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By: thewoof2, Christopher Gallon
Feb 09 2015 1:00pm
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Let me state upfront that this article to many will be common sense, a "no-brainer" perhaps, that said I thought it would be interesting to pull in a few new finance concepts and some stock market education.

Buy/Sell Decisions

When you are interested in buying or selling a card there are many options.  As you know, buying from a reputable store like MTGOTraders.com offers many benefits including card availability, payment methods, payment discounts, security in a smooth transaction, speed of purchase, customer service and storing extra credit for future use.  In many cases it just makes sense to make all your purchases from MTGOTraders for these extremely valuable reasons.  In fact if obtaining the best price is not your primary priority in the transaction then it makes no sense to do anything else but use MTGOTraders.  But if you are very price sensitive and getting that extra additional ticket is important to meet your budget you do have other options to consider.

The Spread

Merchants make their money on the spread between buy and sell prices.  Simply put, they buy a card for 10 tickets and sell it for 11 tickets thereby making 1 ticket profit.  As I normally do let me now break and talk a little about the stock market before jumping into Magic.  In the stock market we have a similar structure although with slight differences.  Rather than buy/sell we use the terminology bid/ask.  If you look at a stock you will see it has a Last Trade, which is the dollar amount the last trade occurred at.  You will also see the bid/ask which refers to what sellers are selling the stock for (ask) and what buyers would pay to purchase it (bid).

So in this case Apple last traded at $118.10, now one quick item to note here, this last trade quote is a "NASDAQ Real-Time Price" which means it is the current last trade of Apple on just the NASDAQ market at this very moment (more on this in a sidebar for those interested).  You will see the Bid price showing as 118.19 and the Ask price at 118.21.  On my earlier note though, the bid and ask prices are not Real-Time, rather they are delayed 15 minutes and are the best bid and best ask from all the major US exchanges not just NASDAQ.  So I want to note, this spread is a very tight.  That typically means that two things:

  1. High liquidity.  Liquidity is the ability to easily buy and sell the asset.  If the spreads are tight between Bid and Ask, then most likely the stock is easily traded.  On the other hand, if a stock has a large spread then the asset most likely is not easily traded.  This concept is one I will being back up when we talk about a potential application of this in Magic.
  2. Frenetic Trading Activity.  A normally illiquid stock might have news come out that spurs interest and results in a price competition on both buyer and seller sides creating a tight spread on the asset.

In this case, Apple has a tight spread of 1 cent indicating the stock is highly liquid and has a lot of price competition among buyers and sellers.

The Magic Online Spread

In the same way the stock market spread indicates liquidity, the same concept applies in Magic.  If a Magic card spread is tight you can assume the card is liquid and has a lot of trading activity.  This makes common sense as a buyer has to tighten their profit in order to attract your business to them.  On the other hand, if you see a large spread you can assume the card is rare and not easily found.  A perfect example of this is the foil market, in the foil market you tend to see much larger spreads as the buyer and seller knows finding the card is not easy and most likely someone will be willing to pay more for the cards availability.  So why do I bring this up?  Well for those price sensitive players I would say that a card with a tight spread provides little incremental gain to searching for price improvement while a card with a larger spread could offer greater price improvement.  What I am suggesting is for a card with a larger spread a buyer might be able to find the card at a lower price more easily over time.

Let's use an example, you want to buy a Dig Through Time currently selling at 2.33 and buying at 2.10 with a spread of only .23.  It makes little financial difference to purchase this from a trusted source like MTGOTraders than to search for price improvements considering even if you found the card for 2.23 you only save .10 and take the chance the other seller is not reputable, loses your credits or doesn't take your desired payment types.  However let's say you want a foil Gaea's Cradle from UZ, that is selling at 55 and buying at 30.25 with a spread of nearly 25 tickets.  There is a good chance that if you can find a seller you can close that 25 ticket spread and buy for less.  

But there is more to consider in searching for price improvements worthwhile of further discussion.  The largest factor to bring into this equation is time and risk of market changes.  As I have mentioned, cards with a larger spread are more difficult to buy and sell.  This means you have to bear the cost of taking the time to make the sale.  This could consist of an ad on the trading boards where you attempt to gain on the spread by posting "Buying foil Gaea's Cradle for 40" and waiting for a seller.  In this example, you need to expend time and effort to close a deal which you need to account for.  Second your run the risk the market moves away from you.  If during the time you try to buy foil Gaea's Cradle for 40 the card appreciates in value and let's say it moves up 20 tickets on both sides, now you are in trouble because even at the previous MTGOTraders buy price you cannot get the card.  This has to be a consideration in your trading decisions.

The Value of Market Data (Optional Sidebar)

Note:  This is a sidebar detailing the specifics of the Stock Market Data, I am writing it for those interested in learning more although feel free to skip it if it is too detailed for your liking.

A little known fact is the major stock exchanges all charge significant fees for use of their market data.  In the US, all the major equity exchanges provide access to their specific exchange data.  But this is limiting because often people want transparency into all the exchanges not just one.  Thus the creation of the Consolidated Tape Association (CTA), which oversees the dissemination of market data from all the major US equity exchanges.  Access to either the exchange specific or CTA level data comes with a host of fees and costs for a firm.

Starting with just the exchange costs, there are two fees an admin fee and a usage fee.  The admin fee is a straight yearly cost for access to the exchange feed, think of it as a set fee to get the data.  The usage fees are on top of the admin fees.  Sticking with the CTA, if a retail or institutional broker provides a customer with a Real-Time quote (defined as a quote within 15 minutes of distribution from the exchange) the broker has to pay a fee.  The cost of which is dependent on two factors, one is the user type, if the quote is being shown to a "professional" user there is a larger fee than if it is shown to a non-pro.  Second factor is the device usage type, specifically if the user is being shown a snap quote (one time request/response) versus a streaming quote updating as the price changes.  For a large firm with many retail and institutional customers the combined exchange costs can range to $50 million to $100 million per year.  However, those costs are greatly reduced if a firm shows delayed data or exchange specific quotes.  This is why Yahoo! is showing a NASDAQ only last trade quote with a 15 minute delayed Bid/Ask.  In doing so, they are able to greatly reduce their exchange liabilities while still providing some information.

Second is the infrastructure costs a firm incurs to process these market data feeds.  The CTA feeds can go over 1 million ticks per second of data.  This is a huge amount of data requiring complex systems to ingest, process and distribute the data for consumption.  Between the infrastructure and exchange costs a company has to spend considerable amounts of money for market data access.  That said, unlike the Magic market where merchants make money on the spread, the brokerage houses make money with a per trade cost.  A competitive price is around $7.95 per online trade which covers many expenses including this market data expense.

Order Book or Depth of Book

So I have focused on the best bid and best offer referred in the industry as the NBBO (National Best Bid and Offer).  But that is not the entire story as the NBBO is limited by the number of shares those buyers and sellers are offering.  After the NBBO there are many other bid and asks and put together we have an order book.

This is an example of the order book on Apple.  It shows the market depth beyond the NBBO and the amount of shares at each price point.  On the far right is a tick by tick trade history called Time and Sales.  The color groups the like price points so at this time you can see there is a many more markets with a bid of $118.04 than an offer of $118.05, however it is as tight a spread as you can have.

Order Imbalance

Some people think that an order imbalance can provide very short term clues in a stock's direction.  A massive imbalance of buy orders as compared to sell orders may indicate a higher stock price is coming due to buying pressures.  This only applies to the short term however because the order book is constantly updating and changing and pressures often balance.

Magic Order Book

While by no means proven as an effective strategy, I do use the trading boards as a proxy order book.  If I am interested in a card I search the trading boards to see how many are buying and selling that card.  If there is an overwhelming imbalance in buyers to sellers or vice versa it may sway my decision on the best buying option.  Back to my foil Gaea's Cradle example, if on the boards I see several people buying this card with no sellers I would be more apt to purchase it from MTGOTraders rather than wait with a posting especially if other indications have the card increasing in value.

The Buy/Sell Decision

So this article was intended to add some clarity to buying and selling cards.  You have an decision to make and in many ways the first decision is around your personal priorities.  Using MTGOTraders.com for all purchases has many advantages as I have discussed.  On the other hand, for those highly price conscience players I think there is two concepts from the finance world you can consider.  First is the spread, the tighter the spread the less financial benefits you gain.  Second is time and risk of market change, you are running the risk that the market sways from under you and in some cases making the trade can be a long, time investing process.  And lastly take a quick peek at the Magic order book and see if any significant imbalances are seen in buyers and sellers.

As I started the article in saying many of these concepts are motherhood and apple pie ones that will seem obvious to you.  But my goal in the article was to put a little more structured thinking into the decision and offer some information on the financial market data world.

Woof

7 Comments

Thank you by Dwarven_Pony at Tue, 02/10/2015 - 15:09
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5

This article is very helpful and interesting

Question by Dwarven_Pony at Tue, 02/10/2015 - 15:58
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5

May I ask you a question. Do you believe that now is a good time to buy Sarkahn the Dragon Speaker given that is has fallen to approx 8 tickets, and Sorin the Solemn Visitor given that he has fallen to approx 9 tickets.

Both of these cards were soaring high during the last 3 months, but now they have both fallen down to the earth. Do you believe there is a strong chance that they will both shoot up during the next 1 year of Standard season?

Thanks for the guidance.

Thanks Dwarven. I did see by thewoof2 at Tue, 02/10/2015 - 21:02
thewoof2's picture

Thanks Dwarven.

I did see both of the planeswalkers have both fallen. I think they are okay buys but I see some risks which do give me pause.

1) They have been on a slow decline for some time since their release so I could see them stabilizing and starting a slight incline but not sure I see any reason why they would spike.
2) They are really only standard cards, I never see them in other formats. This isn't a deal breaker but being used in other formats can help.

That said, they are both mythics which hold value and are still used in std tourney decks even after FRF. If you do buy my guess at worst they hold value which a chance to slowly increase over time.

mindlesslemming's picture

hi Nabil,

i personally waste way too much money on this game and i have never had a problem with any bot, ever. honestly if i had to trade card for card with real humans, i probably wouldn't even play online. i have been playing paper since ice age, and trading card for card with individuals is nearly impossible. thats why brick and mortar card shops popped up in the 90s. bots are the digital equivalent of card shops. almost every bot i have ever seen used has prices very similar to MTGO traders, goldfish, etc. if people don't know the prices of their cards, and also don't realize there are scores of resources to price your assets, maybe they should look up the definition of the word "collectable" in collectable card game... or maybe have their parents monitor their allowance better. i don't mean to sound insulting or combative, but i was shocked to see someone so against bots... and what i feel is a wonderfully versatile and accessible online card market.

-j

I like bots. by Joe Fiorini at Tue, 02/10/2015 - 18:05
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4

I like bots.

There's some good information by TugaChampion at Wed, 02/11/2015 - 08:32
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There's some good information in the article but in my opinion you wrote a bit too much about the stock market.

I do understand the basic of stock market because I like sports betting and I've looked into trading in a site for that. It works in a similar way. But for most people, I think the article has a bit too much information they don't need/care.

About the bots facebook comment, he does have a point. Some people make accounts with similar names to big bot chains and that can trick some people.

And yes, there are some bots that buy cards way lower than their current value and sell for much higher. Sometimes it's just some cards, other times it's many cards. But it's a free market, if you sell to the first one blindly without checking the prices, you're bound to make a bad deal. This is also true irl and not really a problem. It doesn't take much time to check MTGOtraders or something like that. And people who do this probably don't really care. They are probably adults with full time jobs and draft whenever they have the time. They buy some tix, draft, sell the cards and when they run out of tix they buy again. They don't really care if they lose 1 or 2 tix to check other sites but sometimes they'll lose more on a good rare/mythic but that's just their fault. Sometimes it's not even the bot's owner doing it on purpose but more of bad bot management.

I do think trading in MTGO could improve a lot. Sometimes trading is slow and clunky and it would be great if mtgo offered a way for anyone to set automatic trading so having an outside bot would be irrelevant or maybe just a small advantage with more options. But at least splitting the classifieds in selling and buying would be an easy and helpful change.

But in the state things are right now, bots are pretty important. Humans can't keep track of fractional tix so usually it's better to sell stuff to bots (and it's way faster). Booster are usually in a price that it's impossible to get a better price from other players (unless you sell/buy 7 or 8 and that gets you a value between bots sell/buy). Obviously bots take advantage of this sometimes buying for 3.01 or selling for 2.99 and avoiding prices allow people to make better deals between themselves but it's business and they make sure you can find any card you might need fast and a fast way to cash out if you need to.

Khans Planeswalkers... by Fred1160 at Wed, 02/11/2015 - 10:10
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I've seen Sorin cropping up in some Modern decklists. He makes dudes and he has a decent +1 and ultimate. I've never seen Sarkhan get much play period. I think Sorin has potential and is worth grabbing if the price is good.