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Thursday, September 21, 2017

Trade $L Like a Pro

Today's post is a tutorial about a subject that confuses a lot of people...even me!  That subject is currency trading; specifically, how to buy and sell Linden Dollars ($L) to your best advantage.

The $L is the currency of Second Life, and it is bought and sold on the Linden Dollar Exchange, or LindeX.  Like any stock market or currency exchange, the LindeX is a system that brings buyers and sellers together.  You're not buying $L from Linden Lab, you are buying them from some anonymous resident who's offered to sell.  The price of the $L varies up and down, following the laws of supply and demand.

That means that the price for buying $L right this moment is probably NOT going to be the price a few hours from now, or a week from Wednesday.  But we can breathe a sigh of relief, because Linden Lab regulates the market to prevent really huge price swings by trading with their own account, "Currency Linden".  So the $L generally trades in a range from about $L248 = $US1 to $L256 = $US1.  For rough conversion purposes, we can say that you get about $L250 for a buck.

That's good enough for most folks.  If you click the "Buy $L" button in your Second Life viewer, you'll be buying at the current market rate.  Simple and easy.


If you click the Buy $L link on your Dashboard page on the Second Life website, though, you are presented with two choices.

The "Instant Buy" is the same as clicking the Buy $L button in your viewer.  You're buying at the current market price.  Note a couple of details here...you are specifying exactly how many $L you want to buy (2500 in this example).  You are given an "estimated cost" of $9.66.  After adding the fixed transaction fee of $0.40, your total estimate cost is $10.66.  (Note:  This is an old screen grab.  The current transaction fee is $0.99) The cost is estimated, because the market goes up and down.  The price might be slightly different by the time you click the Place Order button.

But it's the other choice, "Best Rate Buy" that we're going to talk about.  It's also the one that gets a lot of people in trouble, because they choose it without knowing what they are doing.  After all, who doesn't want to get the best rate?  For a best rate buy, or Limit buy, you specify the exchange rate you're willing to buy at...in this example, $L269 per dollar.  You also specify the quantity of $L you want, 2500.  After adding in the transaction fee, the total cost is going to be $9.70.  In this case, it's not an estimated cost, because we know the exact exchange rate and amount.

But what we DON'T know is time.  Depending on how much the exchange rate fluctuates, and how many orders have been placed at this rate, it could take hours, or days, or weeks...or even never...for your order to be filled.  LL provides an estimate of how long they think it'll take, but this estimate can be wildly incorrect.

It's pretty clear that we need to know more in order to select the best exchange rate.  We'd like to get a better deal than simply paying the market price, but we don't want to wait until hell freezes over to get it.

Right next to the Buy $L button on your Dashboard is another one, "Manage".  When you click that, you'll get a bunch of further choices.  Click "Market Data".

...and you'll see a page with all sorts of confusing stuff on it!


Let's take a closer look.  The graph at the top left shows a history of the daily exchange rates.  The red bars show the spread between the high and the low for the day, and the blue dots are the average rate for the day.  You can see that in this example, the $L has been trading in a range from 246 - 256 per dollar, with the average price just under 250.  The Volume graph below shows how many $L were bought and sold each day.  The table below shows the same information as the graphs, but in tabular form.

At the top right, you can see more numbers.  I pretty much ignore the "Best Buying Rate" and "Best Selling Rate".  They are the same as the high and low numbers, and while choosing this rate may get you the best deal, as we said before, there's no knowing how long you'd have to wait for it.   But the numbers for "Today's Open" and "Today's Close" can give you an idea of the range you have to work with.

Next, go back to your Dashboard and either click "Buy $L" or click "Manage" again and select Buy.  But when you see those two choices, scroll down the page...and you'll see another table:
You can use this table and compare the volume of open orders at a particular exchange rate with the daily volume figures from the market data.  You can see there are about $L46 million in outstanding Buy orders at $L256 per dollar.  At a daily volume of around $L75 million (at ALL exchange rates) it's going to take a while.  There are fewer orders at higher rates, 257 and up...but these are long shot bets, because the daily fluctuations in price don't encompass those rates.

Now we know a bit about what the market is doing, and what sort of options we have.  Let's do a little experimenting to see what kind of deals we could get.

In the "Instant Buy" window, enter the amount of $L you'd like to buy.  In this example, I'm going to use $L25,000 as our target figure, or about $US100.00.  I recommend you buy as large a quantity as you can afford, because that way the transaction fee becomes a smaller cut of the pie.
I will ALSO choose an exchange rate over in the Best Rate Buy window.  In this case, I picked 255 per dollar.  

Now we can compare our options.  If I do this limit buy, I will wait an estimated time of 10 minutes (I'd give it a few hours, myself), but I'd save $102.23 - $98.64 = $3.59.  If I select higher exchange rates, I'll save more, but I'll wait longer.

Selling $L works exactly the same way, although the windows you see are a bit different:

Enter trial amounts in both the Market Sell and in the Limit Sell windows and compare the results.

Now let's say you made your Limit Buy offer.  Linden Lab will immediately bill your payment method for it, so when they don't immediately get their $L, a lot of people get concerned!  But what happens is that LL places that money in an "escrow" account until either the order is filled or canceled.

If you get tired of waiting for your order to be filled, you can cancel it.  Go to your Dashboard, and click Manage/LindeX Order History, and look in Open Orders.  When you cancel an open order, the money is immediately transferred to your $USD Balance.  You can then use it to place another order at a different exchange rate, or a market buy.

The narrow range in which the $L trades, plus transaction fees from Linden Lab, make currency trading impractical for most people, unless you are trading really huge amounts and are willing to make many tiny profits in hopes they'll add up.  But knowing how to make Limit buys and sells can definitely save you a few bucks!

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