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Sunday, 29 June 2014

Jobbing your way back to profit

This is an old expression from back in the day when stock exchange market makers were actually on the floor of the stock exchange shouting their buy and sell orders though is still relevant today.  It relates to when a market maker is sitting on a loss making position and how they recover their losses.

I was asked a question on the blog about what i do when i am have a sell order up which has been so undercut by competitors that it is never likely to make a profit in the near term.

I will normally take the view that it is better to sell the item at a loss and so redeploy the capital into other selling other items at a profit and so in time i will recover my losses.

The alternative is to leave the item up at a sell price that is still profitable in the hope that the price rises again but that firstly runs the risk that it may take a long time for the price to rise and secondly by selling at a loss i can normally quite quickly recover my losses.

For example, lets say i bought an item from Jita for 10m ISK and hope to sell it in Dodixie for 13m ISK.  I post it in Dodixie for 13m but competition comes in and drops the price to 9m ISK.  And lets assume there are plenty of items for sale at 9m such that it is not likely that demand will work its way back up to my item at 13m.

In this case i would drop my price to the cheapest, make the sale and then deploy my capital of 9m (so a loss of 1m is made) into buying an item in Jita for 9m in an attempt to sell it in Dodixie for 11m.  If i succeed i will have immediately recovered my loss in one sale cycle.

And that is what the market makers of old and today do - better to realise the loss and get the capital back into play.

5 comments:

  1. Agreed.

    I only do station trading, but in the past I used to sometimes hold onto items in these situations waiting for the price to get back to a profitable spot. It usually didn't and I'd eventually get tired of waiting and sell the item for a loss.

    Now, I just sell it. I'm not big enough to control the market, so I don't try to.

    But...

    Sometimes there'll be opportunities. Recently I was trading an item that had for months stayed in the 40m buy/50m sell range. It only had one buy order listed - 2 items at 40m. So I put up a buy order under it for 5 items at 15m. Someone sold two to the 40m order and then one to me at 15m that I promptly put up for sale for 50m. Eventually several other people added buy orders in the 15m-16m range - far below the normal price, but making it appear to anyone wandering by like a real price. And then people started dropping their sell orders to come closer to the buy price - when there were several sell orders for around 25m I bought them up and reposted them for 50m. Eventually the buy price has moved back up to the old 40m level and the sell price stabilized at around 50m. But I had bought several of the items in the meantime for 15-20m and also a bunch for 25m. So while I might not be a market maker, there are occasions when the market can be manipulated in a small scale.

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  2. How big a loss would you be prepared to accept? I currently have an item for sell that I bought at 560M and at the time was selling nicely at 620M. Now selling at 470M so if I sell I will make 90M loss or so. In the scheme if things won't hurt me too much but it's just thought if that kind of loss. Advice?

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    Replies
    1. is this a certain deadspace armor repair mod?

      http://i.imgur.com/luZEm7a.png

      if so, i apologise for crashing that market

      anyways, i'd typically bite the bullet and just reinvest that 470m as croda said - you could probably make that 90m back from the 470 you reinvest within 1-2 days, and then get back on track to making more. personally i don't go for these sort of high-priced items because the numbers fluctuate way too much and i believe that having a 500m item sit there not selling for days/weeks is worse than having it sit in your wallet

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    2. No, a certain faction ship, and it was a weird price drop. I always check last 3 months sales befor making a purchase, this had been steady for a long while but anyway will take the advice, take the loss & find something new.

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  3. I also used this strategy but stopped with this a while ago. Reason is that I have more liquid isk and order slots than I can use within my limited playing time. So for higher profit I rather work on items that make a profit now and fill more slots then spending time on updating prices on items that make a loss. There are also some items that are very volatile and reducing prices almost always results in losses. However letting the order sit for a while normally results in good profits eventually.

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