These forums have been archived and are now read-only.

The new forums are live and can be found at https://forums.eveonline.com/

Market Discussions

 
  • Topic is locked indefinitely.
 

Hedge scam

Author
virm pasuul
Viziam
Amarr Empire
#1 - 2016-02-24 15:07:15 UTC  |  Edited by: virm pasuul
This idea for a scam has been rattling around the outer edges of of my head for a while now.
I didn't think it had been used yet
I mentioned it off topic in this thread.
https://forums.eveonline.com/default.aspx?g=posts&t=470846&find=unread
and then I read this
https://forums.eveonline.com/default.aspx?g=posts&t=452800&find=unread

Basically take out a large risky investment with your own money
Use the items as collateral for a loan.
If your investment items go up, payback the loan + interest and profit.
If your items go down default the loan and keep the ISK

You get to engage in a risky bet on the market, and others cover it if it loses.
Feedback?
Angelica Everstar
#2 - 2016-02-24 15:17:29 UTC
Only "issue" is that the collateral holders are likely/should be already aware of this.
Also why I would never accept AT ships, T2 BPOs, or similar as collateral. Nor should any other 3rd party really.

Otherwise, if you lack moral - it would work Twisted

§ Current Bond AE09 1 Trillion / Acc. 4,5t ISK

ƒ Want to become a better trader ?

¢ Pls help support EVEs charities!

@EveEntrepreneur

virm pasuul
Viziam
Amarr Empire
#3 - 2016-02-24 15:30:41 UTC
In theory it could be "chained"
Once you've gambled your big pile of liquid ISK on purchasing a risky investment, you secure a loan against it.
You are now back where you started with a big pile of ISK

You could go around the loop again.
You now have two separate piles of risky goo in 3rd party escrow, and most of the money you started with back in your wallet.
The goo goes up, you pay to get it back to sell it.
The goo goes down, you walk away and leave the investors with your failed gamble.

How many times you go around and around this loop is up to you..........
Elizabeth Norn
Nornir Research
Nornir Empire
#4 - 2016-02-24 16:53:02 UTC  |  Edited by: Elizabeth Norn
I had considered doing this (not the scam part! Big smile) when AT ships were rapidly appreciating a couple of years ago and I was taking a break, using PLEX or AT ships for the initial loan and then using the funds to purchase more AT ships, which I would also get loans on. In the end I decided against it in case I wasn't able to access EVE, although looking back everything would've been fine and I could've doubled the returns I got from investing in AT ships at the end of 2013.

As for AT ships, if you're paying any attention to them then you know what a safe price to value them at is, they're able to be quickly liquidated for 10-20% below retail. T2 BPOs are a bit more difficult to price, but there's a whole bunch of sales threads and completed contracts out there if you search a little.

@ Angelica Everstar: aren't your bonds leveraged, as in you initially put up a certain amount collateral, but not the bond's whole amount, exchange it for an appropriate amount of ISK, which is then used to buy more items that are to be used as collateral and so on?
Bad Bobby
Bring Me Sunshine
In Tea We Trust
#5 - 2016-02-24 17:09:09 UTC
This is pretty much how I bought my first two T2 BPO collections.
Ria Nieyli
Amok.
Goonswarm Federation
#6 - 2016-02-24 18:26:46 UTC
I recommend seeing the movie "The Big Short" from 2015 if you haven't already. It touches on this subject.
virm pasuul
Viziam
Amarr Empire
#7 - 2016-02-24 18:43:21 UTC
Ria Nieyli wrote:
I recommend seeing the movie "The Big Short" from 2015 if you haven't already. It touches on this subject.


I have and loved it :) also Wolf of Wall St. is good.
virm pasuul
Viziam
Amarr Empire
#8 - 2016-02-24 18:48:58 UTC
The circular potential of this really intrigues me.
You set up a gamble, then another then another.
Only cash in the good ones, leave the bad ones on someone else's plate.
Each good one will cost you a small fee in interest and 3rd party charges, but you know what they are up front.
The bad ones you can dump at any time by defaulting on the interest payments, or extend if you believe the market might change by paying the interest payments.
Depending on how much you have to sink into the scheme you could make an absolute fortune on this.
noobs market orders
nOObs with Miners
#9 - 2016-02-24 19:39:34 UTC
virm pasuul
Viziam
Amarr Empire
#10 - 2016-02-24 20:05:18 UTC  |  Edited by: virm pasuul
noobs market orders wrote:
https://forums.eveonline.com/default.aspx?g=posts&t=452800&find=unread


Yeah that's exactly what;'s going on.
Jerry T Pepridge
Meta Game Analysis and Investment INC.
#11 - 2016-02-24 23:37:58 UTC
no one loses so who cares. - do it fgt, what u waiting for.

also OP you need to redo your portrait, bands like poison went out of fashion 30 years ago. you can at least grow a beard & put that mullet in a top knot.

@JerryTPepridge

Sabriz Adoudel
Move along there is nothing here
#12 - 2016-02-24 23:48:25 UTC  |  Edited by: Sabriz Adoudel
Have done this on a very small scale back the first time I speculated on pirate battleships (the day the pirate frigate rebalance was announced). I didn't have much capital at the time - maybe 25b total wealth.

It worked - I used 1150m of my money to buy 5 rattlesnake BPCs, then 'mortgaged' them for 1000m, then used that to buy 4 more. My ability to repay the loan was never in question, but a strategic default was an option if the projected price increases did not eventuate.

I've also unintentionally done this - during the leadup to the recon rebalance I borrowed five billion to buy Gallente T2 components (Magnetometric Sensor Cluster, Photon Microprocessor, etc) to build Lachesis hulls, and the collateral was other

I considered doing it again with three asset types over the last six months - morphite at the announcement of the zyd/mega ore rebalance (not doing so was a big mistake here), robotics at the time I was publically predicting the recent rise in price (I was less certain on this than morphite, although again it was a missed opportunity), and (ITEM REDACTED - MARKET OPSEC).

I've never gone deep on it though. Part of the issue is that people willing to lend tens of billions or more usually think much more about what the consequences are of using specific goods as collateral and the market impact of a firesale. Getting someone to accept 5 billion worth of Magnetometric Sensor Clusters as collateral, or 12 billion worth of Oneiros hulls, is much easier than getting someone to accept 75b of Magnetometric Sensor Clusters or 180b of Oneiroses.

As an example of this in action - I have about ten thousand Light Neutron Blaster II in hangars at the moment. Buy orders for them exist at 550k in several places, but there is no way I could liquidate all 10000 at 550k/unit - and that's a very high volume item.



Edit: I would *love* to see someone do this with PLEX; they might be able to spike the price gamewide by 200m if they do it over a while.

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

Teckos Pech
Patriotic Tendencies
Goonswarm Federation
#13 - 2016-02-25 05:28:55 UTC
virm pasuul wrote:
This idea for a scam has been rattling around the outer edges of of my head for a while now.
I didn't think it had been used yet
I mentioned it off topic in this thread.
https://forums.eveonline.com/default.aspx?g=posts&t=470846&find=unread
and then I read this
https://forums.eveonline.com/default.aspx?g=posts&t=452800&find=unread

Basically take out a large risky investment with your own money
Use the items as collateral for a loan.
If your investment items go up, payback the loan + interest and profit.
If your items go down default the loan and keep the ISK

You get to engage in a risky bet on the market, and others cover it if it loses.
Feedback?


So...you have just invented the Credit Default Swap in EVE. God help us. P

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."--Friedrich August von Hayek

8 Golden Rules for EVE Online

Teckos Pech
Patriotic Tendencies
Goonswarm Federation
#14 - 2016-02-25 05:32:25 UTC  |  Edited by: Teckos Pech
Angelica Everstar wrote:
Only "issue" is that the collateral holders are likely/should be already aware of this.
Also why I would never accept AT ships, T2 BPOs, or similar as collateral. Nor should any other 3rd party really.

Otherwise, if you lack moral - it would work Twisted


It would be like holding equities as collateral today. High risk assets should not be considered collateral.

Edit: And yes, a third party should not consider high risk assets as collateral, or if they do they should over-collateralize the loan because they are risking their reputation...and once that is damaged, good luck rebuilding it.

To be clear, if a third party is taking high risk assets as collateral then, eventually, it will blow up in their face and it will destroy their reputation and they will be done as a third party as suddenly people are out billions, maybe hundreds of billions or even a trillion ISK.

We have seen what happens when banks and investment banks do this. It blows up in their faces. Only difference here is that there is nobody to bail out the third party...or more accurately, the creditors the people loaning ISK in the first place--i.e. do this often enough and you'll destroy the credit market in the game.

Prudence...you are either prudent and we have a credit market or you are not and we don't have a credit market.

Recommended reading:

Lombard Street: A Description of the Money Market by Walter Bagehot.

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."--Friedrich August von Hayek

8 Golden Rules for EVE Online

Sabriz Adoudel
Move along there is nothing here
#15 - 2016-02-25 05:57:03 UTC
Teckos Pech wrote:
Angelica Everstar wrote:
Only "issue" is that the collateral holders are likely/should be already aware of this.
Also why I would never accept AT ships, T2 BPOs, or similar as collateral. Nor should any other 3rd party really.

Otherwise, if you lack moral - it would work Twisted


It would be like holding equities as collateral today. High risk assets should not be considered collateral.

Edit: And yes, a third party should not consider high risk assets as collateral, or if they do they should over-collateralize the loan because they are risking their reputation...and once that is damaged, good luck rebuilding it.

To be clear, if a third party is taking high risk assets as collateral then, eventually, it will blow up in their face and it will destroy their reputation and they will be done as a third party as suddenly people are out billions, maybe hundreds of billions or even a trillion ISK.

We have seen what happens when banks and investment banks do this. It blows up in their faces. Only difference here is that there is nobody to bail out the third party...or more accurately, the creditors the people loaning ISK in the first place--i.e.
Do this often enough and you'll destroy the credit market in the game.

Prudence...you are either prudent and we have a credit market or you are not and we don't have a credit market.

Recommended reading:

Lombard Street: A Description of the Money Market by Walter Bagehot.



Even super low risk assets are hard to liquidate en masse.

There's no question that 170 million units of tritanium in Jita 4-4 would be a reasonable collateral against a 1b ISK loan. 1.7 billion units would be reasonable against a 10b loan too.

But I do not consider 170 billion units of Trit in Jita 4-4 realistic collateral for a 1T loan. If you attempted to sell 170b units trit, you'd distort the market so much that you could not recover the trillion or even particularly close to it. Even 180b would not be acceptable.

PLEX are not immune from this. I'd loan 3.5b against 3 PLEX in collateral, but (if I had the ISK) there is absolutely, positively NO WAY I would loan 3.5T against 3000 PLEX.

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

Elizabeth Norn
Nornir Research
Nornir Empire
#16 - 2016-02-25 15:48:07 UTC
Sabriz Adoudel wrote:



Even super low risk assets are hard to liquidate en masse.

There's no question that 170 million units of tritanium in Jita 4-4 would be a reasonable collateral against a 1b ISK loan. 1.7 billion units would be reasonable against a 10b loan too.

But I do not consider 170 billion units of Trit in Jita 4-4 realistic collateral for a 1T loan. If you attempted to sell 170b units trit, you'd distort the market so much that you could not recover the trillion or even particularly close to it. Even 180b would not be acceptable.

PLEX are not immune from this. I'd loan 3.5b against 3 PLEX in collateral, but (if I had the ISK) there is absolutely, positively NO WAY I would loan 3.5T against 3000 PLEX.



All that means is you don't value the collateral at 100% of market price, for Tritanium there are buy orders at 6.00 ISK for 10b units currently, in addition around 10b units of Tritanium change hands per day so 1b even without buy orders would not take very long to liquidate. That many PLEX might take a while longer, but certainly not an unreasonable amount of time, PLEX have been a very safe place to put ISK in the past, and when CCP keeps adding uses to them, a minor blip of some expensive BPOs being introduced shouldn't worry anyone too much.
Angelica Everstar
#17 - 2016-02-25 15:54:32 UTC
Collateral value is not linear, and should never be considered like that.
Collateral's value should also be checked often.


2b units of Trit at 5 per unit = sure (10b)
20b units of Trit at 5 per unit = no (100b)

20b units of Trit at 4 per unit = sure (100b)
200b units of Trit at 2-3 per unit = sure (1.000b)

20b units of Trit at 4 per unit ALONG with 10b units of Pyrite at 8 per unit = sure
and so on...


This is some of the issues collateral holders need to be mindful of, and why I only really trust Chribba and Grendell myself. They done this enough to likely fully know these and many of the other tricks. And trust me there are lots of more, but I will not mention any of them, as I don't wish to inspire anyone.


But... Even then there is always a small risk...
Even if unlikely, a BPO's base value is reduced in value over night by CCP ?
Or Trit drops from 6 to 1 over night ?

There is no safety against this.



Collateral does not mean there is NO risk, just in most cases a LOT less risk.

§ Current Bond AE09 1 Trillion / Acc. 4,5t ISK

ƒ Want to become a better trader ?

¢ Pls help support EVEs charities!

@EveEntrepreneur

Teckos Pech
Patriotic Tendencies
Goonswarm Federation
#18 - 2016-02-25 16:07:41 UTC
Angelica Everstar wrote:
Collateral value is not linear, and should never be considered like that.
Collateral's value should also be checked often.


2b units of Trit at 5 per unit = sure (10b)
20b units of Trit at 5 per unit = no (100b)

20b units of Trit at 4 per unit = sure (100b)
200b units of Trit at 2-3 per unit = sure (1.000b)

20b units of Trit at 4 per unit ALONG with 10b units of Pyrite at 8 per unit = sure
and so on...


This is some of the issues collateral holders need to be mindful of, and why I only really trust Chribba and Grendell myself. They done this enough to likely fully know these and many of the other tricks. And trust me there are lots of more, but I will not mention any of them, as I don't wish to inspire anyone.


But... Even then there is always a small risk...
Even if unlikely, a BPO's base value is reduced in value over night by CCP ?
Or Trit drops from 6 to 1 over night ?

There is no safety against this.



Collateral does not mean there is NO risk, just in most cases a LOT less risk.


Agreed. Basically, people are being prudent, but even being prudent does not insulate you completely.

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."--Friedrich August von Hayek

8 Golden Rules for EVE Online

virm pasuul
Viziam
Amarr Empire
#19 - 2016-02-25 16:55:49 UTC  |  Edited by: virm pasuul
It looks like where people are asking for loans the lenders are accepting numerical over collateralization e.g. 105% or 110% as sufficient information upon which to make their decision when really the %age over is almost less relevant than the risk factor involved in what's being used. This effect become worse for the lender the larger the loan amount.

Angelica your numbers above are a great illustration of how important a factor the volumes are when considering collateral.
One size does not fit all.

20b units of Trit at 4 per unit = sure (100b)
200b units of Trit at 2-3 per unit = sure (1.000b)

should be?

25b units of Trit at 4 per unit = sure (100b)
400b units of Trit at 2-3 per unit = sure (1.000b)
Angelica Everstar
#20 - 2016-02-25 17:06:34 UTC
virm pasuul wrote:
20b units of Trit at 4 per unit = sure (100b)
200b units of Trit at 2-3 per unit = sure (1.000b)

should be?

25b units of Trit at 4 per unit = sure (100b)
400b units of Trit at 2-3 per unit = sure (1.000b)



Very much so.

Damn copy'n'paste :D

§ Current Bond AE09 1 Trillion / Acc. 4,5t ISK

ƒ Want to become a better trader ?

¢ Pls help support EVEs charities!

@EveEntrepreneur