11AUG12 - MAJOR RELEASE (Trade)

One advantage that I didn't see explicitly addressed for a market maker is that rather than having to transport cows back and forth to a city with each trade, the player could just keep the cows at the hub -- essentially buying and selling the same cows instantly with no transaction costs based on travel time.  Huge advantage over the current system.  Although I do worry about cow futures and credit default swaps. 

I'm going to use the standard definition of a market maker as someone holding both a buy and sell order in a specific market.  A market maker is offering a sufficient quantity of buy and sell orders to significantly satisfy the market volume.  For this example I'll use the cow market, I'll assume a buy price of 750 and sell price of 843 (pulled from the current market prices).  There are 133 buy/sell orders and a very rough WAG of shows an average volume of 1,000 units.  That's a total volume of 133,000 units.  I don't know how many of those trade every day, another WAG would be 175,000 cows traded per day (87 million cows traded to date over <2 years weighted slightly towards a higher current volume).

OK, so under the current system a trader makes 93 gold per trade.  Under the new system a trader would make between 51 gold (5% sales tax) and 85 gold (1% sales tax) per trade.  I know, less gold per trade, that sucks!

But, there is another factor in business and that is units moved/sold, etc...  If I sell 1,000 units at 93 gold profit is that better or worse than selling 2,000 units at 85 gold profit?  I think it's way better to make 170,000 gold than 93,000 gold and I think traders would agree.  I think they would really agree if they could make 170,000 gold with less effort, but is that possible?

So, does the new market allow for higher trade volume?

Under the old market you had to offer trades in specific lot sizes.  You had to pre-determine what size lot your customer wished to buy.  Were there 1,000 people looking to buy/sell 100 cows each?  Were there 10 people looking to buy/sell 3,000 cows each?  How you posted your buy/sell sell offers in the global market effected how much of the potential market you could reach.  Without omnipotent powers, you could not reach 100% of the buying and selling market with your buy/sell orders and others would post buy/sell orders and break your market.  In addition, you were caravan limited to how many specific buyers and sellers you could reach.  A player with 10 cites could have a maximum of 700 caravans offering a maximum of 350 3,000 cow buy orders and 350, 3,000 cow sell orders.  I realize that you can buy more than that but that scenario leads to a trade imbalance and that isn't good for a market maker and greatly complicates his business so I unilaterally ignore it .  So at most a market trader will buy/sell 350x3,000=1,000,000 cows/day.  Which would net a profit of 93 million.  But, realistically, there are not 350 people buying/selling 3,000 cows per day.  Realistically, there are 350 people buying an average of 500 cows/day and you get a total volume of 175,000 and one trader with 10 cities can make that market.  But he/she can only make the market if the average turn around time for his caravans is <24 hours (unrealistic, but I leave this weak leg standing anyway).  Anything more than that and he/she isn't making the market and the model breaks.  This also assumes he/she can size his/her buy/sell posts to 100% fit the market.  I'd imagine a more accurate ratio of around 30%.  So, with the current market a market maker fills 30% of the total volume and makes a daily profit of 5 million gold assuming the caravans can get back in time.  That leaves a lot of room for others to break his hold on the market and that limits his power to control prices and maintain the attractiveness of his prices.

With the new model, a market maker with one city can operate in up to 20 regional markets (one trader per market).  Each potential customer city can see from 2 to 8 faction hubs (regional markets) based on marketplace level (higher market place levels can see more faction hubs).  There are about 150 regional markets so a trader with one city and 20 traders can fill buy/sell prices for roughly 50-90% of the available customer base.  Remember, each buy/sell order can now be partially filled so a market maker can offer to buy 175,000 cows at 843 gold/cow and fill 100% of the orders for a region.  Now, if the available customer base is roughly 175,000 cows then the profit in the new system would be between 4.5 million (175,000 total market size * 50% of market reached * 51 gold per cow) and 13.4 million (175,000 total market size * 90% of market reached * 85 gold per cow) gold.  A good trader would work in faction hubs that provide the most coverage at the best tax rates and be much closer to 13.4 than 4.5.  In the new system the customers are reached with 40 buy and 40 sell orders that the market maker rotates through as needed (old prices, new prices).  He doesn't need to type in 700 sell buy orders for each of his caravans and he will 100% saturate any given (isolated) regional market with his offers.  A market maker could focus on 2 or maybe even 4 of the now 100 or so markets that exist in Illy.  A market maker facing competition from another market maker would have to cancel and reset his sell orders.  That will cost some gold.  Maybe that is unfair, I don't agree but maybe it is.  But given what is offered to them don't they have enough to look forward to?

With the new system a player could plow all 4.5-13.4 million into troops/armor for his one city.  He doesn't need to make/build anything and he doesn't really need any pop because he doesn't need 700 caravans (the people accepting his buy/sell orders supply them all).  All he has to focus on is accumulating traders and knowing the regional markets and boosting his profits by moving goods between markets with his 70 caravans (or finding a way to hire others to move stuff for him/her).

I'll be the first to admit that any of my numbers could be off and it's possible that market makers are currently satisfying 50 or 75% of the market under the current system (11 million gold/day) and that the exponential price of traders will make it near impossible to satisfy more than 25% of the market with the new system (3 million gold/day).  The new system still allows for a stronger market maker position with less incentive for any individual to undercut prices.  If my goal is to buy cows and a market maker in the new system will sell them for 843 in any quantity I want and I can pick them up straight away from the nearest hub then...do I really want to post a buy order for cows at >750 (have to pay more than the market maker) and wait until that is filled (assuming I already have gold at the hub), then wait for the seller to send the cows to the hub while I send my empty caravans to the hub to pick up the cows and ship them back to me.  Is it worth it to save <13% when what I want is cows?

My goal in this post is to constructively compare the two systems.

Are the trade offices counted per town, or for the whole account?

If I have a level 20 trade office in town A, and a level 20 trade office in town B, will I get a total of 40 orders?

Also, if I knock down my merchant's guild, will my traders dessert me (the same way those ungrateful cotters do)?

<shrug>  I knew that

I believe there are constructive facts in my posts.  You're choosing to focus on my feelings which really account for one mild word in each post (so mild in the last case that you felt that I didn't even know the meaning of the word I used and in the case of the first post not the first time that words been used here).  Again, I'm sorry if my feelings upset you.  At no point have I attempted to single you out or targeted your opinion.  I will subsequently try to leave out all subjective opinions.

Maybe you can return more constructive input for the community.  What are the "market makers" in Illy doing?  I see open market spreads of 7-100%+ in every market.  If the market makers are providing liquidity, it certainly isn't at a low margin.  If they are operating at low margins, then they are providing no liquidity.  What don't I understand?  Why should the Illy community want market makers (and thus remove the tax).  What do the Illy market makers do for the community?