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Question about collateral
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u3pog
Ministerstvo na otbranata
#1 - 2015-02-02 23:21:53 UTC
Greetings, fellow MD buddies. As I am new here and reading through the forum one question pops into my mind.
I see many loan services here, also bonds for huge amount of cash, however they all need to be covered by a collateral.

Now whats the point of asking for a loan covered by 100% collateral, when you could sell your assets and use your own cash instead? Same goes for bonds. Is it, because expensive stuff is hard to sell and you might need some cash fast? It's the only reason I can think of.

Thanks!
BaByTemP
Deep Core Mining Inc.
Caldari State
#2 - 2015-02-02 23:34:31 UTC  |  Edited by: BaByTemP
because when your dealing with billions of isk, you either have a multitude of **** you dont want to have to go through and sell or you have a select few items worht a considerable worth. for example you have a rare bpo that has been fully researched and is hard to find and worth a pretty penny and you dont want to sell it. the loan system we devised here on the forum is similar to real life. you dont go and sell your house to get money, you borrow on it till you pay it back.
u3pog
Ministerstvo na otbranata
#3 - 2015-02-02 23:44:43 UTC
The reason I asked is because as I am getting richer I find opportunities here and there that require significant ISK, but I usually lack the liquid cash required, however all my assets are items I am currently trading, I don't have any items of note (except for few capital ships maybe), so I've been wondering what kind of items are being used, you told me one - BPO's, I see caps are used sometimes as well...It's good to know if I am going to look for investors in the future.
Koniforous
Tauren Transit
#4 - 2015-02-02 23:45:40 UTC
Yep same as real life. Some things have sentimental value (rare items) some items you've invested in long term might not have attained their target value yet, and you might to sit on them still while their prices keep rising (or falling) so you use them to temporarily convert them into liquid capital with the help of a lender, paying the lender a small fee to use his isk in exchange for your collateral

TAUTX: Private Bank & Lending

TAUTX: Collateral Liquidation / Discount Items
Koniforous
Tauren Transit
#5 - 2015-02-02 23:50:39 UTC
u3pog wrote:
The reason I asked is because as I am getting richer I find opportunities here and there that require significant ISK, but I usually lack the liquid cash required, however all my assets are items I am currently trading, I don't have any items of note (except for few capital ships maybe), so I've been wondering what kind of items are being used, you told me one - BPO's, I see caps are used sometimes as well...It's good to know if I am going to look for investors in the future.

Anything can be used as collateral. Use a TRUSTED 3rd party to help you evaluate your collateral items and even hold them for you, some untrustworthy lenders might steal your collateral because typically you collateral must be undervalued by about 10%. This is to cover any swings in the market, and also to help out the lender with any unpaid interest fees if you default or 3rd party work.

TAUTX: Private Bank & Lending

TAUTX: Collateral Liquidation / Discount Items
BaByTemP
Deep Core Mining Inc.
Caldari State
#6 - 2015-02-03 00:21:35 UTC
some items are better to use than others for collateral. for example some limited items such as the leopard and geckos, people don't really like these as there is no certainty that they will keep their value or be reintroduced as non limited if you catch my drift. people who lend often like the smallest amount of collat as possible, as in if you were borrowing 2 billion isk then a fully faction fit paladin to that value would be better to handle than 50 different types of modules.
Sabriz Adoudel
Move along there is nothing here
#7 - 2015-02-03 22:26:32 UTC
Often it's not possible to get a decent price for billions of ISK worth of items at once.

Try it sometime - take 100 of the same Logistics cruiser to Jita. All four are pretty high demand ships. See what price you can get for them.

However, most lenders will be happy to accept 100 Scimitars as collateral against a loan.

I support the New Order and CODE. alliance. www.minerbumping.com
Kain Duku
LoGisTicAl ERr0R
#8 - 2015-02-04 11:59:07 UTC
I've seen a few examples where the collateral used is the actual item the player is trading. They buy a huge amount to use as collateral then secure isk to buy another huge amount of the same thing. Once the prices rises, it can all be sold, basically maximizing the potential profit you can make.

Zahara Cody
Imperial Corrections Service.
#9 - 2015-02-04 19:40:25 UTC
Because I collect Alliance Tournament Ships and do not wish to sell them, but they continue to appreciate.

Hating is free, that's why poor people do it the best.
u3pog
Ministerstvo na otbranata
#10 - 2015-02-04 21:55:52 UTC
Kain Duku wrote:
I've seen a few examples where the collateral used is the actual item the player is trading. They buy a huge amount to use as collateral then secure isk to buy another huge amount of the same thing. Once the prices rises, it can all be sold, basically maximizing the potential profit you can make.



That's a good idea actually...I recently found such and item and stockpiled huge amount of it (I was close to a bankrupt), but once the price rose I made like 5 billion in a day or two from this single item...Now, this may not seem much to veteran traders, but for me it was a huge profit. Now with those extra 5 bil I can prepare for the next grand scheme Twisted
I'll see what I can do about the collateral in the future, should the need arises.

As for rare ships - the price is so high as long as there's a buyer for 'em, but once I saw people bidding over 1 trillion for a State Raven, that really changed the way I think about them. Before that I always thought of super rare ships being no more than a few pixels in the hangar - I mean who really undocks them for a ride? Now I understand - they are pretty much priceless.
Agent Known
State War Academy
Caldari State
#11 - 2015-02-09 20:02:14 UTC
Sometimes people do take them out, but usually not easily-gankable and slow ones. A Chremoas was blown up not too long ago and had a going value of ~120b.
Vaerah Vahrokha
Vahrokh Consulting
#12 - 2015-02-09 23:54:37 UTC
u3pog wrote:
Kain Duku wrote:
I've seen a few examples where the collateral used is the actual item the player is trading. They buy a huge amount to use as collateral then secure isk to buy another huge amount of the same thing. Once the prices rises, it can all be sold, basically maximizing the potential profit you can make.



That's a good idea actually...I recently found such and item and stockpiled huge amount of it (I was close to a bankrupt), but once the price rose I made like 5 billion in a day or two from this single item...Now, this may not seem much to veteran traders, but for me it was a huge profit. Now with those extra 5 bil I can prepare for the next grand scheme Twisted
I'll see what I can do about the collateral in the future, should the need arises.


No, it's not a good idea. I say this as the third party who had to deal with speculative collateral.

Those who indulge in the practice of putting all their wealth in one thing are doing it wrong to begin with.
Those who do this, are basically leveraging their wealth by two (put NN billions in collateral then ask NN billions loan) and betting on the market going their way.

If the market - as often happens - does NOT go their way, then their collateral deflates.
Imagine a guy putting 20B on Technetium right before the super-massive crash. Now his stuff is worth 2-3B. Now what? He is ruined and of course he SHALL default. Investors lose big time and call the collateral holder.
At this point the collateral holder may play "though guy" and lose his credibility forever, a credibility he took years and years of flawless performace to achieve. No, he'll shell 18B.

Now do you see why what you think is a good idea, might not be so good after all?
In fact, one reason these loans are quite rare is exactly this: nobody beginning from the third party holder wants to put their butt at stake. Risk so much for 100M or similar?

The few of such loans I have seen go quick and smooth were those where I got:

- the task of evaluating collateral in a pessimistic scenario. It involves actuarial knowledge AND markets knowledge. It's not so common among third party collateral holders.

- to create and deliver collateral insurance. That is, the loanee purchases an insurance contract and I assume the risks of collateral depreciation in a clear, official way.


u3pog wrote:

As for rare ships - the price is so high as long as there's a buyer for 'em, but once I saw people bidding over 1 trillion for a State Raven, that really changed the way I think about them. Before that I always thought of super rare ships being no more than a few pixels in the hangar - I mean who really undocks them for a ride? Now I understand - they are pretty much priceless.


They kind of are pixels in the hangar, but so are the ISK used to purchase them.

But yes, they are more than pixels, they are a status symbol. If Minmatar's ship would have had a decent hull I'd have bought one for myself. I'd have had a reason to become so rich. But alas, it sucks Cry

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Sabriz Adoudel
Move along there is nothing here
#13 - 2015-02-10 00:09:00 UTC
I have taken loans using an item as collateral and done so to fund buying more of that item.

It works because I'm a smaller scale market operator, but these were risky loans from the lenders' perspectives, as VV said. Especially if my goal was to manipulate a price up (rather than to respond to a trend).

I support the New Order and CODE. alliance. www.minerbumping.com