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Newbros: The Brokers and You

An Analysis.

Finance fuels the crucible of war and its spoils fill our treasury.”

– Khan’s finance minister, Marco Polo, Netflix

From the beginning, CCP wanted an economic component to the complex game of pvp domination in Eve Online. They still staff PhD level economist(s), even after lead economist Dr. Ejyo returned to a scholarly career path.  Their job is to keep a watchful eye over the markets that host swarms of players bidding and outbidding each other for the vast array of ships, weaponry and the sundry goods that comprise the pantheon of products available to pilots in Eve. Markets may not seem like pvp arenas, but they are some of the deadliest.

 The Tyrannis expansion trailer is one of the few trailers that refer to the economy as gameplay. 

Everyone in New Eden will at some point interact with the market, in big ways or small, but the market is a complex beasty: tempestuous yet subtle. Trends are ephemeral and fleeting, with wild fluctuations back and forth, yet always settling into a steady pattern. That is, until the next patch or event occurs, throwing it into a tizzy until all the minutiae have been examined, dissected and prognosticating predictions have been projected. It is hard to understand well enough to really leverage it for profit, or even just to avoid getting screwed by some unscrupulous market maven, without some deeper education. There are well-made videos and “get rich quick” tutorials like EVE Mogul [video], and expert analysis of current market trends by EVE Prosper [Video Series] to help.

A look into the mechanics that underly the market & trading that constantly ebbs and flows there helps us better understand what a player is up against when considering the market. Later, in a different article, we’ll look at trading strategies and wealth building. This article is solely to help you understand why you see all that red in your journal instead of the gobs of green you expected.

 Understanding Brokerage Markets

Since, in market-ese, players are both buyers and sellers, understanding the distinction between the two can be confusing and is critical to avoid a wallet that suddenly & unexpectedly goes really, really red. First person perspective will help illustrate the reader’s relationship to the market and that might make it easier to understand the key differences. Here is a typical approach to the market that exemplifies how they work:

I needed to go shopping so I docked up, opened the market window, found the item I needed, and bought it. Simple enough, except what actually happened was more complex. I didn’t just buy something over the counter as it appeared.  

What happened behind the scenes was that I actually put in a ‘buy order’ bid through my NPC broker which was accepted immediately by a selling player’s NPC broker, who had an existing ‘sell order’ whose desired price matched my bid. The NPC brokers made the deal happen, so they took a cut of the profits (my broker didn’t charge me this time because the deal was immediate, less paperwork I guess,) but the seller’s broker did charge him (like US real estate agents). The station market owner’s (station’s corporation, from a faction) did not tax me, because I’m the buyer. They never tax buyers.

Trades will get more complex, but the model, described above, underpins it all: EVE’s markets are brokerage markets, not supermarkets. That is why the names, “buy,” and “sell,” can be confusing.  They are from the perspective of the brokers, not the consumers.

Naturally, people want to buy low and sell high, so buy orders are lower, sell orders are higher, and the gap in between is the profit potential for traders. Sell orders are the “price of things.” When you hover over an item in your inventory you are seeing the highest sell order listed in Jita. When you hear “PLEX has hit an all time high of 900 million,” they are talking about sell orders. It takes some getting used to but it is necessary to know this when you read market news.

 Trading, Taxes and Fees

  • Buyer never pays taxes.
  • Seller always pays taxes (0.75 – 1.50%)
  • Buyer and Seller, each, pay broker fees (0.25 – 1.00%)
  • Broker fees are waived for “immediate” transactions only
  • Broker fees are the same, regardless of order duration (except immediate orders as noted above)

broker_fees

Non-immediate Orders can have a duration of 1 day to 3 months, but almost all orders are set for the max time – 3 months.  The fees are the exactly the same for any duration:

  • Frigate for sale for 1 day 10,000 ISK
  • Frigate for sale 90 days = 10,000 ISK

If you put the frigate up for sale everyday, for a week.  You just incurred 70,000 ISK in fees. Instead, put the frigate up for sale for 7 days and incur only 10,000 ISK in fees. NPC brokers do not refund ISK if something does not sell. For this reason, almost all orders are listed for 3 months.

There was a time when duration affected listing position when prices were the exact same, but not anymore. The only reason to list a shorter duration is when you want to be out of the market by a certain deadline and you want to set it and forget it. Most of the time, players set the max 90 days and modify or remove orders as needed.

Modifying orders to stay competitive will cost you new fees, so watch for those. If you raise your price, the brokers are going to get their cut. If you lower price, it’s a minimal fee.

Mitigating Taxes and Fees

If you are a simple shopper and only use the market to instantly buy your gear, you have nothing to worry about: The price you see is the price you pay. If you are a seller, or create non-immediate orders, you can save nearly 2% of your ISK by mitigating your taxes and fees charged by the station and it’s brokers.

Sellers need to train the Accounting skill to reduce their taxes, from 1 ½ percent (without skill) on every sale, always and everywhere. With Accounting trained to 5 you cut that in half, and pay ¾ percent on every sale. Taxes can go no lower. CCP takes ISK out of the game every time something is put up for sale, even if it does not sell.

Buyers and sellers both can reduce NPC broker fees by training the Broker Relations skill. Without this skill trained you pay 1% on every (non-immediate) transaction, buy or sell. With Broker Relations trained to 5 you cut that in half and pay only ½ percent on every buy or sell. You can further reduce this by running missions for the NPC corporation that owns the market where you trade.  Both the NPC corporation and the corporation’s Faction relationship (standings) with you matters. The lowest limit is 1/4 percent.

eve-market-order-broker-fees-20110417

Remember, you cannot be friends with everyone at the same time, refer to this [Faction Chart]. Standings may be one of the reasons Jita and Amarr (unopposed factions) are major trade hubs. Also why traders use trading alts with built up faction for different hubs, like Dodixie and Rens or Hek. Advanced traders sometimes have a few alts for various hubs and hauling purposes.

 Elusive Profit Margins

Without any modifications, every time you sell something you lose 2½ percent percent, an additional one percent if you are buying through non-immediate orders. Thus, every buy and sell exchange is 3½ percent.

The margin between an item’s best buy/sell orders (measured by the market’s Donchian Channel for the product) shows the estimated profit margin (minus taxes and fees).

eve_trade_donchian

Normally, traders like 10% and in remote hubs 15%, but margins on the market can be much higher (30-50% or more).  You can try for wider margins by constantly modifying your orders to stay on top also known as the ‘.01 ISK battle’), or you can take a tiny, 5%,  profit margin to make other sellers to beat your bid or leave the arena. Cornering the market in this way works in smaller hubs as large hubs have too many competitors to hold it for long.

Skip this section if you already understand everything you have read so far. To help illustrate the previous sections, here are some example scenarios:

  •  I came to the market and mistakenly sold an item, so I bought it right back

Immediate sell order (paid 1.5% tax, no broker fees), immediate buy order (no fees)

  •  I put up a buy order for 1 week & someone fulfilled it

Buy order (paid 1% broker fee), got the item

  •  Put up a sell order, no one bought it, took it down

Sell order (paid 1% broker fee + 1.5% tax), but tax is reimbursed at downtime

  •  Put up a sell order & someone bought it

Sell order (paid 1% broker fee + 1.5% tax)

Now more advanced trading examples, not taking into account skills or standings:

  •  Item on sale for 1,000,000 but someone left buy order for 1,020,000 on market

Buy item (1,000,000) and sold immediately (paid 15,300 to broker + tax 10,200)

=  (profit) 1,020,000 – (fees) 25,500  = 994,500 (- initial buy 1,000,000) = loss 5,500

  •  Got PLEX, listed sell order at 800 million, fulfilled

Sold (paid 8m to broker + 12m tax)

= profit 780 million (loss of 20,000,000)

  •  Bought a frigate for 2 million, but don’t want it, relist sell order at 2 million, fulfilled

Bought (paid 20,000 to broker), sold (paid 20,000 to broker + 30,000 tax)

= loss of 70,000

  •  Bought a T2 frigate for 25 million, relist sell order at 26 million, fulfilled

 bought (paid 250k to broker), sold (paid 260k to broker + 390k tax), 1 mil profit

=  (profit) 1,000,000 – (fees) 900,000 = (real profit) 100,000 (1/10th of original profit)

  •  Placed buy order for a battleship for 300 million, but must sell for 280 million, fulfilled

 bought (paid 3mil to broker, 300mil held in escrow for days), sold (paid 3m to broker + 4.5m tax)

=  (loss) 20,000,000 – (fees) 10,500,000 = 30,500,000 loss (⅓ more loss than expected)

Training skills and some gaining some standing and those NPC taxes and fees are roughly cut in half or more.

 Auditing and Escrow

The “My Wallet” window records our ISK transactions.  The Journal tab show everything and has a dropdown filter to isolate certain expenses. Market expense categories are scattered:

  • market escrow (your buys, and see below),
  • market transaction (your sells),
  • brokers fee
  • transaction tax (oddly, not on drop down list. Bug ticket submitted)

The Transaction Tab shows details on buys and sells: who you bought or sold to and what the items were transacted. Don’t look for taxes of fees taken on this tab.

Wallet10

Market Escrow is what you paid for something, but when you placed a buy order for 1 day or more, the NPC brokers took the money out of your account and are holding it, ready to execute a buy on your behalf.  Brokers take 100% the cost of the item, but you can train the skill, Margin Trading, to reduce it to ¼ the price of the item.  This allows you to keep the other ¾ths free to use in other ways. However, when the broker moves to buy the item you requested, all the ISK has to be there, otherwise the order fails and the deal is off.  In theory, this skill is meant to keep you liquid, so you can react to the market as it changes quickly. Primarily though it is used to scam other players. See [margin trading scam] for more information.

Generally, if you see someone spamming “omglol I wish I had the isk to take advantage of this market mistake” (or something to that effect) in a trade hub you’re likely looking at a ‘margin scammer.’ Scammers and spammers are best blocked: Right click their name and select “block.” You can block entire corporation at once, but that is not advised.

 Avoiding Scams

Avoid direct trades for ISK with other players, unless you know them well. Scammers will time it so they knock off a zero just as you click “ok,” and agree to the trade. They are good at it so an 800 million PLEX trade turns into an 80 million trade, and they are gone before you know it. If it happens, you have no recourse, it’s legal. Here are more market scams [EVE University report on scams]. As always, caveat emptor.

These were the basics, but even the basics can take some time to digest.  Next time we’ll explore market strategies, to know, when, and what, to buy and sell.

Trade Safe 07

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