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Katie Tanaka
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Posted - 2011.04.13 12:32:00 -
[1]
A cash-settled futures contract is an agreement to pay/receive the difference between the spot price of a commodity on the day of expiration of a contract and the futures price. So say I agree today to buy ten million 30Apr11 Jita tritanium @ 3.00 and you agree to sell it to me. No money changes hands today. On 30Apr11 tritanium in Jita is trading @ 3.20: you owe me two million ISK - the 0.2 ISK difference between the spot price and the futures price multiplied by the ten million contracts.
For simplicity's sake, designate our spot fixing as the average price reported by The Forge regional market for the spot date (usually available two days after thanks to the vagaries of the EVE market). Have contracts with weekly expirations; with the four or six nearby contracts trading?
The counterparty to the trades is actually the exchange; to reduce credit risk to other players - players are required to maintain a margin account based on their total net positions and observed market volatility; positions are marked to market daily with withdrawals / credits to margin accounts as appropriate. The margining requirement means that gains or losses are realized day by day rather than just occurring at maturity like a non-deliverable forward. Players who fail to maintain adequate margin will have their positions closed out.
In game terms, opening an account would involve transfer of ISK from player to exchange character; API scanner would auto-credit margin account. Bids and offers would be entered by an IGB interface; with visibility of perhaps five best bids and asks from the orderbook. Trading would be done on a continuous auction basis; market price is the last executed trade. Funds would remain deposited in margin accounts until redemption was requested: at that point, someone would actually have to log in and send funds from the exchange character.
Risks to market participants would basically be market risk (you did a bad trade) and credit risk to the exchange (the owner of the exchange runs away with all your money; or the exchange goes broke which requires both bad margining and default by other players).
The big problem is that the exchange holds all the margin accounts -- it essentially needs to be completely trustworthy; which is a shame as that's really the only hard part of this and it would be neat to have commodity futures markets in EVE.
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Syds Sinclair
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Posted - 2011.04.13 12:42:00 -
[2]
..Yeah I guess it could work...or you could just zoom around on your steel horse and blow up other Internet space cowboys.
You know, because my way is funner then yours.
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Atima
Minmatar
House of Marbles
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Posted - 2011.04.13 12:55:00 -
[3]
 Originally by: Katie Tanaka
A cash-settled futures contract is an agreement to pay/receive the difference between the spot price of a commodity on the day of expiration of a contract and the futures price. So say I agree today to buy ten million 30Apr11 Jita tritanium @ 3.00 and you agree to sell it to me. No money changes hands today. On 30Apr11 tritanium in Jita is trading @ 3.20: you owe me two million ISK - the 0.2 ISK difference between the spot price and the futures price multiplied by the ten million contracts.
For simplicity's sake, designate our spot fixing as the average price reported by The Forge regional market for the spot date (usually available two days after thanks to the vagaries of the EVE market). Have contracts with weekly expirations; with the four or six nearby contracts trading?
The counterparty to the trades is actually the exchange; to reduce credit risk to other players - players are required to maintain a margin account based on their total net positions and observed market volatility; positions are marked to market daily with withdrawals / credits to margin accounts as appropriate. The margining requirement means that gains or losses are realized day by day rather than just occurring at maturity like a non-deliverable forward. Players who fail to maintain adequate margin will have their positions closed out.
In game terms, opening an account would involve transfer of ISK from player to exchange character; API scanner would auto-credit margin account. Bids and offers would be entered by an IGB interface; with visibility of perhaps five best bids and asks from the orderbook. Trading would be done on a continuous auction basis; market price is the last executed trade. Funds would remain deposited in margin accounts until redemption was requested: at that point, someone would actually have to log in and send funds from the exchange character.
Risks to market participants would basically be market risk (you did a bad trade) and credit risk to the exchange (the owner of the exchange runs away with all your money; or the exchange goes broke which requires both bad margining and default by other players).
The big problem is that the exchange holds all the margin accounts -- it essentially needs to be completely trustworthy; which is a shame as that's really the only hard part of this and it would be neat to have commodity futures markets in EVE.
Oh and let me guess. You want to hold these margin accounts?
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Syds Sinclair
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Posted - 2011.04.13 13:11:00 -
[4]
Quote:
Oh and let me guess. You want to hold these margin accounts?
..Zing!
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Katie Tanaka
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Posted - 2011.04.13 13:21:00 -
[5]
Originally by: Atima
Oh and let me guess. You want to hold these margin accounts?
Ehh, no I said the exchange needs to hold the margin accounts and the exchange needs to be completely trustworthy. Since I'm not seen as completely trustworthy by the likely participants in such a market, I'd be a pretty bad candidate.
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Syds Sinclair
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Posted - 2011.04.13 14:10:00 -
[6]
Originally by: Katie Tanaka
Originally by: Atima
Oh and let me guess. You want to hold these margin accounts?
Ehh, no I said the exchange needs to hold the margin accounts and the exchange needs to be completely trustworthy. Since I'm not seen as completely trustworthy by the likely participants in such a market, I'd be a pretty bad candidate.
..But just think of the E-Fame! And how much you can cash that E-Fame out for...
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Vaerah Vahrokha
Minmatar
Vahrokh Consulting
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Posted - 2011.04.13 16:37:00 -
[7]
Those are not futures, they are forwards. Forwards are usually between 2 individuals and don't use exchanges.
You don't even need an exchange because it'd be futile for it to profit on contracts traded once. Futures instead, need exchanges because they are cash settled every day / period and thus 3rd party traders may participate and bring in liquidity by buying the contract and reselling it every day / period between themselves.
Auditing | Research | 3rd Party | Collateral Holding | EvE RL Charity |
Adian Grey
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Posted - 2011.04.13 20:24:00 -
[8]
About the only thing futures are good for is bloating the price of a commodity. Market speculation drives prices up, thus creating a self fufilling prophecy and driving prices up outside the laws of supply and demand. Commodities traded on the futures market tend to out pace inflation by substantion amount and can lead to a asset bubble that goes poof and the whole thing comes crashing down. Greed at it's best.
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Katie Tanaka
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Posted - 2011.04.13 22:28:00 -
[9]
Originally by: Vaerah Vahrokha
Those are not futures, they are forwards. Forwards are usually between 2 individuals and don't use exchanges.
Oh please, in my day job I'm a VP on the FICC trading floor of a major bank - credit me with knowing the difference between a forward and a future. Standardized contracts, marked-to-market daily, traded on an exchange, which is a centralized clearinghouse counterparty for all trades. It's a canonical case of a futures market. What is this contracts only "traded once" nonsense you're talking about? I wrote "continuous auction market"; if you need the meaning of that explaining to you, you oughtn't to be holding yourself out as an expert in this forum.
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Shar Tegral
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Posted - 2011.04.13 22:32:00 -
[10]
Originally by: Katie Tanaka
Oh please, in my day job I'm a VP on the FICC trading floor of a major bank
Yes, because we all know that if it is said on the internetz it is TRUE.
Wealth, howsoever got, in Eve makes
Lords of morons and gentlemen of thieves;
Aptitude and intellect are needless here;
'Tis impudence and money that grants fame. |
Atima
Minmatar
House of Marbles
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Posted - 2011.04.13 22:35:00 -
[11]
Originally by: Katie Tanaka
Originally by: Vaerah Vahrokha
Those are not futures, they are forwards. Forwards are usually between 2 individuals and don't use exchanges.
Oh please, in my day job I'm a VP on the FICC trading floor of a major bank - credit me with knowing the difference between a forward and a future. Standardized contracts, marked-to-market daily, traded on an exchange, which is a centralized clearinghouse counterparty for all trades. It's a canonical case of a futures market. What is this contracts only "traded once" nonsense you're talking about? I wrote "continuous auction market"; if you need the meaning of that explaining to you, you oughtn't to be holding yourself out as an expert in this forum.
Less arrogance more respect. Its because of people like you little babies die in africa every day,
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SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2011.04.13 22:56:00 -
[12]
Originally by: Katie Tanaka
So say I agree today to buy ten million 30Apr11 Jita tritanium @ 3.00 and you agree to sell it to me. No money changes hands today. On 30Apr11 tritanium in Jita is trading @ 3.20: you owe me two million ISK - the 0.2 ISK difference between the spot price and the futures price multiplied by the ten million contracts.
Read it again, carefully, for the laugh.. 
I've underlined and highlighted the pertinent parts.
Amarr for Life |
Katie Tanaka
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Posted - 2011.04.13 23:07:00 -
[13]
Let's put that in the terms of a physical forward and sale, which has the same total cash-flow as a cash-settled future.
I agree to buy ten million 30Apr11 Jita tritanium @ 3.00 from you. On 30Apr11, tritanium in Jita is trading at 3.20. Same market conditions as I wrote before.
No money changes hands today. On 30Apr11, I give you thirty million ISK. You give me ten million tritanium. I then sell the ten million tritanium on the market for thirty two million ISK (because that's the market price).
I have made a two million ISK profit. You have made a two million ISK loss, because instead of giving that tritanium to me on 30Apr11, you could've sold it on the market for the same price I did.
Which bit precisely is lol-worthy?
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Syds Sinclair
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Posted - 2011.04.13 23:14:00 -
[14]
Originally by: Katie Tanaka
Oh please, in my day job I'm a VP on the FICC trading floor of a major bank.
..Listen here mister. I don't know where you rode in here from, but around these parts we don't take to kindly to folk who are involved with a bank. Now just take your horse and mosey on to the next town.
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Katie Tanaka
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Posted - 2011.04.13 23:14:00 -
[15]
Edited by: Katie Tanaka on 13/04/2011 23:14:44
Originally by: Shar Tegral
Yes, because we all know that if it is said on the internetz it is TRUE.
I'm also a Japan Securities Dealers Association Class 1 sales representative and a member of the Financial Futures Association of Japan. You don't have to believe me, but it is true. You have no way to fact check that, but you can check the accuracy of what I'm writing about the way markets and financial products work. You will find I am right.
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Shar Tegral
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Posted - 2011.04.13 23:19:00 -
[16]
Originally by: Katie Tanaka
Which bit precisely is lol-worthy?
For me, there is no mechanism by which to keep either party to their agreements. I'm a big believer in trust but you can't build a public system on trust. It may be possible to take a security deposit from one party or the other but, big but here, hard to say who is going to be the one in the losing position. This would almost necessitate a trusted 3rd party. This will of course add in bureaucracy dampening any possible efficiency. I just find the discussion enjoyable but amusing. There's no good solution though as a mental exercise it can be fun to debate.
Wealth, howsoever got, in Eve makes
Lords of morons and gentlemen of thieves;
Aptitude and intellect are needless here;
'Tis impudence and money that grants fame. |
Shar Tegral
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Posted - 2011.04.13 23:23:00 -
[17]
Originally by: Katie Tanaka
You don't have to believe me, but it is true. You have no way to fact check that
Which is my point, there's no need to fact check this. Originally by: Katie Tanaka
you can check the accuracy of what I'm writing about the way markets and financial products work. You will find I am right.
Normally when people make an assertion they provide links/cite relevant materials instead of leaving onlookers with the large task of finding out where to look. You know what you are talking about, you are the one talking about it, and you'll know where the bestest places be for people to read up on what you are talking about. But, don't make your proof about who you are on the other side of the monitor. It just doesn't work as a valid argument. That's all.
Wealth, howsoever got, in Eve makes
Lords of morons and gentlemen of thieves;
Aptitude and intellect are needless here;
'Tis impudence and money that grants fame. |
Katie Tanaka
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Posted - 2011.04.13 23:29:00 -
[18]
Originally by: Shar Tegral
Normally when people make an assertion they provide links/cite relevant materials instead of leaving onlookers with the large task of finding out where to look.
This should help.
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Syds Sinclair
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Posted - 2011.04.13 23:29:00 -
[19]
..So ur like sum big spacebux cowboy? I hav 17 mil ca I halp? Want my full API?
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Katie Tanaka
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Posted - 2011.04.13 23:35:00 -
[20]
Edited by: Katie Tanaka on 13/04/2011 23:35:50
Originally by: Shar Tegral
Originally by: Katie Tanaka
Which bit precisely is lol-worthy?
For me, there is no mechanism by which to keep either party to their agreements. I'm a big believer in trust but you can't build a public system on trust.
Like I said, it depends on having a trusted third party to act as the exchange - that's someone who doesn't necessarily participate in trading on the market but at least can be trusted to make payments when requested and not to run off with the contents of the trading and margin accounts.
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SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2011.04.13 23:46:00 -
[21]
Originally by: Katie Tanaka
Let's put that in the terms of a physical forward and sale, which has the same total cash-flow as a cash-settled future.
I agree to buy ten million 30Apr11 Jita tritanium @ 3.00 from you. On 30Apr11, tritanium in Jita is trading at 3.20. Same market conditions as I wrote before.
No money changes hands today. On 30Apr11, I give you thirty million ISK. You give me ten million tritanium. I then sell the ten million tritanium on the market for thirty two million ISK (because that's the market price).
I have made a two million ISK profit. You have made a two million ISK loss, because instead of giving that tritanium to me on 30Apr11, you could've sold it on the market for the same price I did.
Which bit precisely is lol-worthy?
Because that is not what you posted.
Let me put it to you the way it read.
You buy 10MIl trit on 30 aprl for 3 ISK a unit
30 Aprl rolls around I give you 10 Mil units of trit
You give me 30 Mil units of trit
You then said and I quote "you owe me two million ISK"
That is why it was LOL-Worthy...
Like I said "Read it again, carefully"
Amarr for Life |
Katie Tanaka
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Posted - 2011.04.14 00:05:00 -
[22]
Originally by: SencneS
Let me put it to you the way it read.
You buy 10MIl trit on 30 aprl for 3 ISK a unit
30 Aprl rolls around I give you 10 Mil units of trit
You give me 30 Mil units of trit (KT: I assume you mean ISK here, otherwise this is meaningless)
You then said and I quote "you owe me two million ISK"
That is why it was LOL-Worthy...
No, you've missed the point. I'm talking about "cash-settled" futures. That's explicit in the subject line and explained in the first line of the original post. I never said that anything about any tritanium changing hands in my original post. All that happened when we agreed on the futures contract on tritanium was that we agreed to use the market price of tritanium at a point in the future as part of the value of the contract.
In my example you owe me 2 million ISK because you don't have to give me the tritanium and I don't have to give you price specified in the original contract: only the difference between the contract and spot prices changes hands.
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Khanid Voltar
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Posted - 2011.04.14 00:14:00 -
[23]
Edited by: Khanid Voltar on 14/04/2011 00:14:17
Forgive me if I am being a little stupid here but what is to stop Miner A deciding he wants 3.2 isk per trit and taking it to Jita instead of honouring the futures transaction?
Surely the only way to ensure that the system isnt being abused would be for a 3rd party to take your 30m isk, and the 10m trit and hold it in escrow until the specified date?
Which comes back to Shar's assertation that unless the whole system is run by a reputable 3rd party it wont work (I think).
I actually would like to understand, so please can you clarify for me?
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Margraves
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Posted - 2011.04.14 01:09:00 -
[24]
As soon as CCP can find a way to make contracts binding the whole in-game investment world will change...
But there will still be scams and BS because I could be here today, alt tomorrow. I could cultivate characters for 3-4 months just so they don't look so alty, get on huge contracts with favorable margin requirements and just play til I lose, transfer ISK minus lost margin to the next alt before the contract matures and repeat.
If I default on a loan IRL I don't get a reroll. In EVE I even get a 2 week trial when I come back!
And if you required that the positions be fully covered (is that what you meant by your use of "margin" here?) then you'll run into liquidity problems at best or at worst the clearinghouse will become the literal and only counterparty rather than just facilitating the transactions.
Not to mention the fun to be had in manipulating the basis of your spot pricing because there's no legislation or rules or tracking to prove it ever happened. If some titan of industry stands to lose several billion ISK because he bet on the wrong side of a price you better believe your spot prices will start to align to the big money side of the bets... oh and the oligopolies! Man, now I'm just naysaying, so...
Bottom line: In the untrusting universe of EVE where people get to be the harlequin space cowboy so they can live with the often-mediocre everyday they have to return to... rational financial instruments often only serve as troll fodder or epeen wagging contests.
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Misty McGinnity
Mystify Trading Company
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Posted - 2011.04.14 01:12:00 -
[25]
Originally by: Katie Tanaka
Originally by: Vaerah Vahrokha
Those are not futures, they are forwards. Forwards are usually between 2 individuals and don't use exchanges.
Oh please, in my day job I'm a VP on the FICC trading floor of a major bank - credit me with knowing the difference between a forward and a future. Standardized contracts, marked-to-market daily, traded on an exchange, which is a centralized clearinghouse counterparty for all trades. It's a canonical case of a futures market. What is this contracts only "traded once" nonsense you're talking about? I wrote "continuous auction market"; if you need the meaning of that explaining to you, you oughtn't to be holding yourself out as an expert in this forum.
Pretty sad that you spend your time playing internetspaceships then isn't it?
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SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2011.04.14 03:38:00 -
[26]
Originally by: Katie Tanaka
No, you've missed the point. I'm talking about "cash-settled" futures. That's explicit in the subject line and explained in the first line of the original post. I never said that anything about any tritanium changing hands in my original post. All that happened when we agreed on the futures contract on tritanium was that we agreed to use the market price of tritanium at a point in the future as part of the value of the contract.
In my example you owe me 2 million ISK because you don't have to give me the tritanium and I don't have to give you price specified in the original contract: only the difference between the contract and spot prices changes hands.
You'd be better pitching this as a gambling service. You put up what you're predicting, and anyone if anyone chooses to take you up on that the bet is on. Whoever is right wins.. What you're trying to do here is collect money with no intension of actually going forward with the original obligation of buying the Trit.
Lets assume we actually do exactly as you describe, I WANT my 30mil ISK from you in exchange for 10mil units of trit. But you're saying oh forget it, you keep the trit now worth 32mil ISK, and give me 2Mil and we'll call it even, because that was my profit.
What if it was worth 2.8 ISK a unit? I turn around and say, OK well you where going to lose 2 million ISK, how about I do you a solid and I keep the Trit, you give me your 2 Million ISK loss you where going to take.. Would you agree to that?
Amarr for Life |
Vaerah Vahrokha
Minmatar
Vahrokh Consulting
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Posted - 2011.04.14 04:23:00 -
[27]
Originally by: Katie Tanaka
So say I agree today to buy ten million 30Apr11 Jita tritanium @ 3.00 and you agree to sell it to me. No money changes hands today
I am not a banker nor a CTA but I trade futures. They don't work like that and money changes hands today.
It's why I did not see a congruence between your claimed spot price and the settlement.
Originally by: Katie Tanaka
You don't have to believe me, but it is true
Well you could just disclose something like ie. a photo of you near the claimed bank to make it sound truer.
Auditing | Research | 3rd Party | Collateral Holding | EvE RL Charity |
Vaerah Vahrokha
Minmatar
Vahrokh Consulting
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Posted - 2011.04.14 04:45:00 -
[28]
Originally by: Adian Grey
About the only thing futures are good for is bloating the price of a commodity. Market speculation drives prices up, thus creating a self fufilling prophecy and driving prices up outside the laws of supply and demand. Commodities traded on the futures market tend to out pace inflation by substantion amount and can lead to a asset bubble that goes poof and the whole thing comes crashing down. Greed at it's best.
Variations over this kind of securities exists since Ancient Greece, they exist to stabilize the underlying commodity and hedge risk (i.e. the opposite of what you say). Those uncomfortable with the derivatives market should just not trade them but their underlying.
If they did not exist, the speculative capital that makes derivatives fluctuate would be pumped in the underlying liquidity and amplify its oscillations, which is really what the governments don't want.
In fact the so called real economy cannot opt out the real market and would be affected, while those who participate in the derivatives are there exactly because they get their playground, they willingly opt in it.
Hope something of this is understandable, it's 6am here and I don't even get the :sleepy: icon.
Auditing | Research | 3rd Party | Collateral Holding | EvE RL Charity |
Elise DarkStar
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Posted - 2011.04.14 06:12:00 -
[29]
Originally by: Vaerah Vahrokha
Hope something of this is understandable, it's 6am here and I don't even get the :sleepy: icon.
That was probably one of your most lucid and coherent posts actually; and your description of the wider value of a derivatives market in regards to speculative money was a connection I had never made myself, quite insightful.
You should post at 6am more often.
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Tarigal
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Posted - 2011.04.14 06:56:00 -
[30]
Originally by: Margraves
If I default on a loan IRL I don't get a reroll. In EVE I even get a 2 week trial when I come back!
You should say you don't have the balls to move to Yemen IRL, not that you can't reroll. Grow a pair cmon :)
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