliver you a capital ship in XXX time if I can lock in the price now.
It really works for every player in the game, except the straight PVP guys.
Own a POS and need fuel? Lock in deliveries for the next month.
That is why the potential is huge, it just makes too much sense.
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Breaker77
Gallente Reclamation Industries
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Posted - 2010.03.19 14:59:00 -
[21]
Originally by: SencneS you install a job and even an Orca the smallest capital, spits out in what 5 days.
1 week 2 hours 40 minutes before skills/installaion/implants, but whos counting
Quote: However the capital Cargo bay, the most used component takes 8 hours to produce just 1 unit
3 hours and 28 minutes before skills/installation/implants, but again, whos counting
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Block Ukx
Forge Laboratories
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Posted - 2010.03.19 15:36:00 -
[22]
Originally by: Machete Visor Block - the purpose of a contract with standardized terms / conditions is so that I don:t have to take you at your word. If you want to do the verbal contract thing, how about giving me 5% on any notional you desire?
I assumed you were familiar with our previous Futures work. BSACÆs goal was and still is to act as a clearing house for a Futures market. What you are proposing is just a simple Futures contract that will likely have no use to anyone. You canÆt contract what you donÆt have, you canÆt trade contracts, and is not any good to a manufacturer if their contract fails; they still need the goods. As a clearing house, BSAC will guarantee purchase/delivery even if Futures sellers/buyers default their contracts.
So, yes BSAC is taking a huge risk away from the Futures participants and people will need to trust BSAC on its promise to purchase/deliver the goods. So far we have never defaulted. I have serious doubt that you could possible guarantee any Futures.
The main issue is that there is no significant demand for such system.
BSAC Mineral Market Manipulation (MinMa) Information Desk |
Tsang Chou
Tsang Chou Bonds
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Posted - 2010.03.19 16:19:00 -
[23]
Can't we at least get an in-game stock exchange first?
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Taua Roqa
Minmatar Woe Hole
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Posted - 2010.03.19 18:15:00 -
[24]
Originally by: Atima You authorise a future transaction.
I.E.
I am going to want 10meelion tritanium to build shuttles in 1 month when my BPO is out of production.
But im scared the prices will change :(
so I buy a future.
-------------------------------
Miners plan minin' for the next 6 months. Tritanium is at an all time high but they know the market is not stable and they want to lock in this profit for 6 months.
So they sell a future
Best I can think of it
Also while all the suppliers/producers are doing this you also have speculators thinking : in 6 months price is going up. I'll buy a future / falling = selling.
oooh right, i see now, thanks for clearing it up.
sounds very complex :)
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Xeoniya
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Posted - 2010.03.19 18:54:00 -
[25]
You can sort of do what the op is suggesting currently - create a private item exchange contract with a 2 week life span with either you offering the goods, or requesting the goods. Yes, it ties up either your assets or your ISK right now, but so would simply introducing a delivery time. What would really be needed is a contract margin skill like the one they have for the markets but it would lead to a scammer field day.
Part of the problem is that without secure investments to spend your isk on now to earn interest on, there isn't much of a benefit to not just buying the minerals you will need later now and stock piling them. I think a lot of people also go the wait and buy the minerals at market price and use "free" mined minerals to bring down their average cost.
Additionally someone can set up a buy or sell order for the price they want to pay and hope that it sells over the time period they want.
Are any of these as good as a futures market - not really, but they do help to erode demand for futures/options/other derivatives.
PS- ISK isn't in the spell check dictionary :-)
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Pirc Balar
Minmatar Freedom Research Front
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Posted - 2010.05.05 03:10:00 -
[26]
Originally by: Block Ukx I assumed you were familiar with our previous Futures work. BSACÆs goal was and still is to act as a clearing house for a Futures market. What you are proposing is just a simple Futures contract that will likely have no use to anyone. You canÆt contract what you donÆt have, you canÆt trade contracts, and is not any good to a manufacturer if their contract fails; they still need the goods. As a clearing house, BSAC will guarantee purchase/delivery even if Futures sellers/buyers default their contracts.
So, yes BSAC is taking a huge risk away from the Futures participants and people will need to trust BSAC on its promise to purchase/deliver the goods. So far we have never defaulted. I have serious doubt that you could possible guarantee any Futures.
The main issue is that there is no significant demand for such system.
Any thoughts on adding PI / NPC goods once the expansion goes live?
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Vaerah Vahrokha
Minmatar Vahrokh Consulting
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Posted - 2010.05.05 06:35:00 -
[27]
Quote:
I assumed you were familiar with our previous Futures work. BSACÆs goal was and still is to act as a clearing house for a Futures market.
A clearing house imho should not be involved in the actual futures trading as you did in this thread.
Also, did you see my last thread about futures and possible implementations?
Then once you asked if someone was interested in brainstorming something about it, I answered I was and to contact me but you didn't.
Finally, the one, HUGE issue of derivatives: almost no MD reader even understands what the hell they are. Now, this sentence acquires an even scarier meaning if you think that MD readers are already a minority of a minority (traders).
Too bad, I studied a nice real time platform using QuickFIX, but it'd be hundreds of man hours poured for almost ZERO interest. - Auditing & consulting
When looking for investors, please read http://tinyurl.com/n5ys4h + http://tinyurl.com/lrg4oz
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Mme Pinkerton
United Engineering Services
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Posted - 2010.05.05 07:44:00 -
[28]
Originally by: Vaerah Vahrokha A clearing house imho should not be involved in the actual futures trading as you did in this thread.
(a) unenforceable "should"s are useless. (b) by watching the buy/sell orders going up and down (and by knowing who posted which order) the broker assembles a stock of knowledge that individual traders usually do not have access to; by doing some trading on his own he disseminates this knowledge among the other market participants. (c) the value of a trading platform is greatly increased if there is a dedicated market maker for each of its trade items; that's especially true in the infancy stage of the platform or for products with very low trading volume.
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Vaerah Vahrokha
Minmatar Vahrokh Consulting
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Posted - 2010.05.05 09:30:00 -
[29]
Originally by: Mme Pinkerton
Originally by: Vaerah Vahrokha A clearing house imho should not be involved in the actual futures trading as you did in this thread.
(a) unenforceable "should"s are useless.
It's not useless, it's "fair staying detached" trading, as much as EvE allows for. Exactly like - once again "imho" and I stress the imho, I stay out of the investments I audit (in order not to impose "credibility weight" on them).
Quote:
(b) by watching the buy/sell orders going up and down (and by knowing who posted which order) the broker assembles a stock of knowledge that individual traders usually do not have access to; by doing some trading on his own he disseminates this knowledge among the other market participants.
He can disseminate the knowledge he acquires without participating, otherwise it's also called insider trading. He could theoretically use the knowledge to suggest market actions (he already gave buy / sell indications in the past) while he stacks on the opposite.
Of course, being in EvE, lots can be circumvented by using alts including "formality workarounds" but if he desires to be an institution he should comply with said institution role.
Quote:
(c) the value of a trading platform is greatly increased if there is a dedicated market maker for each of its trade items; that's especially true in the infancy stage of the platform or for products with very low trading volume.
Market makers (MMs) by definition play against their customers. TBH I have witnessed RL MMs actions enough to be disgusted by the consequences.
Once you also loose 20% of your monthly income because you fell into what later appears to be an obvious "stop loss trap" and similar you start thinking less about MMs.
- Auditing & consulting
When looking for investors, please read http://tinyurl.com/n5ys4h + http://tinyurl.com/lrg4oz
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Mme Pinkerton
United Engineering Services
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Posted - 2010.05.05 10:04:00 -
[30]
Edited by: Mme Pinkerton on 05/05/2010 10:06:30
Originally by: Vaerah Vahrokha stuff
you want to make money from the market, I want the market to be efficient - we're not going to reach any agreement
edit: ofc there is some middle ground because lots of participants are help the market to become more efficient and partcipants are only attracted by some degree of inefficiency but that's difficult to balance... in principle you will always find that I am heavily in favor of insider trading and the likes...
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