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Margin Trading scams

Author
Hazen Koraka
HK Enterprises
#1 - 2012-07-17 07:47:40 UTC
Hi all,

I got a question. The "margin trading scam" is where someone sets a minimum number of items to buy on a buy order right?

So they think someone snaps up all the items (that presumably they themselves sold at a lower price), then they cancel their buy order?

I was confused where in Jita I've seen ppl selling expensive officer mods for about 1.1B and there are buy orders of the same item in Jita for 1.3b.

They were minimum items "1" so they weren't a margin scam as far as I could see.

Is there somehow a scam where the buyer doesn't have the isk in their wallet to cover the buy order or something?

I didn't want to spend 1.1b on an item to find out I couldn't sell it at a profit.

Exploration is Random. Random is Random... or is it?! http://docs.python.org/2/library/random.html

Bad Bobby
Bring Me Sunshine
In Tea We Trust
#2 - 2012-07-17 08:11:56 UTC
Hazen Koraka wrote:
Is there somehow a scam where the buyer doesn't have the isk in their wallet to cover the buy order or something?

That is exactly what the margin trade scam is.

When they set a minimum order the effect is to increase the minimum value of the buy order so that instead of asking for one 1b item they ask for a larger quanity of smaller value items in one lot. The same effect can be achieved with a single more expensive item though.

The basic elements of a margin trade scam are:

1. One or more sell orders being placed at a high price.

2. One or more buy orders being placed for that item at an even higher price.

3. The character that puts up the buy order has margin trading trained so that they do not have to put the whole value of the buy order into escrow. They then empty their wallet so that when a person attempts to fill the buy order it fails due to them not having enough isk to complete it.

They make their isk from someone buying from the sell order. The buy order is just there to encourage people to buy from the sell order.

The game mechanics of this are completely sound. The error is on the part of the person who falls for the scam. It works, in the same way as many scams, on a "throw enough **** at the wall and some of it will stick" principle. There are so many people playing the game and so many people that are uninformed, drunk or just plain foolish that the scam will be fairly sure to work given sufficient time. If you run a large number of these scams across many products and many locations you have a very good chance of a hit and therefore you can get a regular income from it.
Hazen Koraka
HK Enterprises
#3 - 2012-07-17 08:17:42 UTC  |  Edited by: Hazen Koraka
So there's no way to detect this scam? You just have to hope a sell order will complete? How are you supposed to make profits doing normal trading or station trading?

But then again, the buy orders were for 1 item not multiple, so I assume its just that their wallet won't cover the money they make from you buying their item.

Exploration is Random. Random is Random... or is it?! http://docs.python.org/2/library/random.html

Bad Bobby
Bring Me Sunshine
In Tea We Trust
#4 - 2012-07-17 08:24:25 UTC  |  Edited by: Bad Bobby
Hazen Koraka wrote:
So there's no way to detect this scam? You just have to hope a sell order will complete? How are you supposed to make profits doing normal trading or station trading?

By looking at the market history graph/table, by looking at the pattern of buy and sell orders, by building up knowledge of the market in which you work.

There are plenty of prolific market traders making massive amounts of isk that have never been hit by a margin trading scam.

The tactic only reliably works on the new, the uninformed, the drunk, the foolish and the greedy... fortunately for the scammers those catagories make up the majority of eve players.
Vera Algaert
Republic University
Minmatar Republic
#5 - 2012-07-17 11:15:07 UTC
keep in mind that escrow gets depleted to service buy orders before any isk is taken from your wallet.

the scammer can deplete his buy order's escrow by selling items to himself and thus run the margin trading scam without having to set min. quantity > 1.

.

Cebraio
4S Corporation
Goonswarm Federation
#6 - 2012-07-17 12:00:15 UTC
Vera Algaert wrote:
keep in mind that escrow gets depleted to service buy orders before any isk is taken from your wallet.

the scammer can deplete his buy order's escrow by selling items to himself and thus run the margin trading scam without having to set min. quantity > 1.

I did not understand this. Can't the seller just transfer his remaining isk, after setting up the buy order? Or what did you mean by deplete his buy order's escrow?
Kyle Ward
Doomheim
#7 - 2012-07-17 12:51:38 UTC  |  Edited by: Kyle Ward
Cebraio wrote:
Vera Algaert wrote:
keep in mind that escrow gets depleted to service buy orders before any isk is taken from your wallet.

the scammer can deplete his buy order's escrow by selling items to himself and thus run the margin trading scam without having to set min. quantity > 1.

I did not understand this. Can't the seller just transfer his remaining isk, after setting up the buy order? Or what did you mean by deplete his buy order's escrow?


I've never done any margin trading before, but my understanding is this:

-- || --

The scammer has 2 officer mods which are usually worth 200mil ISK each, and he puts 1 unit on a sell order overpriced at 1bil ISK.

Now the scammer has exactly 4bil ISK in his wallet.

He sets up a buy order for 2 units of the mod at 2bil ISK each.

Normally 4bil ISK would be taken from his wallet and put in escrow to cover the order.

With Margin Trading at V, only 24% of the ISK needed to cover the order is put into escrow, so instead of 4bil ISK, only .96bil ISK is put into escrow.

Now the scammer has 3.04bil ISK in his wallet, and .96bil ISK in escrow.

If he sells his remaining officer mod to himself at 2bil ISK, he will drain the .96bil ISK in escrow and the remaining 1.04bil will be taken from his wallet.

Now the scammer has 2bil ISK in his wallet plus another 2bil ISK for selling the officer mod to himself, and 0 ISK in escrow.

He now empties his wallet by sending the remaining 4bil ISK to his alt, thus removing his ability to cover the purchase of the other officer mod.

Had he only put up the order for 1 officer mod for 2bil, he would have left 480mil in escrow and a savvy trader like myself would have noticed this was a scam and found another unit of the officer mod for its regular 200mil ISK price and sold it to his order at 480mil, thus forcing the order to complete and gained 280mil profit at the scammers expense.

edit: Fixed a math error

The Sandbox, you're playing it wrong!

Cebraio
4S Corporation
Goonswarm Federation
#8 - 2012-07-17 13:44:09 UTC  |  Edited by: Cebraio
Kyle Ward wrote:
...
Had he only put up the order for 1 officer mod for 2bil, he would have left 480mil in escrow and a savvy trader like myself would have noticed this was a scam and found another unit of the officer mod for its regular 200mil ISK price and sold it to his order at 480mil, thus forcing the order to complete and gained 280mil profit at the scammers expense.

Thanks for the explanation, Kyle. It makes perfectly sense, how you explained it.

However, I don't think it can work this way. As in your last example, it would mean that a scammer could place one buy order for 2B and only put 480m into escrow. Then empties his wallet. If someone now sells the item to the scammer, he would only get 480m, not the 2B that were advertised. That would be a scam in itself, right? So to my knowledge the sale will fail, if the scammer doesn't have enough escrow + isk to pay the full price.

PS: So, I guess the only reason to do the sell-to-self trick, is to remove all isk from escrow to use it elsewhere.
Kyle Ward
Doomheim
#9 - 2012-07-17 14:52:26 UTC
Cebraio wrote:
Thanks for the explanation, Kyle. It makes perfectly sense, how you explained it.

However, I don't think it can work this way. As in your last example, it would mean that a scammer could place one buy order for 2B and only put 480m into escrow. Then empties his wallet. If someone now sells the item to the scammer, he would only get 480m, not the 2B that were advertised. That would be a scam in itself, right? So to my knowledge the sale will fail, if the scammer doesn't have enough escrow + isk to pay the full price.

PS: So, I guess the only reason to do the sell-to-self trick, is to remove all isk from escrow to use it elsewhere.


The trick to the counter-scam here is that you need to get a hold of the officer module for the real price. So while the scammer is selling his own for the inflated price of 1bil, if you can find one for the actual price of 200mil - perhaps in an adjacent region - then you can make a profit off his escrow.

So it would work like this:

--||--

You see the scammers orders, selling 1 unit of officer mod for 1bil ISK and buying them in a different station for 2bil.

From experience you know this is way overvalued for this module, and thus probably a scam. So you fly over to a different region and see that there is one for sale at the actual value of 200mil ISK

You buy the 200mil ISK and fly back to the station that the scammer has placed his buy order of 2bil ISK

You then estimate that the scammer probably has Margin Trading trained to IV, so that means he has ~32% of the 2bil ISK buy order value in escrow, which equals 680mil ISK.

The important part here is that the actual value of the module most be less than the scammers estimated escrow. Since 200mil ISK is less than estimate 680mil ISK, than you can counter-scam him.

Now due to the mechanics of the market, even though the scammers buy order says he's paying 2bil for that module, he will be forced to automatically attempt to purchase any sell orders valued less than that.

Knowing this, you put up your officer mod for 650mil and he will automatically attempt to buy it at the price of 650mil.

Since he has 680mil in escrow, the transaction will complete and you'll have gotten 650mil for a module that only cost you 200mil.

However, had the scammer cleared escrow before hand, that 680mil won't be there, and the transaction will fail. But since you bought the module for its actual price instead of the scammers inflated module, you can probably just resell it for about the same you bought it - while the scammer is stuck having to pay the brokers fees for his failed scam.

--||--


I hope that clears up how to counter-scam a Margin Trader scammer. I'd say most of the smart ones probably clear escrow, but you might be able to at least get the ones who don't fully understand how it works.

The Sandbox, you're playing it wrong!

Cebraio
4S Corporation
Goonswarm Federation
#10 - 2012-07-17 15:23:09 UTC
Ah, so you don't sell to his buy order, but put a lower sell order up instead.

Awesome! Got it now, thanks again!
Dan Carter Murray
#11 - 2012-07-17 18:31:57 UTC
Hazen Koraka wrote:
So there's no way to detect this scam? You just have to hope a sell order will complete? How are you supposed to make profits doing normal trading or station trading?

But then again, the buy orders were for 1 item not multiple, so I assume its just that their wallet won't cover the money they make from you buying their item.


Mah papi always told me "if it's too good to be true, it is"

http://mfi.re/?j7ldoco 50GB free space @ MediaFire.com

DarthNefarius
Minmatar Heavy Industries
#12 - 2012-07-17 21:32:10 UTC  |  Edited by: DarthNefarius
Has any one ever used the Margin Trading skill for anything except scamming?
It walks & talks like a broken mechanic & only reason it isn't appears to be because CCP says it isn't.
An' then Chicken@little.com, he come scramblin outta the    Terminal room screaming "The system's crashing! The system's    crashing!" -Uncle RAMus, 'Tales for Cyberpsychotic Children'
Rogue Integer
Imperial Shipment
Amarr Empire
#13 - 2012-07-17 22:05:36 UTC
DarthNefarius wrote:
Has any one ever used the Margin Trading skill for anything except scamming?
It walks & talks like a broken mechanic & only reason it isn't appears to be because CCP says it isn't.


Most traders depend on the Margin Trading skill for day-to-day operations and leverage, so "yes". It can be abused for "evil", depending on your definition of that, but it's mostly used for "good" (see previous comment).
Sun Win
#14 - 2012-07-18 16:57:52 UTC
DarthNefarius wrote:
Has any one ever used the Margin Trading skill for anything except scamming?
It walks & talks like a broken mechanic & only reason it isn't appears to be because CCP says it isn't.


Margin trading is a key skill for a regular day trader.

1.
When you put up buy orders, you are always at risk of having someone outbid you or no one bothering to sell that item between moments when you check the market. It doesn't happen 100% of the time, of course, but you never know which of your orders will get outbid.

So a high margin skill lets you spread that around. Make bets on a bunch of items, knowing that only some will be bought. It allows you to make ~4x as many bets as you could otherwise.

2.
You often have items to sell (being as you are a trader). Many of them will sell before all your buy orders are filled. Margin Trading allows you to put up buy orders for items, counting on your recently put up sell orders to sell before the buys are bought, so that you'll have ISK in wallet when the buying time comes.
Rer Eirikr
The Scope
#15 - 2012-07-18 17:30:16 UTC
If you're an idiot like me it can also make for some rather amusing market mess ups haha, but yes, it does have its place in allowing traders to have more buy/sell orders than they can normally handle, thus allowing them to diversify more.
Moonlit Raid
State War Academy
Caldari State
#16 - 2012-07-18 19:37:18 UTC  |  Edited by: Moonlit Raid
The market shouldn't allow buy orders that cannot be fulfilled. The whole point of the market is to allow trade if there are items listed that are not really for trade what does it become? Remote hangar view? Or another way, why can't I put items up for sale that aren't in my hangar?

If brute force isn't working, you're just not using enough.

Please Note: Any advice given comes with the caveat that nothing will be suitable for every situation.

Patri Andari
Thukker Tribe Antiquities Importer
#17 - 2012-07-19 08:46:12 UTC
Hazen Koraka wrote:
Hi all,

I got a question. The "margin trading scam" is where someone sets a minimum number of items to buy on a buy order right?

So they think someone snaps up all the items (that presumably they themselves sold at a lower price), then they cancel their buy order?

I was confused where in Jita I've seen ppl selling expensive officer mods for about 1.1B and there are buy orders of the same item in Jita for 1.3b.

They were minimum items "1" so they weren't a margin scam as far as I could see.

Is there somehow a scam where the buyer doesn't have the isk in their wallet to cover the buy order or something?

I didn't want to spend 1.1b on an item to find out I couldn't sell it at a profit.


Hello OP it seems this has been explained to you very well, but i have a few observations to add:

1. Margin Trading Skill is a valuable and useful trade.

Those of us who trade almost daily (when I care to log on anymore) use it to free up money that can be hard at work in other areas or on other orders. In this way it increases you purchasing and transactional reach in ways I think I could not do without.


2. It is not a "scam"

Although those some who use the skill the way you have described may intend to make ill gotten gains off those who are unaware, this is by no means a scam. It is however a way to use the greed of others to enrich oneself. Why is it not a scam. If i offer you a CNR and you get a regular Raven, that is a scam. If I offer to buy your CNR and then decide not to that is a broken deal. What makes it is a scam is that you did not get what you expected when you paid and the seller intended to give you something other than agreed.

So called margin trade "scams" are different because among other things they are based on two seperate transactions. The loss occurs because people buy items either with or without any idea as to their intrinsic value in the hope they can the sell them for ridiculous profit. If the original purchase had less value than what was paid that is not a scam. That is poor judgment.
If the subsequent deal to sell that item fails you should be left with an item worth what you paid for it. If it is not then you used poor judgment or took on too much risk and lost. You do not have to look far to determine who is at fault.

To carry the analysis a step further, suppose you saw a bid to but 10k of X for 1000K isk and you found 10K of X at another location for 200 isk. Hoping to make a great deal you buy it. While in transit someone else sells to the order or the bid is retracted. Is that a scam? What if the going market rate for X is only 1 isk? Scam?

Use proper judgment and do your homework and this forum will have fewer people calling for the end of what is a viable and useful skill just because they are too greedy and lazy to do some research or suffer buyer's remorse.

3. Minimum units

Please avoid all bids that have a minimum amount above 1 unless you can rationally posit a reason for this. You will be much better off. Those who use the so called margin trade "scam" most often set minimum units above 1 unless it is a high priced and rare item. This helps you spot deals that may be less savory and hopefully makes you start your pricing research.


HTH

Be careful what you think, for your thoughts become your words. Be careful what you say, for your words become your actions. Be careful what you do, for your actions become your character. And character is everything. - author unknown

Implying Implications
Sebiestor Tribe
Minmatar Republic
#18 - 2012-07-19 11:27:39 UTC
Wow. Another margin trading thread.
Moonlit Raid
State War Academy
Caldari State
#19 - 2012-07-19 11:33:53 UTC
Implying Implications wrote:
Wow. Another margin trading thread.

Wow, another goon.

If brute force isn't working, you're just not using enough.

Please Note: Any advice given comes with the caveat that nothing will be suitable for every situation.

WT Hommie
Darwin Analytics
#20 - 2012-07-29 21:41:58 UTC  |  Edited by: WT Hommie
This is certainly an abuse of the system as I have no way of knowing that the "buyer" will not fulfill the buy order until the purchase and sale are made. No amount of research or investigation would give me any information or reason to believe the order would not be fulfilled.

It would be better if I knew that this was a margin order (maybe list it in yellow) then I would have knowledge that the buy order did not have full escrow and know that I am taking a risk, in the current scenario I have no idea there is risk involved until after I have been taken advantage of.

Basically I got ripped off on not only the ISK (800,000,000.00), but the weeks of play time spent earning that ISK. This is really upsetting and I hope that you will reconsider the "valid use of game mechanics" and make changes so hard working players don't get ripped off.

I feel ccp is supporting the con artist and don't understand why they cannot fix this simple flaw in their game mechanics.
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