Futures Contract for Eve Online — A Whitepaper
I think futures marketplaces in EVE Online would add massively to the player experiences through stimulation of liquid marketplaces while providing more dynamic markets across the cluster.
But first, a little about me and my motivation to publish this crazy mad idea on the forum:
In EVE years I’m still barely a newborn, I started playing about a year ago to date and worked myself up with market trading. I dabbled in close to every corner of the game bar factional warfare, but I always had one goal: be part of the big leagues one day: the trillionaires club. I had a goal, so I decided to pursue it. There may be people that get rich in the game by doing NPC content, there may be others that PvP and work their way up that way, but to me, it was always clear that people engaged in market trading (true PvP) and industry were the true titans, not those that fly around in space.
So, I joined one of the largest trading communities on Discord centered around EVE, learned the ins and outs of buying low and selling high and keeping the difference, exploiting market trends, and making a pretty penny along the way. I’ve always been a bit of a trading nerd, and the dynamic, player-driven markets are what originally attracted me to the wonderful world of EVE Online.
Along my trading journey, I came across many like-minded people and I discovered that the EVE markets were susceptible to a lot of short-term price fluctuations, to a point where it may be restrictive to gameplay. For example, someone orchestrating a complex industry scheme, producing, say, the Moa, a Caldari cruiser, will require strictly minerals, some of which are from highsec and some of which are from null/lowsec. However, they are exposed to short-term price fluctuations if another large customer buys up a large portion of the order book, say, in Jita. (Henceforth this will be the ‘market’ referenced to avoid a) confusion and b) it’s the most liquid marketplace).
(If you are unfamiliar with the concept behind futures, I urge you to read the associated Wikipedia and Investopedia articles, along with watching some of the tastytrade videos on the topic of real-life futures, you may gain some knowledge that is useful to this discussion)
So, according to the title, I want to explore the viability of introducing a futures contract on raw commodities such as minerals, moon goo, and other materials of production. But what is a futures contract? A futures contract is an agreement between a buyer and a seller to purchase a certain amount of a specific commodity, for delivery at a specific date in the future. Essentially, it is the process of selling or buying a commodity forward.
The provision of a forward market for materials of production in EVE Online has significant advantages, akin to those found in the real world, namely that the marketplace becomes more efficient, which means the market is exposed to fewer short-term price fluctuations while decreasing operational risk to manufacturers, since they will be able to buy tritanium, for example, at a rate that may be lower or higher than the current market price, eventually leading to the final, and most crucial advantage of the futures marketplace: they offer a price-finding function. If tritanium’s current spot price, meaning current, live trading price is 7 ISK but futures for the next month are selling at 3.50 ISK then the astute trader or industrialist will know that current market prices are out of whack, and it would be smarter to purchase a set amount of tritanium on the next week’s/month’s tritanium contract.
In the definition of a future, above, you will have noticed that there are three parameters that make or break the idea, contract size, time to maturity, and price.
My thinking is that to introduce a futures marketplace, there would be a station service added to the major NPC trade hubs of highsec, offering a standard futures contract at a specific contract size per commodity, plus a standardized time to maturity, for example, one week, set at a specific price. These contracts are entirely player-made, though initially NPC’s may have to aid the process of introducing liquidity.
The weeks can have numbers from 1-52, for the weeks in a year, with a 2-4 letter code for the commodity type, a standardized quantity for, for example, 20m tritanium per tritanium contract, at a price set by the person selling the commodity forward.
For example, as a buyer of tritanium:
\8TRIT [insert price here] → contract for 20m tritanium, maturity at the end of week 8 of 2021 (futures could open and close on Sunday, in EVE).
As a buyer of tritanium, I could enter a price for the \8TRIT contract, for example, 2.5 ISK for the 20m, meaning it is a 50m ISK contract at the time of submission of the contract, but the value of the contract changes as it approaches maturity, or ‘expiration’. Note that at expiration the contract has a value equal to the current spot price, but while the contract is live, the following formula could be used to calculate the price of the contract: (it is based on the current spot price)
Where p is the current contract value, or ‘price’, t is the DTE, or days to expiration, sp is the current spot price of the underlying commodity, and r is the rate.
A lot of this is based on a forum post by Block Ukx from sometime in 2012, including the above formula.
In the case of an NPC-based market, the clearinghouse would be the NPC market location, but in the case of a player-owned exchange, the structure owners collect fees and taxes from the exchange.
This is another idea that may or may not work out, players would get the opportunity to use a ‘clearinghouse’ module that can be installed to a player-owned citadel, that costs a bit of fuel every now and then. Players could then facilitate their own futures, giving them control over contract size, which commodities have futures, and time to expiration. Players may realize that the single week is not long enough for time to maturity, so they may choose to sell the commodity forward for longer, perhaps up until a hard limit like a month or so.
As I prefaced in the very beginning, I am very new to the game compared to some of the vets around here, the game itself has been around for a staggeringly long time, and we all play EVE because the fact that we’re talking about the viability of installing a futures exchange into the game, is what makes this game so special. As far as I can tell, there’s no other game quite like it.
I’m highly interested in your informed opinions on this topic, your constructive criticisms, along with your best efforts to shut me down. I want to know what you think, I want to know why this is not going to work. I want to know from people that know more about the game and about futures and their role in an economy what you think of this crazy idea. Please let me know!
I am very much interested in a heated discourse on the forums or in-game. I am reachable most days via my IGN Isanakka Artemis.
Plus, here is the original forum post that I referenced throughout: https://forums-archive.eveonline.com/topic/177202/