Wednesday, 8 August 2012

1 ISK/1Copper undercutting and high frequency trading

One trading style is frequent, very small undercutting for buy orders (0.1 ISK in Eve, 0.1 Copper in WoW), and it's equivalent 'overcut' for Eve sell orders.

There are traders who do this and are traditionally tied to their auction house, and swear by the method.  I dislike it; but accept that it happens.  (Losec ganking happens too - it doesn't stop me from going to low security systems though).  I do have a variation (below) that I am comfortable with.

If you are curious about small over/undercutting; it is worth looking at how the professionals do it in first life.  It is called High Frequency Trading.

This article at slashdot has some 'interesting' discussion and links, largely negative.

If you are interested in this approach, It is worth reading this Wikipedia article for a less emotional (hysterical?) article on the topic.

From the Wikipedia article:
High-frequency trading (HFT) is the use of sophisticated technological tools to trade securities like stocks or options, and is typically characterized by several distinguishing features:
  • It is highly quantitative, employing computerized algorithms to analyze incoming market data and implement proprietary trading strategies;
  • An investment position is held only for very brief periods of time - from seconds to hours - and rapidly trades into and out of those positions, sometimes thousands or tens of thousands of times a day;
  • At the end of a trading day there is no net investment position;
  • It is mostly employed by proprietary firms or on proprietary trading desks in larger, diversified firms;
  • It is very sensitive to the processing speed of markets and of their own access to the market;
  • Many high-frequency traders provide liquidity and price discovery to the markets through market-making and arbitrage trading; high-frequency traders also take liquidity to manage risk or lock in profits.

In online games; there is a slightly simpler approach because the games (claim to) 'protect' you from some automation. 
  • Find a product that you know is bought and sold regularly
  • Your chosen product should have a buy/sell difference greater than your market costs (buy brokerage, sell brokerage, sales tax)
  • Reduce your costs by learning accounting and grinding both faction and corporation standing.
  • Place your bid orders so you get the product.
  • When your buys are fulfilled, set a sell price so it sells quickly.  A low time to sell is as (or more) important as a high sale price.


  1. The capital problem with this method (in EvE) is that you can sell fast but you can't buy fast. Or if you can buy fast and sell fast the profit is tiny and you need to be online all the time to put new orders.

    I prefer to fight a 0.01 ISK war and have my stock sold slower but with bigger margin. I love deep undercutters for I can buy their stock cheaper and resell while they gather another batch of items.

  2. @anon above is closer to the high frequency trader than I will ever be.

    Know that there is a special place in hell those that fight the 0.01 ISK war;

    (it is just down the road from those that do deep undercutting).

  3. Regarding real world HFT I'm on the side of people who think it's lame. In most share trading you basically guess a price and place a bet. So if I think Microsoft is going to go up I might buy some shares for £1000 today and hopefully they will be worth £1050 tomorrow.

    HFT observes what other people are doing and uses borderline hacks to queue jump. So in the example above I'd try to buy MS shares at £1000 but a HFT trader would see what people were buying and get in first, buying the shares at £1000 and selling them on to me at £1005 microseconds later.

    It's zero value zero skill, it doesn't cause price discovery at all. Theses are algorithms that exploit what would happen anyway without them simply diverting away some of the profit.

    In the real world the biggest share buyers are pension funds. So these guys are basically using computer hacks to screw ordinary people out of our pensions.

    In Eve as in the real world the main role of speculators is to divert money away from other people to themselves. I actually quite enjoy trading both in real life and in games but let's not fall for the spin. All this blurf about "price discovery" and "correcting the market" is bullshit, smoke and mirrors designed to cover the movement of money from poor people to rich people.


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