EVE Search - Derivatives - should they come to eve?

All Channels

Market Discussions

Derivatives - should they come to eve?

» Click here to find additional results for this topic using Google

Monitor this thread via RSS [?]

Pages: 1 2 :: [one page]
Author	Thread Statistics \| Show CCP posts - 0 post(s)
Machete Visor	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.
Block Ukx Forge Laboratories	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.
Atima Minmatar Sebiestor tribe	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	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?
Liang Nuren The Aduro Protocol Talon Alliance	Posted - 2010.03.18 23:42:00 - [5] Yes, I would support the introduction of this. -Liang
Machete Visor	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	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.
cosmoray Bella Vista Holdings Corp	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.
Block Ukx Forge Laboratories	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)
Machete Visor	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.
Protheroe	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	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?
Atima Minmatar Sebiestor tribe	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. ------------------------------- 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.
RAW23	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?
Dzil Caldari SafeHouse Investments of Tautology	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	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.
RAW23	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?
Block Ukx Forge Laboratories	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	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	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.
Breaker77 Gallente Reclamation Industries	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
Block Ukx Forge Laboratories	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	Posted - 2010.03.19 16:19:00 - [23] Can't we at least get an in-game stock exchange first?
Taua Roqa Minmatar Woe Hole	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 :)
Xeoniya	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 :-)
Pirc Balar Minmatar Freedom Research Front	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?
Vaerah Vahrokha Minmatar Vahrokh Consulting	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
Mme Pinkerton United Engineering Services	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.
Vaerah Vahrokha Minmatar Vahrokh Consulting	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
Mme Pinkerton United Engineering Services	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...
Idor Darksky	Posted - 2010.05.05 23:06:00 - [31] I hate to be a buzzkill but..... Can anyone say: RL GLOBAL ECONOMIC MELT DOWN!!! This has been done at least 6 times in RL in the past, not to mention the most recent 2008 worldwide recession, and each time has led to a significant recession/depression. Dosen't work in real life so I would venture to say won't work in Eve. While I applaude your creativity, your execution leaves alot to be desired. Just my (last) 2 cents. Idor
SetrakDark Northstar Cabal OWN Alliance	Posted - 2010.05.05 23:23:00 - [32] Plenty of very simple and very useful derivatives based on sound financial theory.
Vaerah Vahrokha Minmatar Vahrokh Consulting	Posted - 2010.05.05 23:37:00 - [33] (Preamble: it's deep night and after 16 hours of work, so I might write utter garbage) Originally by: Idor Darksky I hate to be a buzzkill but..... Can anyone say: RL GLOBAL ECONOMIC MELT DOWN!!! This has been done at least 6 times in RL in the past, not to mention the most recent 2008 worldwide recession, and each time has led to a significant recession/depression. Dosen't work in real life so I would venture to say won't work in Eve. While I applaude your creativity, your execution leaves alot to be desired. Just my (last) 2 cents. Idor This is an example why futures are not going to attract interest enough: confusion. Futures are used since Ancient Greece and even today part of them are still dedicated at hedging against agriculture risks. What you are talking about are mainly: - CDS (not deadly per se, but ofc speculators found ways to make them "poisonous"). - SIVs - Generally securities whose underlying value is reliant on something that can unexpectedly flop, ie Mortgage Backed Securities AKA MBS AKA debt obligations. What you confuse about is the inherent effect that leverage brings: you can field the above securities in high leverage scenarios and then you achieve the devastating effects. The latter part is also something related to MMe's post above. In order to really keep market efficient, MMe would have to oppose to derivatives. Derivatives function as spread amplifier (by leveraging on the second order / variation of the spread) and they are more and more used because traditional spread trading IS indeed getting closer to efficient and thus completely non-remunerative. Like in many other fields (ie hackers vs copy protection, thieves vs police) there's a run to make markets ever more efficient (and with spread tending to zero, revenue tends to zero) vs new financial instruments to virtually amplify the spread and bring revenue in. - Auditing & consulting When looking for investors, please read http://tinyurl.com/n5ys4h + http://tinyurl.com/lrg4oz
Machete Visor	Posted - 2010.05.06 00:47:00 - [34] Edited by: Machete Visor on 06/05/2010 00:53:15 It is clear the guy above is just spouting what he has heard on TV or read in magazines... but the reason why people link derivatives to the financial crisis is not necessarily to do with CDS, SIVs or CDOs. Those things all played a much bigger part than derivatives and this is very frequently confused, but they have nothing to do with derivatives (except CDS and the related synthetic CDOs). The reason why derivatives have been lambasted is that the systems used to monitor them are private and also archaic. In other words, they are a side market. With the exception of futures, all derivatives are over the counter (OTC)... some of the largest markets in the world(rates, currencies, lots of commodities). Any time you have a side market of any scale, there is a real risk that concentrations are developing or the dynamics are poorly understood by market participants. That is the case here. It wasn't CDOs or CDS or even real estate that brought down Lehman brothers. Those things triggered losses... but the reason wall street banks pulled their overnight funding was because they weren't sure if Lehman could make payments on its massive derivatives book. The dynamic here is really important. For example, lets say you have a 100 interest rate swap that receives floating and pays 5% annually fixed (5). The max you will ever pay in a year on that swap is $5. It is known and therefore can be hedged and planned for. No problems. However, if it is a 30 year swap, the max you could pay over its life is $150. Again, not sure a big deal b/c you have 30 years to pay it. But the contract is OTC. That means the counterparty only has recourse as a general creditor if you default and they don't really know or trust your financial condition. So they are worred about the $150, not the $5. You start to not do so well... a few bad quarters. The counterparty says - I need protection. There are clauses in these contracts that let them call margin on the $150, not the $5. All of sudden, you are paying $150 in 1 year. Sure, you get it back or it is a prepayment. But it is $150 you don't have. Imagine that happening on a derivatives book of 100,000s of contracts, over night. It was panic. And it applies to everyone... but if Lehamn cant give you your 1.5Billion in margin, you might have a problem... and you will owe someone else 1.4Billion. That is why it went from lehman to merrill to morgan so quickly. To be sure, there were some other nuances at play.. for example, credit derivatives made this spiral happen much quicker (in days). If you are a credit risk manager on wall street, you are worried about lehmans swap book, but then you are also worried about all your counterparties that sold you credit default swap protection ON lehman. Uh oh. I had a treasurer tell me they lost over 5B in cash 1 day and the CEO called to say, "WHERE DID IT GO????" because their P/L was flat. And they didn't know. 10 to 20 margin calls, reduced funding lines, etc etc. It was a free for all for cash. No one, however, can reasonably blame this on exchange traded futures. And if rates/currencies/commodities were all on a secure exchange, there would be no issue at all. Those banks would have been unwound in an orderly manner. Notice no one even mentions equity options, but they have some of the most volatility and leverage of any derivative. Counterparty risk in Eve is not as developed, and there are very little supply chain dynamics that could cause such a big issue. So I don't think these are a risk for Eve. I don't want to sound preachy or like a professor. But if you are interested in the dynamics behind CDOs, CDS, etc etc etc, I'll be happy to share.
SencneS Rebellion Against Big Irreversible Dinks	Posted - 2010.05.06 13:49:00 - [35] Originally by: Idor Darksky Doesn't work in real life so I would venture to say won't work in Eve. Actually I would say that's an argument for it to be in EVE. Most real life working things don't work in EVE. Insurance, Banks, Venture Capitalism (AKA Secondary Market) without taking some serious security measures which ultimately prevent the entity from doing it's job properly. Security measures that do not exist in real life, or at least exist on a smaller scale, one that when applied to EVE still doesn't work. Or at least is good enough for both client and operator. If it doesn't work in Real Life it's probably because of some other functionality that doesn't exist or is a "bottle neck" for example EVE Doesn't have; International Trade Restrictions, and Products don't sit for months of end on docks waiting to be cleared by customers etc. Put it this way, in EVE there you can store massive amounts of a product at zero cost, which would make a real life futures market much more viable. The items also don't rot or degrade over time in EVE, another thing that would make futures markets in real life more viable. Not to mention the fact that in EVE items don't get replaced with upgraded or more advanced items very often. Lets face it, if at the start of EVE you collected Anti-matter S rounds for whatever reason, constantly placed regional buy orders in every region over and over again, collecting billions of units. The value is still the same, the item hasn't been replaced. Sure there is T2 versions, but Anti-matter S sells just as well now as it did years ago. Before anyone busts my chops about what futures market is, I know what it is, I'm saying in EVE if a Futures market existed people would store up massive amounts of what they're selling in EVE because they can, and it makes it easier. It's actually the same reasons why futures would work better in EVE then real life as to why it doesn't happen in EVE. There is no demand for this because of the exact same reasons. It's free to store, it's always available, and it's everywhere. Those are the best reasons why Futures doesn't exist yet and probably will never exist. The only real way would be if CCP added in the code that you could only build Racial items in that Races Station in that Races Region. This would SIGNIFICANTLY reduce production slots and distribution of items. Imagine, only being able to build Caldari BPOs in a Caldari station in Caldari space, or Amarr items in Amarr stations in Amarr space. etc. The lack of distribution and ability to built items would mean massive amounts of Transported goods in Empire space, this would be the ground work to emulate a Futures market in EVE. Not because of what it does, but what becomes a demand. The lack of missiles in non-Caldari space would create market opportunities in which futures market would become a viable alternative to trade and transport. Sadly this will just never happen :( Amarr for Life
Got Guns	Posted - 2010.05.06 13:49:00 - [36] The more stable derivatives (or at least those with lower default rates) are, for the most part, exchange traded (as opposed to OTC) and cleared either by an exchanged based clearing house or a 3rd party clearing house. The only reason clearing houses work is that they assume a significant portion of the risk and have recourse to defaulting counterparties through the legal system. No such recourse exists in EVE which means that the operation of a clearing mechanism would be almost impossible as the risk assumed by the clearer would be enormous (significantly above any statistically acceptable level based on the income it would earn). In order for a derivatives market to develop in EVE, there would have to be a reliable clearing mechanism which would result in daily cash flows to meet margin calls on variation margin requirements from price fluctuations of the underlying. Without the aforementioned recourse, such a mechanism would be impossible. Even if that were to happen I can think of a few ways to mess with the system eg. manipulating the price of an illiquid underlying commodity to force an large margin call resulting in a default on the contract by the counterparty. IRL this risk of this happening is greatly reduced by laws and exchange rules prohibiting market manipulation. I believe that there would be a demand for derivatives (if only from traders looking for a more efficient mechanism to short the market) but due to the significant amount of risk, which simply cannot be mitigated without the accompanying legislative framework that exists IRL, I cannot see there being any large take-up of derivatives in EVE. If someone could find a way to at least mitigate the risk on such a contract to an acceptable level (IÆm only asking for a reduction to an acceptable level, not a complete removal of risk) then I think there would be a great deal of interest.
Machete Visor	Posted - 2010.05.06 14:12:00 - [37] good point about storage. That is very true and is something that is unique to eve commodities. But rates/currencies are storable in the sense that they do not expire, yet they have derivative / futures markets. Sure, rates/currencies degrade via inflation... but doesnt ISK? I've not seen this published - i wonder if anyone has calculated an inflation rate for eve... of it CCP has it balanced out. I think most the demand in eve would be from producers trying to lock in prices, or miners trying to lock in ISK per hour. Maybe prices are stable enough that there is very little demand. Derivative demand is driven by volatility in real life... if CCP has stable prices (within a reasonable range) then they arent needed. Got Guns - for a market mechanism, I agree, I dont think a derivative market can work without new funtionality added to the game. Simply too much counterparty risk. But what about the escrow feature used for buy orders? That has a margin component to it. it isnt dynamic against prices, which is the biggest difference. CCP would basically have to act as the exchange and do something t guard against default. Maybe default reduces standings or causes loss of trading skill points. If the players took on default risk, the market would need tobe on a named basis. I.e., i choose whoto trade with. Adding a 'trading standing' is one way to let people track counterparty risk.
Ghoest	Posted - 2010.05.06 14:19:00 - [38] You have confused "futures" with "derivatives" - silly noob. Wherever you went - Here you are.
Got Guns	Posted - 2010.05.06 14:26:00 - [39] Originally by: Ghoest You have confused "futures" with "derivatives" - silly noob. A future is a derivative..... just BTW.....
Mme Pinkerton United Engineering Services	Posted - 2010.05.06 14:30:00 - [40] Originally by: Machete Visor But rates/currencies are storable in the sense that they do not expire, yet they have derivative / futures markets. Sure, rates/currencies degrade via inflation... but doesnt ISK? I've not seen this published - i wonder if anyone has calculated an inflation rate for eve... of it CCP has it balanced out. every QEN reports multiple price indices
Thrasymachus TheSophist	Posted - 2010.05.06 16:53:00 - [41] 1. Market price is more complicated to fix than you might think. 2. 10% collateral is insufficient. On any "loss" trade, if you default you lose 10%, if you make the contract (i.e. leave your wallet funded) you lose 100%. Easy choice. Now for the part that really interests me ... Market Standings: 1. You can't do Market Standings based on completed vs. not completed contracts because there is no mechanism for determining if a contract is fictional on the one hand, or arms-length on the other. Put differently: Such a rating is wholly meaningless because it is supremely easy to manipulate by simply entering into numerous contracts with an alt, corp-member, or friend, that are then completed, for the sole purpose of manipulating standings. 2. Market standings ARE a supremely useful idea that would have GREAT utility in a variety of contexts, but you have to do them right. I'm not sure the best way to do it, however.
Vaerah Vahrokha Minmatar Vahrokh Consulting	Posted - 2010.05.07 06:27:00 - [42] Quote: in principle you will always find that I am heavily in favor of insider trading and the likes... 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 I suppose today's RL crash showed what dedicated market makers do and how efficient markets help the economy. - Auditing & consulting When looking for investors, please read http://tinyurl.com/n5ys4h + http://tinyurl.com/lrg4oz
Mme Pinkerton United Engineering Services	Posted - 2010.05.07 08:50:00 - [43] Edited by: Mme Pinkerton on 07/05/2010 08:50:08 Originally by: Vaerah Vahrokha MMs are only "accepted" because they are able to parcel-ize trading lots (100,000 euros = 1 lot) into a small size enough that low liquidity aka retail traders can manage. IE you will deal with mini (10,000) or even micro (1,000) lots instead of covering for a whole lot. But the benefit ends here, and it's why nowadays new brokers are advancing (ie request is big and raising) that have no dealing desk and let the orders "flow thru" the real actors (banks) without MMs. My post addressed the scenario of starting an exchange in EVE; the trade volume at similar projects has been next to zero as far as i can remember and lot sizes are no problem at all. In this situation where you can expect to have 2-3 trades on a given item per fortnight, I think a dedicated MM would provide an awful lot of value to investors. The first time I heard about liquidity providers/market makers/specialists was when talking to a bank which fills this role for about 1/4 - 1/3 of the trade volume in securities at the local exchange of a medium-sized city in Germany. I am certain that 99% of people living in that city have no idea that it actually has an exchange, the total trade volume is insignificant when compared to the likes of Frankfurt. But it still manages to attract enough investors to go on and this only works because they have MMs who are committed to provide the investors prices that are comparable to those on the larger trading platforms, no matter what the local supply/demand & trading volume looks like. The MMs are forced to provide orders for investment vehicles that are only traded a few times a month without being allowed to charge excessive margins - if they didn't exist the exchange would (probably) not attract enough customers to be viable. That's the situation that is imho most comparable to EVE. I think when talking about exchanges in EVE MMs would provide tremendous benefit (hopefully enough to get such a platform from the ground). I agree that it is easy for them to misuse their position and as trade volume increases the negative aspects become more obvious as the positive value dwindles but imho that's not the situation we currently have to fear in EVE ;). As to the topic of insider trading: my primary interest in financial markets is them converting information, risk and uncertainty into easily manageable numbers. The more information in the market, the higher the medium-term accuracy of that number (short-term manipulations etc. can be filtered). As said before, I recognize that there is a conflict between attracting investors (who only have tiny tidbits of individual information) and having people with nearly perfect information in the market (who scare off the other investors).
KtoJest Minmatar Silkroad Partners	Posted - 2010.05.07 18:06:00 - [44] Quote: Derivatives: You have two cows. You repackage five of them into a Collateralized Lactating Obligation, pay for a AAA credit rating, slice the CLO into 10 pieces and sell it to investors, skimming the cream from the milk for yourself. Three of the cows fall ill, and the credit rating plummets. You get to keep the cream. more here: http://www.bloomberg.com/apps/news?pid=20601039&sid=aBDouX0a6h6o ps. tin foil caps are a hot item :) Caveat Emptor -a trader's blog
ChrisIsherwood	Posted - 2010.05.07 22:01:00 - [45] Originally by: Block Ukx The main issue is that there is no significant demand for such system. I don't think this is quite fair; all we know is that in a post-eBank world, there is little demand for something that relies on player trust. I would probably not even investigate these sorts of things; even when the analysis might be good investments by good people. For instance, if CCP were to implement some sort of FDIC/BoE/BundesBank insurance for the BSACs, that might be a low programming cost way to implement this. My bias is that while the market and EvE-central/metrics are much less than I would have expected, there is still far more information and liquidity for market goods than for contracts. So I would prefer items that are tradeable on the market. Then, for example on the third Thursday DT, the June10Trit item disappears from its owner's inventory and 1000000 trit (or the collateral if the creator failed?) show up in their station. Originally by: KtoJest Quote: Derivatives: You have two cows. You repackage five of them into a Collateralized Lactating Obligation, pay for a AAA credit rating, slice the CLO into 10 pieces and sell it to investors, skimming the cream from the milk for yourself. Three of the cows fall ill, and the credit rating plummets. You get to keep the cream. Companies were sloppy and/or dishonest with derivatives and fees, but derivatives get blamed for too much. When 3 of your five cows get ill, you are probably going to be sad regardless of whether you paid cash, got a loan or bought a CLO. The CLO should not make you think you are immune from cow health issues. A lot of the fraud and incompetence was in obfuscating just how much asset risk was in the CLOs.
Katiya Khadiija	Posted - 2010.05.07 22:22:00 - [46] I'd love to do shorts :) I imagine it'd be quite hard to do ingame though. Oh well :P
Machete Visor	Posted - 2010.05.08 00:01:00 - [47] Originally by: KtoJest Quote: Derivatives: You have two cows. You repackage five of them into a Collateralized Lactating Obligation, pay for a AAA credit rating, slice the CLO into 10 pieces and sell it to investors, skimming the cream from the milk for yourself. Three of the cows fall ill, and the credit rating plummets. You get to keep the cream. more here: http://www.bloomberg.com/apps/news?pid=20601039&sid=aBDouX0a6h6o ps. tin foil caps are a hot item :) description above is not a derivative. it is securitization. derivative is you have 10 cows, you bet someone that 5 of them will die and if they do, they buy you 5 more cows. if they dont, you give them 1,000. goldman sachs trading shoots 5 cows.
Idor Darksky	Posted - 2010.05.08 19:28:00 - [48] Edited by: Idor Darksky on 08/05/2010 19:29:06 Originally by: Machete Visor Originally by: KtoJest Quote: Derivatives: You have two cows. You repackage five of them into a Collateralized Lactating Obligation, pay for a AAA credit rating, slice the CLO into 10 pieces and sell it to investors, skimming the cream from the milk for yourself. Three of the cows fall ill, and the credit rating plummets. You get to keep the cream. more here: http://www.bloomberg.com/apps/news?pid=20601039&sid=aBDouX0a6h6o ps. tin foil caps are a hot item :) description above is not a derivative. it is securitization. derivative is you have 10 cows, you bet someone that 5 of them will die and if they do, they buy you 5 more cows. if they dont, you give them 1,000. goldman sachs trading shoots 5 cows. Mac thank you for making my point because nobody in EVE is dishonest and are always forthright.... NOT!! Idor

Pages: 1 2 :: [one page]

COPYRIGHT NOTICE
EVE Online, the EVE logo, EVE and all associated logos and designs are the intellectual property of CCP hf. All artwork, screenshots, characters, vehicles, storylines, world facts or other recognizable features of the intellectual property relating to these trademarks are likewise the intellectual property of CCP hf. EVE Online and the EVE logo are the registered trademarks of CCP hf. All rights are reserved worldwide. All other trademarks are the property of their respective owners. CCP hf. has granted permission to EVE-Search.com to use EVE Online and all associated logos and designs for promotional and information purposes on its website but does not endorse, and is not in any way affiliated with, EVE-Search.com. CCP is in no way responsible for the content on or functioning of this website, nor can it be liable for any damage arising from the use of this website.