Market Discussions

A FUTURES MARKET

Purpose
Develop and establish a Futures Market.

Introduction
Developing and establishing a Futures Market in Eve is not an easy task. For the most part, people are very skeptical and prefer to conduct transactions in the in-game market. The idea of planning a purchase weeks in advanced is a foreign concept in Eve. Lack of futures contract enforcement makes things even worse. Hopefully, I can come up with a system easy enough to follow that people are willing to give it a try.

The idea of developing a futures market has been bounced around several times [1], but unfortunately, interest has been very low. Presently, I’m conducting a pilot program to gauge interest and get feedback from the community. The current target is Zydrine December 10th Futures [2]. This time around, I will get rid of margins, actively match orders in-game, and use an honor system.

What is a Future?
In a futures contract two parties agree to trade (buy/sell) at a particular future price for delivery on a future date. If you buy a futures contract, you are agreeing to buy for a set price on the settlement day. Similarly, if you sell a futures contract, you are agreeing to sell for a set price on the settlement day. If you want more information on futures you should read the Wikipedia futures page [3] or the Investopedia futures page [4].

Futures in Eve
This pilot program is an adaptation of a Futures Market to Eve. It is intended to be a simplified version of the real life Futures Market. The program is in its developing phase. Therefore, rules and policies are meant to be flexible and adapt as user input is provided.

Rules and Policies
Rules and policies are flexible and will adapt and change as user input is provided.

- Cash Settlement
There will be no cash settlement at this time.

- Clearing House
BSAC will act as the clearing house.

- Contract Size
One Zydrine futures contract is equivalent to 100,000 Zydrine units.

- Delivery Location
Jita Hub

- Futures Price
The Futures price changes daily depending on the spot market. We will use the following formula to calculate the daily futures price (FP):

FP = Spot Price * (1+ rate) ^ (Days to settlement)
It is worth noting that the futures price will equal the spot price at settlement.

- Futures Rate
The Futures rate will largely influence the opening contract price and how fast the price moves toward spot price. Unfortunately, I have no formula to determine the futures rate; it is an educated guess. Things to consider include, but are not limited to, offers, regional hub prices, trading volumes, market spread, market history, game changes.

- Futures Trading
There will be no trading of contracts at this time. However, it is my intention to implement futures trading in the BSAC Stock Exchange.

- Last Day of Trading
The last day of trading is two days before settlement date.

- Margins
There will be no margins at this time.

- Settlement
Settlement day of preference is Monday. All settlements should be physical delivery. I will prepare one in-game contracts to cover all your positions the day prior to settlement. You can expect one contract from “BSAC MMM” even if you have many futures.

- Settlement Agent
BSAC MMM

- Spot Price
The spot price will be a snapshot of the middle price between Jita’s highest buy and lowest sell price.

- Trading Channel
Minerals and Manufacturing

- Trading Fees
There will be no trading fees during the developing phase.

- Transparency
Transparency is extremely important in a futures market. For that reason, all information regarding futures will be made available and publish online on a Google spreadsheet [2].


Referneces
[1] Isogen Futures 2008 http://community.eveonline.com/ingameboard.asp?a=topic&threadID=876893
[2] Zydrine Futures https://docs.google.com/spreadsheet/ccc?key=0Ah53WXW4neIxdEJEeVdyRFVzd1VQdWNwUk1qM2VNWWc
[3] Wikipedia http://en.wikipedia.org/wiki/Futures_contract
[4] Investopedia http://www.investopedia.com/university/futures/#axzz2DiIs3ii3


The contents of this article can be found in https://docs.google.com/document/d/1oEkH1_6K1rrEzjlap0I2S932mSpycnotXjyVKwk0IXg/edit


Your comments and constructive criticism is welcome. (↑↓)

I'd really love to see futures implemented but I fear EvE is not the game for them.

First of all they compete with actually delivered commodities.
Then there are all the tellering hassles. Getting the ISK is easy but maintaining a real time margin account is going to be though-ish. Sending the ISK to potentially thousands of people would be arms-breaking.

Finally, the real issue: way, way too little interest.
I have learned first hand (see my funds) that people don't have the education or the "mood" to trade securities. They want to park an heap of ISK "somewhere safe" and let them slowly appreciate, be it through a bond or whatever.

In my case, only those who signed up as "market makers" placed some buy / sell orders, almost all of the others felt happy to have secured their ISK in a "buy and hold" strategy.

This brings in the consequence: little interest yields to low liquidity. A market needs participants, if you can't insure participants that their positions will find a counter-part (and thus deals be sealed) you quickly lose all those participants in short term.


I have no idea how you plan to bring interest in your commendable initiative.
I am all for it and I am interested in trading futures. I just don't see enough people with my or your interest for trading.

You have to recall that despite we are in the "financial forum" of the game with one of the most realistic markets, the audience is not made of speculative traders. Most are buy and hold people, others are "flip orders" station traders.
Just an handful of speculative traders.


Another question is: why do you want to price the futures with that formula? I am not even sure it applies at all here (unlike RL, EvE commodities have almost no shortage, we can assume to have an O(inf) stock).
I'd just go for a regular, market interest driven market, where demand and supply decide the price. But then, demand and supply have to actually exist, that is a number of players have to participate in order to form a price.

Thanks for all your comments. I’ve been working on a code to handle all of that. The programming side is the least of my problems. Like you pointed out, getting people to use it is my biggest hurdle, I think.





And little interest is the major hurdle, I totally agree. Buy and hold is extremely popular and the reason people love bonds and banks.



Totally right again! Getting enough participation is a major hurdle.



I am hoping that this post will bring ideas on how to inspire people to participate in Futures. Please, don’t hesitate to post your ideas. Ideas are highly welcomed.





I think there is a significant number of manufactures and traders in Eve that could benefit from futures; they just don’t know it yet. The question is how we get them to participate in Futures?

I've thought about this one myself as well.
The only way to mitigate the risk it to either the seller to contract over the material to you as time of listing or maintain an isk account with you.

The problem is there are only 10 or so in game items you can do this with which is why i didnt bother doing it. I can easily sell 20,000 contracts on x, artificially raise the strike price prior to end date, take my profits and let the product go back down.

Its just too easy to manipulate the eve market in the short term (which is allt he matters, the strike price day).

You are correct, to mitgate risk you will need to mantain certain amount of isk with the Exchange. We call that a margin account. The thing to notice is that the margin does not need to be the full amount of the contract, which allows you to lever your ISK. At this time, I'm taking ALL the risk. So there is no need to mantain a margin account.

Regarding manipulation, I was concerned at first, but then I realized that it is probably much riskier to manipulate the market just for a contract to succeed. It is far easier to simply default the contract.

Whoever runs the market will burn out through all the transactions. It might be better to run a futures market like a bond, where someone can hold collateral and pay back investors.

So far we have 62 contracts; much better than the few we had a few years ago. There still time to participate.

Today's Zydrine Futures @ 883

Is short enabled?

Second day of Nocx futures. Come join the fun in the Minerals and Manufacturing Channel.

Very interesting. I think I will take a closer look at this and see how it developes.