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Hypothetical Discussion - EVE Futures Contracts Specifications
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Nel Gardier
Time Sync
#1 - 2011-12-30 12:06:52 UTC
Hello all.

Just for something completely random I was bouncing around in my head what would be a sensible approach for Futures Contract Specifications in the EVE universe.

I thought I might as well ask the experts. So the rules are simple, feel free to critique a Specification, but please try to play nicely. Feel free to post your own, but it would really only make sense if it could be considered a commodity.

To get the ball rolling I have chosen the simple of simplest in-game minerals - Tritanium.

Tritanium Specification

  • Underlying Asset - Tritanium (Category: Mineral)
  • Type of Settlement - Cash (My assumption is that cash settlement would be the only effective way in EVE)
  • Contract Size - 25,000,000 (This fits the price brackets I was targeting in my head)
  • Currency - ISK (Well, yes)
  • Grade - Refined (There is no real grade for Tritanium, but at least it's future proofed)
  • Delivery month - All (Tritanium is not seasonal)
  • Last trading day - Last Friday of the month
  • Ticks - ISK 0.01 (Reflects the nature of the market for this item)
  • Price Unit - ISK/0.01m3
  • Trading Hours - 23/7 (Money never sleeps)
  • Daily Limit - ISK 20,000,000
  • Margin Requirement - 25% (EVE is a harsh place)


Feel free to discuss Terms. How you might redefine them etc. I know EVE simply does not lend itself to this kind of thing so don't let it cloud your response, this is simply a thought exercise. Big smile
Ghoest
#2 - 2011-12-30 13:34:20 UTC
ANY investment in EVE with out 100% collateral is just a scam waiting to happen.

Wherever You Went - Here You Are
Nel Gardier
Time Sync
#3 - 2011-12-30 13:38:13 UTC
Ghoest wrote:
ANY investment in EVE with out 100% collateral is just a scam waiting to happen.


Remember:

Quote:
I know EVE simply does not lend itself to this kind of thing so don't let it cloud your response, this is simply a thought exercise.


Blink
Hexxx
Sebiestor Tribe
Minmatar Republic
#4 - 2011-12-30 13:56:04 UTC
Ghoest wrote:
ANY investment in EVE with out 100% collateral is just a scam waiting to happen.


Yes, this is why some of us like to categorize risk into specific types to better discuss it. The risk you're referring to is the "inherent risk" that exists in EVE - and it's quite high. There are some things that can be done to mitigate that risk, but even then, the residual risk (inherent risk + controls = residual risk) is very high.

...but you just came to post a one-liner instead of add anything constructive or discuss risk in any meaningful way, amirite? Big smile
Monty Kvaran
State War Academy
Caldari State
#5 - 2011-12-30 21:27:24 UTC
How would the settlement price be determined?

I presume both the buyer and seller would deposit isk with the broker as collateral? If so, the margin requirement would cover, based on current prices, a .89 isk per unit shift in price of trit. While it is unlikely that such a shift would occur, some mechanism for a margin call should exist in case it does.

Ignoring the trustworthiness of the broker/collateral holder, there is no reason it couldn't work if investors were interested.
Haruhi Hime
The Brony Herd
#6 - 2011-12-30 22:36:20 UTC
Why couldn't it work? Buyer and Seller both pay margin amounts to Reliable 3rd Party Person.

At the delivery date: Seller contracts the agreed amount of items to 3rd Party, Buyer pays the rest of amount to 3rd Party

If seller defaults, 3rd party keeps margin, buyer gets refunded, and so on if the buyer defaults.

If you want margin to be checked daily then you probably want some programming done though.
Monty Kvaran
State War Academy
Caldari State
#7 - 2011-12-30 23:10:59 UTC  |  Edited by: Monty Kvaran
Haruhi Hime wrote:
Why couldn't it work? Buyer and Seller both pay margin amounts to Reliable 3rd Party Person.

At the delivery date: Seller contracts the agreed amount of items to 3rd Party, Buyer pays the rest of amount to 3rd Party

If seller defaults, 3rd party keeps margin, buyer gets refunded, and so on if the buyer defaults.

If you want margin to be checked daily then you probably want some programming done though.


There is no point in requiring actual delivery, Trit is fungible. That way, neither party ever needs to tender the full contract price. If the price of Trit at the settlement date favors one party, the other party's collateral is used to pay out.

Example:

I purchase a contract for 25m Trit at 3.55 isk per unit, face value 88.75M isk of which I pay 25%, which equals 22.1875M isk to the broker. The seller likewise pays that amount to the broker. In a month, the price of Trit has risen to 3.65 isk per unit. As the buyer, I am entitled to get the cash equivalent of 25M Trit at the current price or 91.25M isk, in exchange for the contract price of 88.75M. So rather then doing a bunch of buying and selling of actual Trit, I'm refunded my collateral plus the profits of 2.5M isk, the seller is refunded their collateral minus their loss of 2.5M isk.
Shizuken
Venerated Stars
#8 - 2011-12-30 23:22:45 UTC  |  Edited by: Shizuken
I think the idea has no wheels. CCP has no judicial/enforcement mechanism to compel performance of such an obligation in the event of a breach of the contract terms.

This means that where one party does not pay, or games the system to extract value unfairly even through an otherwise legitimate mechanism, you have no way to force the other person to pay up.

In real life there is always the good chance that if you do this to another person they will sue you, and if you do not show up to answer the complaint then at some point people with guns will come and take your assets to satisfy the judgment. While there are certainly people with guns in this game, there is no mechanism through which they can use those guns to force you to hand over your assets. Hence this idea is dead on arrival.

Ghoest wrote:
ANY investment in EVE with out 100% collateral is just a scam waiting to happen.


It is because of my statement above that this quoted statement is so true in this game. People use the exact same tactics in real life to separate people from their money. The only difference is that in real life you have things like felony grand theft, and breach of contract lawsuits to get your money back. Scams will continue to be rampant in games like this until the developers create something akin to a judicial system to handle complaints like this.
Vaerah Vahrokha
Vahrokh Consulting
#9 - 2011-12-30 23:42:57 UTC  |  Edited by: Vaerah Vahrokha
The security bits can be overcome.

Some institutions like BSAC are running basically huge operations on pure trust since years.
Whatever people think, they are still there.

They even setup a tentative Futures page a long while ago (I suppose it never took off).


What imho is VERY hard to overcome is something else. Something that made me decide to build a real time exchange 1 year ago (but then I quit EvE, so good bye plans).


Futures usually go tied with:

- leverage

- margin is accurately and continuously checked. There's also some surplus required for those "black swan" periods and yet you are legally tied into reimbursing whatever excess loss the "umbrella" did not cover (very rare, but possible).


Expecially the latter (continuously updated margin), is very hard to implement.

I.e. if you invested in "XYZ" futures and XYZ today tanks HARD because a guy dumped a zillion of XYZ, you are meant to lose your neck over it. But you can't have a real time data feed from EvE markets unless you want to be permabanned so the margin checks cannot be continuous and therefore an item dropping from 5000 to 1000 in 2 hours and then back to 3000 will not be caught.
What if the guy short sold XYZ at 5000, closed the trade at 1000 and he's told "sorry we won't credit you 4000 x leverage per unit because we can't follow EvE markets in real time and that happened over just 2 hours".


There are other non spot derivative securities (forwards) that allow a way more relaxed margin check but they are not futures.

EvE Online portal | EvE markets tutorials
Ghoest
#10 - 2011-12-31 16:12:11 UTC
Hexxx wrote:
Ghoest wrote:
ANY investment in EVE with out 100% collateral is just a scam waiting to happen.


Yes, this is why some of us like to categorize risk into specific types to better discuss it. The risk you're referring to is the "inherent risk" that exists in EVE - and it's quite high. There are some things that can be done to mitigate that risk, but even then, the residual risk (inherent risk + controls = residual risk) is very high.

...but you just came to post a one-liner instead of add anything constructive or discuss risk in any meaningful way, amirite? Big smile



The idea is so dumb that the obvious "one liner" must be said.

Its like some crack pot explaining his plan to fix the world when he travels back in time.

Wherever You Went - Here You Are
Fresnic
Aliastra
Gallente Federation
#11 - 2011-12-31 21:20:11 UTC
Monty Kvaran wrote:
How would the settlement price be determined?

I presume both the buyer and seller would deposit isk with the broker as collateral? If so, the margin requirement would cover, based on current prices, a .89 isk per unit shift in price of trit. While it is unlikely that such a shift would occur, some mechanism for a margin call should exist in case it does.

Ignoring the trustworthiness of the broker/collateral holder, there is no reason it couldn't work if investors were interested.


That's called an escrow service: http://en.wikipedia.org/wiki/Escrow

Basically a trusted 3rd party holds the cash until the transaction is done and then releases it.

Adventures of an EVE Online Newb http://evenewbadventures.weebly.com/
Fresnic
Aliastra
Gallente Federation
#12 - 2011-12-31 21:24:58 UTC
Ghoest wrote:
Hexxx wrote:
Ghoest wrote:
ANY investment in EVE with out 100% collateral is just a scam waiting to happen.


Yes, this is why some of us like to categorize risk into specific types to better discuss it. The risk you're referring to is the "inherent risk" that exists in EVE - and it's quite high. There are some things that can be done to mitigate that risk, but even then, the residual risk (inherent risk + controls = residual risk) is very high.

...but you just came to post a one-liner instead of add anything constructive or discuss risk in any meaningful way, amirite? Big smile



The idea is so dumb that the obvious "one liner" must be said.

Its like some crack pot explaining his plan to fix the world when he travels back in time.


It's not that dumb, people do it all the time on Wall Street ;-)

Adventures of an EVE Online Newb http://evenewbadventures.weebly.com/
Ghoest
#13 - 2012-01-03 13:45:13 UTC
Fresnic wrote:
Ghoest wrote:
Hexxx wrote:
Ghoest wrote:
ANY investment in EVE with out 100% collateral is just a scam waiting to happen.


Yes, this is why some of us like to categorize risk into specific types to better discuss it. The risk you're referring to is the "inherent risk" that exists in EVE - and it's quite high. There are some things that can be done to mitigate that risk, but even then, the residual risk (inherent risk + controls = residual risk) is very high.

...but you just came to post a one-liner instead of add anything constructive or discuss risk in any meaningful way, amirite? Big smile



The idea is so dumb that the obvious "one liner" must be said.

Its like some crack pot explaining his plan to fix the world when he travels back in time.


It's not that dumb, people do it all the time on Wall Street ;-)



Look a clueless noob magically appeared to prove I was right that even the most obvious bad ideas deserve to be shot down because theres a always a sucker willing to to believe.

Wherever You Went - Here You Are
Hexxx
Sebiestor Tribe
Minmatar Republic
#14 - 2012-01-03 14:57:15 UTC
Ghoest wrote:

Look a clueless noob magically appeared to prove I was right that even the most obvious bad ideas deserve to be shot down because theres a always a sucker willing to to believe.


I write derivatives contracts on a regular basis, I've managed to avoid the temptation of futures contracts (which I believe are prone to market makers - a euphemism for manipulators like hedge funds, private equity, sovereign funds, etc), but even with just straight up put/call options there is no guarantee that the price will do what I think it will. For that matter, I can say the same thing about the underlying security (stock) – the company could go bankrupt sudden and poof…all shareholder value gets wiped out. Sounds like a bad idea? Maybe to you, but it works well for me.

Same goes for the topic at hand – you don’t get value out of it but somebody else may. While it makes you feel nice to deride an attempt to advance the maturity of the EVE markets it's not particularly helpful. Keep in mind that while there is no guarantee that someone in EVE won’t scam, there was no federal guarantee until 1933 in the US that a RL bank wouldn't do the same thing. You can go back even further to Florence in the 1300's during the Medici banking operations - big books filled with double entry accounting records written in pen, by hand, in the open air of a Florentine piazza, in physical possession by the banking families. No guarantees that wouldn't walk off with the cash. Same thing went for the people they loaned money to. It wasn't uncommon for a King (say, the King of France) to default on a loan...and there wasn't a damn thing anyone could do about it unless they decided to go to war with France over it. (Hint: people didn't, the banking houses just collapsed as a result)

People have been working on this stuff sans the benefit of guarantees for hundreds of years. Your myopic contemporary view has you thinking in terms of 100% collateral and absolutes as the only viable environment but history shows that this just isn't true.
Rakshasa Taisab
Sane Industries Inc.
#15 - 2012-01-03 15:15:03 UTC
Hexxx wrote:
People have been working on this stuff sans the benefit of guarantees for hundreds of years. Your myopic contemporary view has you thinking in terms of 100% collateral and absolutes as the only viable environment but history shows that this just isn't true.

It doesn't matter what time period it was, the barrier to getting a new identity and avoiding getting skull crushed is not in any way comparable between RL and EVE.

Nyan
Ghoest
#16 - 2012-01-03 16:08:00 UTC  |  Edited by: Ghoest
Hexxx wrote:


. Keep in mind that while there is no guarantee that someone in EVE won’t scam, there was no federal guarantee until 1933 in the US that a RL bank wouldn't do the same thing. You can go back even further to Florence in the 1300's during the Medici banking operations - big books filled with double entry accounting records written in pen, by hand, in the open air of a Florentine piazza, in physical possession by the banking families. No guarantees that wouldn't walk off with the cash. Same thing went for the people they loaned money to. It wasn't uncommon for a King (say, the King of France) to default on a loan...and there wasn't a damn thing anyone could do about it unless they decided to go to war with France over it. (Hint: people didn't, the banking houses just collapsed as a result)

People have been working on this stuff sans the benefit of guarantees for hundreds of years. Your myopic contemporary view has you thinking in terms of 100% collateral and absolutes as the only viable environment but history shows that this just isn't true.


Look the noobs keep on coming.

In EVE unlike real life.

-scamming is legal
-the is no physical recourse against scamming(traders can sit in a station forever)
-identities are virtual not real(you can buy a new account and transfer assets or just reroll)


EVE is NOTHING like reality has ever been in that their is by design NO accountability for fraud. In real life there are no absolute guarantees but there are many mechanisms to at least make fraud a hazardous endeavor.

Wherever You Went - Here You Are
Hexxx
Sebiestor Tribe
Minmatar Republic
#17 - 2012-01-03 16:17:13 UTC
Rakshasa Taisab wrote:
Hexxx wrote:
People have been working on this stuff sans the benefit of guarantees for hundreds of years. Your myopic contemporary view has you thinking in terms of 100% collateral and absolutes as the only viable environment but history shows that this just isn't true.

It doesn't matter what time period it was, the barrier to getting a new identity and avoiding getting skull crushed is not in any way comparable between RL and EVE.



Are you actually being serious? How did people prove their identity back in the early days of banks and stock markets, circa mid/late-1400's? Fingerprints? DNA? Social Security cards? Forgery was rampant, easier than it was now, and in terms of your identity....are you really suggesting it was so hard to re-invent yourself?

To the latter point, there is a reason why we have the phrase "A pound of flesh". Twisted
Ghoest
#18 - 2012-01-03 16:24:43 UTC
Hexxx wrote:


Are you actually being serious? How did people prove their identity back in the early days of banks and stock markets, circa mid/late-1400's? Fingerprints? DNA? Social Security cards? Forgery was rampant, easier than it was now, and in terms of your identity....are you really suggesting it was so hard to re-invent yourself?

To the latter point, there is a reason why we have the phrase "A pound of flesh". Twisted



This whole history thing and general concepts of the way the world worked befor the 90s are mystery to you arent they.

Wherever You Went - Here You Are
Hexxx
Sebiestor Tribe
Minmatar Republic
#19 - 2012-01-03 16:28:21 UTC
Ghoest wrote:

Look the noobs keep on coming.

In EVE unlike real life.

-scamming is legal
-the is no physical recourse against scamming(traders can sit in a station forever)
-identities are virtual not real(you can buy a new account and transfer assets or just reroll)


EVE is NOTHING like reality has ever been in that their is by design NO accountability for fraud. In real life there are no absolute guarantees but there are many mechanisms to at least make fraud a hazardous endeavor.



There are analogs to each. EVE is not RL, but there are similarities in some places. Once of those happens to be the trading/investing environment which, relatively, is more hostile compared to the current RL environment. I pointed this out already but I thought it bore repeating with consideration to whom I am speaking.

- Scamming is legal (Sure it is, just do business in one country and have investors in another. Care to guess how many developed countries have robust extradition laws? Or better yet, start a company, get listed on an exchange and then fully and transparently arrange a transaction from one company you own to another company that you own and intentially tank the stock of the first company in the process (say, selling below cost and incurring a heavy one-time loss on assets)....but before you do, short the hell out of your own stock. Profit. Legally. It happens. Just imagine what could be done even a hundred years ago with the right friends in the right places.)

- There is no physical recourse against scamming (See above. You really didn't think this all out.)

- Identities are virtual (Corporations can be bought as shells to be shells. Oh look! You can do it here: http://www.mergernetwork.com/index/public-shell-companies-for-sale/).


You were saying something about noobs were you? Blink
Hexxx
Sebiestor Tribe
Minmatar Republic
#20 - 2012-01-03 16:30:14 UTC
Ghoest wrote:
Hexxx wrote:


Are you actually being serious? How did people prove their identity back in the early days of banks and stock markets, circa mid/late-1400's? Fingerprints? DNA? Social Security cards? Forgery was rampant, easier than it was now, and in terms of your identity....are you really suggesting it was so hard to re-invent yourself?

To the latter point, there is a reason why we have the phrase "A pound of flesh". Twisted



This whole history thing and general concepts of the way the world worked befor the 90s are mystery to you arent they.


I'm looking at the last 500 years of banking, bonds, and stock markets. What are you looking at?
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