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Aaron N. Tubbs

Dragon chaser.

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So I was thinking about it the other day, and in World of Warcraft, there is a functional and dynamic market for goods and currency. Especially on my realm (Cenarius) which is low population, there are gobs of volatility. On the Alliance side, at least, there is also a huge market for foreign-sourced vended items (fishing books, first aid books, odd vended herbs and reagents, as well as various recipes, patterns, and so forth).

So, my thought is that I should start a new guild. The benefit to this is that I’ll stop being solicited to join a guid from random whackjobs who haven’t even played with me. But in truth, the guild, which I’ve toyed with as ‘Gnomish Hedge Fund’ would be just that — a hedge fund in the virtual world. Instead of being a clan of folks that raid every night and distribute loot based on attendance, the sole purpose of the guild would be to play the markets. To join the hedge fund, there would be a minimal buy-in, say 50g. With that 50g, you give away any rights to control that money, and agree that, as a speculative investment vehicle, the Gnomish Hedge Fund owes you nothing if it goes under. At the same time, if the hedge fund succeeds (and I think I could make that happen), you get a periodic coupon of the proceeds, less the fund manager’s salary (0 if the fund takes a loss, 20% of proceeds if it trades at a gain). Because the trading strategies are proprietary, there would be no guarantee other than the fund manager’s word that certain proceeds were made. Over time, deputy fund managers would be allowed a certain portion of the pot to invest, with their allocation increasing depending on their success. Eventually, deputy fund managers would be able to spin off their own funds, and we would soon have several varieties: pure market manipulation funds, long term investment funds, short term gains funds, foreign trade funds, derivatives (options on enchantments and production goods), arbitrage, and multistrategy funds.

The market moving has to be done with great care, as it is possible to observe who is buying/selling, and infer by extension that they are from the hedge fund. For example, if a single player comes in to play cloth, and buys every single wool auction on the market, and relists at a higher price, it is very clear that they are in the service of the fund, and their actions will in the future themselves shape the market against them. While this will take time (the first few plays will go unnoticed), certain characters will be recognized, and shortly thereafter the strategies will be recognized, and other players will start to capitalize or resist the trading strategies. As such, the strategies need to remain agile as well as subtle, which isn’t easy. The other (Soros) approach is to let everybody know you’re coming, by breaking the bank … such as the complete buyout of the auction house on Elune.

I think it could work.