DanielRavenNest

I thought I would start a thread on this topic. The Lindex rate directly affects anyone doing business who cashes out for tier or take-home income. In the long run land rental rates and item prices can be adjusted to changes in the L$/US$ exchange rate, but in the short run the exchange rate can move faster than prices can be adjusted. Being personally out of Lindex Trading right now, I can watch this with a bit of detachment.

Date/SL Time:_____Sell/Buy rate (L$/US$) [Volume (M L$)]

12Jun10 0700: 260 [155M] / 272 [15.5M]
12Jun10 1400: 260 [156M] / 272 [24.6M]
13Jun10 0600: 261 [20M] / 272 [23.5M]
13Jun10 2000: 261 [36.5M] /272 [27.7M]
14Jun10 0430: 262 [21M] / 272 [25.3M]
14Jun10 2100: 262 [59M] / 272 [3.8M]



Notes: I am reporting what I consider the "main" rates, the best prices with a large volume. There are often a small amount placed at better rates for a fast transaction (minutes to an hour). If there are not enough orders at that price to keep that rate slot constantly occupied, I do not consider it the "main" rate.

Beebo Brink

Daniel, for those of us less familar with Lindex concepts and SL history, would you be willing to add a little context to these figures?

What does it mean when Lindens are selling for L$260/$1 but being bought at L$272/$1? What happens to the other L$12? I'm willing to show my stupidity in not understanding any of this in order to learn.

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DanielRavenNest

12Jun10 0700: A 12 point spread would be a very happy situation for a currency trader. It increases my profit per round trip from 0.2% to nearly 1.0%. The other number that matters is how long a round trip of buy then sell a batch of L$ takes. If things stabilize at these prices, you will see me trading again, but it is too soon after the job cut announcement. I am waiting for now, probably till after the end-of-month spike in trading, to see how things settle out.

The amount on the buy side is pretty small. In the past I would often see fairly large orders placed in the morning, which then get eaten up during the day. I don't know who placed those other orders besides my own when I was trading, but the amounts are evident when the total orders jump by a few million L$ from one minute to the next. Roughly five million L$ is what I consider the line between temporary fast orders and main price. Less than that amount at a given price, and it can get eaten through during the day, as the pace of new orders vs completed orders fluctuates.

Orders at each price are like a stack of paper order slips. New ones get put on the bottom of the stack, and completed when they rise to the top. Any orders at a better price are in a different stack, get done ahead of all of those at worse prices. So the ones at the worse price simply wait until the better ones are gone. They typical times to complete in the past were: an hour @ 1 unit better than the main price, a few days @ the main price, and forever at worse than the main price unless the main price pile gets completely empty.

12Jun10 1400: The amount offered to buy at 272 has increased to 24.6 M, a bit low still, but a more stable amount. With a 12 point spread, he market is in effect telling Linden Labs and everyone else here that "we see more risk, and therefore demand a wider margin to compensate".

13Jun10 0500: 20M in sell orders have appeared at 261, shifting the "main" price up by one on the sell side. Total orders on the sell side are very high, at 213M from 259-261 range.

13Jun10 2000: More sell orders at 261 have solidified that as the new main price. Average trade price is up 2 points from a month ago from 262 to 264.

14Jun10 0430: 21 Million L$ of sell orders at 262 have shifted the main sell price again. Instead of sell orders being bunched up mainly at one rate, they are now spread over several rates, reflecting uncertainly and lag in order placements.

14Jun10 2100: Only 3.8 M L$ of buy orders remain at 272, putting it in danger of slipping further.

DanielRavenNest

Sure Beebo. Mainly the other 10 to 12 goes to LL in fees. The fees to buy and sell L$ are $0.30 and 3.5% respectively. For large trades the $0.30 is negligible, but the 3.5% fee means you only get 96.5% of the sell amount added to your US$ balance. This makes the *effective* rate on selling 260/0.965 = 269.43, since you have to sell that many L$ to net one dollar US.

This is why the main rates over the past year did not get less than 10L$ apart. A spread of 10 means my trading profit is only 0.57, or about 0.2%. A spread of 9 would mean I lose money on trading. The other people who need to buy or sell large amounts understand the fees (I hope, anyway), and place their orders at the best price they can get over the time they are willing to wait. For an estate owner who needs to pay tier, they know when it's due, and can place their sell order a week in advance and have it close in 2-3 days under normal conditions.

For a business owner with their own land to pay tier on, or want to take out cash monthly, again, they know ahead of time when they need or want the money, and can plan their L$ sales. On the buy side it's less clear who places large orders. I did as a currency trader, since I have to buy some in order to sell it at a profit. I think the other non-Lindex exchanges need to buy some sometimes to handle their customers. Beyond that, I don't know who else needs to buy *large* amounts. People who just want some spending L$ can place a limit buy if the plan ahead, but that is usually a lot smaller amount. Perhaps someone who rents a homestead or a big chunk of a sim and pays in L$ needs to buy a fairly large amount, but that's still in the tens of K L$, not the millions that I traded.

changeshirt

That's assuming those are day traders, without day traders you would expect the spread to increase, which is happening. Day trader competition would force the spread to collapse to its usual 10 point spread.

And with the buy increasing, I think a few have returned, so spread should shrink.

Honestly, you would be crazy to trade in this environment. When things collapse, they tend to happen far too quickly to react to, if your caught on the wrong side when this happens, your small .2% gain could turn into a very large loss. Essentially picking up nickels in front of a bulldozer.

Sid Nagy

But that is only IF the sky is falling.
Question is: Is the sky falling?

As long as I visit forums there is a demand for tin foiled hats on a daily basis. But the sky is still up there.
My advise is just as with the RL stock markets: Only use the money you can afford to loose.

DanielRavenNest

Well, I was never a "day trader" in the stock market sense, since a buy/sell cycle took about 5 days on average. Officially my Lindex limits are "Currency Trader 3". I don't think people like me were a very large part of the Lindex, at least not over the past year. If we were, then us leaving would have more of a decrease in orders than has been apparent.

I'm not crazy, so I am not trading in this environment. The people who are I think are doing so because they have to. But they are worried, and so not as willing to pay the old price to buy L$. People selling want to keep getting the best price, so the sell rate is stickier. You can see "left behind" orders at the older prices, which are slowly getting moved as people realize they will never close their trade at that price. If they need to sell for tier or RL cash out, eventually they have to move to the current rate, so the sell price will tend to catch up with the buy price with some lag.

Argent Stonecutter

I just cashed out, at 261. Usually it takes me several days to get through the currency traders at the "peak" rate. This time it took less than 10 hours.

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Ayesha Lytton

There's currently L$14 million sitting at 262. :/ I put in a sell order at 261. It's a small difference but it adds up. I hope this slipping stops soon.

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changeshirt

You've been around the tin foil hats people for so long that you aren't able to differentiate that with a person wearing a scholarly hat. See, unlike your tin foiled acquaintances, I actually have data/proof to back up my claims. The sell side has almost tripled in side, and more importantly, it is still growing. That is unsustainable and that represents significant downward pressure on the L. Feel free to deny these claims and we will see who is wearing the tin foil hat.

I don't pretend to be a soothsayer, I don't know when, by how much and how fast the L will drop, or if it will even continue to drop in the case the trend is eventually reversed. But, based on the current situation and the current trend, I can guaranteed further drops and eventually very fast large drops when panic sets in. Now given this risk and given that day trading makes tiny profits and can only go long in L, I think it very much is like picking up nickels in front of a bulldozer.

Also I've heard your advice before from others: "Only use the money you can afford to lose.", which I have to say sounds like gambling advice, and I don't like that saying. My mantra, which I think is much better, is: "Invest wisely by balancing risk and reward and by never unnecessarily putting your money in harms way". That is why I never bothered to day trade myself, the rewards for the risk given was way to small, and now even smaller. I think the recent announcement by LL was a wake-up call, people were treating this like a stable western country, rather then a new private company that we don't know how successful or unsuccessful it really is. That very easily could have been a bankruptcy announcement. Just make sure if you're investing in SL, that you're generating a very large return to justify it.

Also, my original arguments are only for day traders and the L, I'm not saying SL itself is about to crash, just that you should expect the L to devalue and given that, day trading doesn't make much sense. I don't want it to devalue since I am invested in SL just like the rest of us.

Tyche Shepherd

I've never really analysed the Exchange rate once I started collecting it last year , since it has been so stable over most of this time . Today I added an extra chart to Second Life Lindex Daily Market Data Repository which, breaks out the weekly seasonality and underlying trend in the Exchange rate (similar to what I do for the concurrency and total LindeX volume rates).



The equivalent analysis on LindeX volume shows no major shifts - maybe a slight downward move from the high Q1 rates but nothing as dramatic as the recent Exchange rate moves.

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Rifkin Habsburg

Also, I'm still running my Lindex monitor at Lindex Statistics - Procyon Games - Second Life

WADE1 Jya

yeh Lindex is in trouble. I hope LL has a plan


Hopefully they didn't just fire the only Lindens who know how to operate the Lindex.....

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Frans Charming

One of the things that went under the radar is that Voice Morphing is also a new sink. If adopted widely enough, removing more L$ from the economy, and creating more demand to buy L$. Which in turn will mean Supply Linden will generate them money again.

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Equinox Pinion

Even if 10.000 people sign up for that (which i doubt will) it would be only 7.5 Mio a month..will have zero impact...

Argent Stonecutter

Let's put this in perspective:

DanielRavenNest

In case folks have not noticed, I am updating the first and third posts with order amounts and commentary. It looks like the buy rate may slip some more, the orders have gotten very thin again.

One way to "fix" the Lindex rate slippage is to fix the rates, ie abolish the variable exchange rate. I would not be surprised if that happened. A devaluing L$ hurts land rentals and item sellers if it happens faster than they can adjust prices, and they will start to yell very loudly to LL "Stop it or we can't make tier".

Couldbe Yue

I don't think that is necessarily true. I believe that most people have a pretty fixed budget for sl and that the main impact will be people spending less on other purchases.

To a lot of people in here SL is cheap entertainment and 750L is a lot of money.

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Argent Stonecutter

From LL's point of view it doesn't matter if that L$750 replaces other purchases, because other purchases aren't a L$ sink.

Couldbe Yue

and that's why LL is in the mess it is.

They should be concerned because sinks are only useful if they stimulate the demand for more currency - that way LL get more conversion fees and may even be able to kick supply linden off again.

If however all it does is reduce the amount spent inworld then it reduces income for businesses in here. There's enough people who are looking at their turnover vs outgoings vs lindex rate and wondering if it's worth continuing without adding more pressure to them.

Anya Ristow

I don't expect any single sink to do the trick. There will be more. The previously-announced Xstreet listing fees, for example. I'm sure they're anxious to get those implemented. There will also likely be paid listing enhancements for in-world search, as there are for xstreet. I had also once assumed that xstreet listings would eventually show up in in-world search, but I bet that'll be a paid service, too. Use of Linden-created in-world vendors, eventually necessary to be a Linden-certified seller, will be a paid service.

LL doesn't have to worry about implementing too many sinks. In fact, it's beneficial to over-shoot. Too many sinks allows Supply Linden to operate again.

Couldbe Yue

if 10,000 people take it up that's over 30,000 usd taken out of the consumer economy each month. It's a big assumption to believe people will bring more money in to make up for this.

Anya Ristow

Voice morphing will appeal to a different type of resident. It will appeal to people who use SL for social purposes, not to people who rent land for BIAB and sell downloaded textures on xstreet, or to people who rent a hump bunker. These will be people who may have pimped their avatars (a trivial market size compared to people paying tier), or just gotten free stuff, and they travel the grid chatting with people or hanging out at clubs or role-playing. That is, they don't spend much money. Now they have a way to spend another US$3 per month. Which probably doubles their expenses.

Couldbe Yue

A lot of people who pay tier are the people who rely on sales or donations from visitors to their sim to fund said tier payments.

the rest of what you said just back up my claim that it will take money out of the system. if they're too cheap to spend money on their av then they're not going to bring extra in for the morph - they'll just spend less inworld.

30,000 usd per month taken out of the system is not trivial at the moment.

Makoto

voice morphing was tried in Eve online - it sux big time,
its used to allow male RL play female SL characters and use voice without giving the game away