In August of 2009 I wrote an article on the Linden Currency Exchange for Second Life™. See: XStreetSL Currency Exchange Tutorial and Second Life Currency Exchange Extended. Back then things were a bit different. There was competition in the Second Life money market. The US government has ended that. Now, Linden Lab is the keeper of L$ and the only company officially converting L$ to RL currencies. There are black markets in Lindens and there is a reason they are called black markets.
What has not changed is people not understanding currency or currency markets. Someone in the Answers section of the SL Forum was asking why their Sell L$1/US$1 order had not been completed when other similar orders had been.
I am 99.99% certain there were no Sell L$1 for US$1 orders in the Exchange. The current going price for L$ being sold is L$247 and has been for months. This means the seller in this case did not understand the Exchange and was misunderstanding the lists of pending buy and sell orders.
I think things have changed enough that an update of my 2009 XStreet article is probably in order.
Understanding Currency
Currency is an odd thing most people are not taught about. When we are children we quickly figure out money can be traded for candy. Such a deal. After our first experiences our currency related thinking is how to get it and what we can get for it. But, the actual currency is not the focus of most of our thinking. That is probably a significant difference between the poor and middle class people and the wealthy.
As society changed from hunter gathers to an agrarian society we begin to accumulate stuff. Houses and farm land and the tools that made life easier. People begin to specialize their productive skills. Trades and professions became part of everyday life. Business was a matter of barter as a farmer traded foods for shoes, plows, and swords.
Carrying around bushels of corn to buy shoes for the kids was awkward. Soon gold, silver, and precious stones became the day to day currency. These were rare commodities that people desired. They held a high concentration of value for most people. So, there were a pretty good medium for exchanging goods.
Gold was heavy and a problem to transport in large quantities. That also made it hard to hide and protect. The Chinese came up with the idea of paper currency. The emperor of the day thought it was a crazy idea as he immediately saw the possibility for counterfeiting and thought no one would go for the idea. But, they did. Gold was heavy and people are very conservative when it comes to expending physical effort. It was and is way easier to carry paper.
The point here is to portray currency for what it actually is: a commodity. Just like silver, gold, corn, bread, steel, coffee, and all the other things we use in our lives. The value of gold is thought to change, as does the price of corn, milk, gasoline, and other things we commonly buy and sell. Few seem to realize it is not so much those prices that are changing as it is the value of our currency that is changing.
Currency is a commodity just like any other. Its price is set by what people are willing to pay for it, either in goods, time, or other currencies. There are some unique aspects to currency. One of the most striking is the currency exchanges. Only currencies are traded in a currency exchange. All other commodities are traded in various commodity markets. But, they are traded in exactly the same ways and for exactly the same reasons. But, the Linden Exchange only provides one set of options for buying and selling, unlike RL markets.
Trading
Commodities are traded among people. So say you had an old beat up bicycle. You decided to see if you could sell it for 50 bucks. Several people look at it but don’t buy it. To them it’s just not worth 50 bucks. Then someone comes along and buys it. To that person it was worth 50 bucks and a deal was made. They traded currency for a bike.
Most of us do the same thing every day with our time. We decide for $50 an hour, or whatever rate, we will spend our time doing what someone else wants us to do, commonly called working. But people in America used to work for a dollar a day. I doubt our time today is any more valuable to us than it was to the people long ago working for a dollar a day. But, the value of a dollar has changed.
In commodities markets brokers matchup buyers and sellers. A farmer needs to sell his wheat and a baker needs to buy it. The baker wants to pay as little as possible for the wheat so that he can buy shoes for his kids. The farmer wants to sell his wheat for as much as possible so he can send his kids to college.
There are lots of bakers and lots of farmers. Some of them have more pressing needs and are willing to adjust their prices in the face of those needs. In a free society each of the people involved gets to decide on the price they will accept or pay. When the deal is made both parties have met their needs and are generally satisfied.
Linden Exchange
The Linden Exchange is an automated market that in a limited way behaves as any other commodities market. The difference between the Linden Exchange and real money markets is that the Linden broker, in this case, controls the price of the currency and the money supply. In real life this is done by governments not brokers. And it is the RL buyers and sellers that actually set the RL price.
In the Linden Exchange buyers and sellers to some extent do set the price. But, because the Linden Dollar is a controlled currency we don’t see the fluctuations in price that we see in real life currencies. But to some extent those of us doing business in Second Life can get a slightly better deal by using buy (bid) and sell (ask) orders.
How DO I Get a Better Deal?
The key to getting a better deal is in knowing what you’re doing. First, you need to know the average price of Linden Dollars. For some time now that has been around L$250 per US dollar. So, if you can get more than L$250 for each dollar you’re spending you’re coming out ahead. Pretty easy.
VirWOX prices in graph. You can get Second Life Market Data here.
If you’re selling Lindens, you’re ahead when you can pay out anything less than L$250 per US dollar.
The longer you can wait for the transaction to happen the better the deal you can get. If you place a sell order for 250 per dollar, that transaction is going to fill almost immediately. You are not getting much of a deal. But, lots of people are willing to pay that much for Lindens, so that happens fast. If you need L$ or US$ today, this is the way to go.
If you place a sell order for 247 per dollar you’ll get a better deal, but today you have to wait for about 112 million in sales orders to clear before your transaction is completed. So, you do get a better deal but you have to wait longer for your money.
If you’re buying Lindens and you want your L$ right now, buying at 250 per dollar will happen almost instantly. If you place a buy order for 256 per dollar then there is only 102,000 in orders ahead of you (early this morning – the number changes pretty fast). An order at 257 per dollar has about 93 million in orders ahead of it. So, the wait time for getting your Lindens between a price of 256 and 257 is significant.
To actually know which is the best price you can get in a reasonable time you need to watch the list of buy and sell orders. You will be able to see changes in the Total Remaining Quantity column. That can give you some idea of how many people are trading at those price levels. With millions in orders ahead of you it can take days or weeks to get to your order. But, you may think it worth the wait.
Buying
To place a buy order visit your SL Dashboard. In the Linden Exchange section click Buy L$. Scroll down until you see Limit Buy. Below that is the Market Data I show in the opening image. Place your order.
Selling
This is similar to buying. In your SL Dashboard in Linden Exchange section click Manage. This will reveal all the options available in the Exchange. Once you have used Sell L$ you will have US$ in your account. Use Process Credit to cash those dollars out to a RL account.
All the details are here: Second Life Account Balance. This is a Knowledge Base article that explains the fees and times needed.
Arbitrage
Arbitrage is something that happens in real life currency markets. There are people that make a living trading currencies, buy low and sell high. Probably the more infamous of those traders is George Soros. There’s nothing illegal about trading currencies and making money. But lots of people seem not to like the idea. He knows what he is doing and makes billions. So, it is possible to make money trading currencies.
Some time ago there were many traders in Second Life. Not so much anymore. It’s become difficult to make money trading Linden Dollars. If one can buy Lindens at 256 per dollar and sell them at 247 per dollar then they are making nine Lindens per dollar or about US$0.036 per dollar. Since there’s a minimum one dollar cash out fee. So, you have to make about $28 or almost 7,000 Lindens to cover that fee. That’s a really thin profit margin with a high marginal cost.
In general I see it as just too much work for too little profit.
VirWOX
There are some other sellers of Linden Dollars. VirWOX is one. Consider this information posted on their site:
However, please note that under the new terms of service we are no longer allowed to take back your Linden Dollars from Second Life and let you “cash out”. Our in-world terminals will therefore no longer accept Linden Dollar deposits.
In May 2013 this became the way it is with all third party exchanges for the Linden Dollar. They sell you Lindens, but they cannot buy them. Well, legally.
Today they still quote Ask/Bid prices. But, that is misleading. And the quoted prices are not that great. You can get a better deal in the Linden Exchange… today.
Summary
Once you understand that you are in a market and making a deal with another person the Linden Exchange is pretty easy to understand. Buy orders are just somebody saying I’m willing to pay (bidding) this much for your Lindens. Sell orders are just people saying I will give you this many Lindens for your dollar (asking).
When two people agree on the same price, the transaction happens.
For about the last year I’ve been buying my Lindens at 255 or 256 per US dollar. That means somebody has been willing to sell for a matching 255 or 256 Lindens per dollar.
The only real complication in the process is how we talk about it. If I am going from US$ to Lindens things are one way. If I am going from Lindens to US$ they are the other way. This ‘reverses’ the language and changes whether higher or lower is better for me. Whether you are buying or selling and how your thinking of time, makes all the difference in what is being said. But, once you are clear on what is happening and what you are doing, it is simple enough to make sense out of the language.
For instance, if you look at the SL Market Data they say the best buying rate is L$247/US$1. I would rather get L$256 for my US$, so how is this best? Reframe what the Lindens are saying this way: currently the best price you can buy Lindens for right now is L$247, because that is the only unfilled offer to sell. So, if you need to do a deal right now, this is the best price you can buy at because that is the best price in the cue.
If you are willing to wait, a better sell offer will come along. Today there has already been L$52+ million in transactions. There are a bunch of people waiting on better prices. 90 million in pent up buying demand and 106 million is selling offers. Who will blink first?