Scalping Next-Gen Tech Products on eBay Has Generated $40 Million in Total Profit

[Blade of Grass]

1 hour ago, SpaceGhostC2C said:

It actually applies one-to-one to "scalpers" as applied in the context of consoles or GPUs.

My point was that the market themselves are not really comparable. There’s so many difference between the two the comparison quite truly falls apart. 

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Well, imagine a stock exchange where Apple comes and announce a new issuance of shares at $40 per share (or, for an even closer example, some shareholder with 1% of the company announces it is selling at that price), what would happen? The algorithms you are talking about would perform the exact same arbitrage as in the current consumer electronics markets. "Scalping" arbitrage opportunities, even if only for a few seconds, is the main job of everyone at a hedge fund.

I mean it isn’t really the main job of everyone at a hedge fund, more likely at a market making/Prop trading firm, but they’re again probably not even doing that and instead doing stat arb.
It’s funny that you bring up large-block trades, those actually suppress share prices, so anyone doing that employs trading strategies to unwind without showing their hand. They use a number of algorithm strategies like VWAP, TWAP, POV to try and have the least impact on prices. 
The closest you might get is talking about IPO allocations, but demonstrably those are not efficient, otherwise they wouldn’t consistent lead to a precipitous drop as the market discovers the correct price. 

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The reason why you don't see phenomena of comparable magnitude (in terms of price differentials; in terms of gross volumes and gross profits it's much, much higher than what you see in consoles or GPUs) in financial markets is because it's inconceivable that someone representing such a large share of a market as Nvidia represents for its own GPUs and publicly announce it will sell the asset at a severely below-market price. The situation everyone is complaining about is a direct result of the huge inefficiencies in the consumer electronics markets, on of the most important being the absolute lack of an atomized and competitive market

I don’t disagree that the consumer electronics market is inefficient, but your reasoning is not very sound in my opinion. The reason why you see such small spreads in exchange traded market (especially equities) is largely because of liquidity being available. Exchange traded products are as efficient as they are because they aggregate supply/demand effectively and they have participants who’s jobs it is to keep liquidity flowing (Designated Market Makers). 

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In a truly functioning competitive market, the equilibrium price is what it is, and if it's that high compared to the cost it sends the signal to produce more consoles, leading to more manufacturing, increasing demand for console inputs and potentially also their price, which leads to a higher production of inputs, and eventually if some input is fixed then it becomes more expensive, reflecting its value to society.

The profit margin on a product doesn’t dictate the supply. 

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But here almost every deal is a direct B2B deal outside of any market, there are barely 2 or 3 players in almost every link of the chain and their production and input pricing plans are too rigid for any meaningful response to price signals. So it's either the manufacturers making abnormal profits, or for long-term PR reasons passing it on to arbitrageurs ("scalpers"), who replace the rationing lottery with efficient market allocation (yes, market clearing is en essential part of market efficiency, and the market economy is founded on the principle that allocating goods to the highest bidder is the efficient thing to do - something "scalpers" achieve but MSRP does not). We are basically facing capitalist corporations handing us soviet rationing coupons...

I’m not disputing that market clearing is part of an efficient market, just that in this case it is not actually beneficial to the market participants. Market efficiency != good for the participants, there’s many examples of this, financial globalization being one of them. 

[SpaceGhostC2C]

6 hours ago, Blade of Grass said:

My point was that the market themselves are not really comparable. There’s so many difference between the two the comparison quite truly falls apart. 

While I fully agree that they are very different, that doesn't negate the similar role that bots play.

6 hours ago, Blade of Grass said:

I mean it isn’t really the main job of everyone at a hedge fund

It was the main job of everyone I met working at one.

6 hours ago, Blade of Grass said:

 more likely at a market making/Prop trading firm,

kind of, if we're talking strictly price, but people at hedge funds were looking for arbitrage on prices adjusted by risk (i.e., products that weren't paying what their private models suggested in tail events, then buying / shorting accordingly).

6 hours ago, Blade of Grass said:

It’s funny that you bring up large-block trades, those actually suppress share prices, so anyone doing that employs trading strategies to unwind without showing their hand. They use a number of algorithm strategies like VWAP, TWAP, POV to try and have the least impact on prices. 
The closest you might get is talking about IPO allocations, but demonstrably those are not efficient, otherwise they wouldn’t consistent lead to a precipitous drop as the market discovers the correct price. 

I don't really understand what you are trying to say. Everything you state here confirms that, in the financial markets in question, prices emerge from market forces, not a company announcement oblivious to them.

 

6 hours ago, Blade of Grass said:

I don’t disagree that the consumer electronics market is inefficient, but your reasoning is not very sound in my opinion. The reason why you see such small spreads in exchange traded market (especially equities) is largely because of liquidity being available.

In turn, I don't find "liquidity being available" very sound, to be honest  Liquidity is a property of a market, not something "available", but I digress, so let's focus on what you mean: the reason why there are no arbitrage opportunities is because there are market participants with available liquid resources to immediate arbitrage away any mispricing. That's what "scalpers" are: people with enough cash to jump on mispriced items.

 

6 hours ago, Blade of Grass said:

The profit margin on a product doesn’t dictate the supply. 

Wot? Have you seen a supply curve? Do you know why it's upward sloping?  

 

6 hours ago, Blade of Grass said:

I’m not disputing that market clearing is part of an efficient market, just that in this case it is not actually beneficial to the market participants. Market efficiency != good for the participants, there’s many examples of this, financial globalization being one of them. 

Well, here you are going in a very subjective tangent, so I won't try to argue with it. Instead, I think I should use the "blog" feature of this forum to make a post about the "scalping" debate this at some point, take a more expositive approach  

[Blade of Grass]

1 hour ago, SpaceGhostC2C said:

While I fully agree that they are very different, that doesn't negate the similar role that bots play.

I guess perhaps on price they try to perform a similar role, but bots in the stock market do more than just provide price discovery.

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It was the main job of everyone I met working at one.

Funds differ significantly, so it can be a bit hard to generalize, but the traditional thing that people think of as a hedge fund is a long/short fund.
But you’re right, some hedge funds do run quantitative portfolios which do stuff like stat arb.

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kind of, if we're talking strictly price, but people at hedge funds were looking for arbitrage on prices adjusted by risk (i.e., products that weren't paying what their private models suggested in tail events, then buying / shorting accordingly).

It sounds like you're talking about alpha generating models, which is different from arbitrage. Arbitrage is only arbitrage if it’s guaranteed. What you’re talking about is using models to take highly specific directional bets that have high risk-adjusted return (i.e. high Sharpe ratio). 
An example of arbitrage in finance would be buying a convertible bond that converts to more $ worth of shares, you have guaranteed return by doing it. 

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I don't really understand what you are trying to say. Everything you state here confirms that, in the financial markets in question, prices emerge from market forces, not a company announcement oblivious to them.

Sorry if I was unclear, I just meant to highlight the price discovery that happens in exchange traded markets to be quite different. The example of a large block of stock being sold in the stock market is quite different from a company releasing a new product, as evidenced by the price impact they have. 

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In turn, I don't find "liquidity being available" very sound, to be honest  Liquidity is a property of a market, not something "available", but I digress, so let's focus on what you mean: the reason why there are no arbitrage opportunities is because there are market participants with available liquid resources to immediate arbitrage away any mispricing. That's what "scalpers" are: people with enough cash to jump on mispriced items.

Liquidity certainly is something “available” in a market. We see this all the time—liquidity takers and liquidity providers are two concepts crucial to market making, exchanges even pay you to provide liquidity, reverse markets pay you to take liquidity.  Again arbitrage is the wrong word here, with no guarantee it is not arbitrage. 

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Wot? Have you seen a supply curve? Do you know why it's upward sloping?  

I have taken Econ 101  margin doesn’t dictate supply though, it needs to be in equilibrium with demand. To go on another tangent, this is one of my gripes with a lot of the basic economic theories, they’re only applicable in specific circumstances and have certain preconditions that don’t exist in a lot of market cases, do you think the PS5 market meets the preconditions to apply the law of supply and demand? They also have some great assumptions about everyone having perfect information and humans being rational, yuck. 

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Well, here you are going in a very subjective tangent, so I won't try to argue with it. Instead, I think I should use the "blog" feature of this forum to make a post about the "scalping" debate this at some point, take a more expositive approach  

Yes, I was trying to make a very specific point in my post about it. DM me if you write a blog, I’d be interested to read/discuss  

Edited December 15, 2020 by Blade of Grass
corrected a point about alpha generating models and arbitrage

[Jeppes]

Tax the profit and lower the amount of gpus you can sell to be considered a consumer. Professional scalpers should be sued for vat frauds in EU as they only pay those on the store price.

[SpaceGhostC2C]

3 hours ago, Blade of Grass said:

It sounds like you're talking about alpha generating models, which is different from arbitrage. Arbitrage is only arbitrage if it’s guaranteed. What you’re talking about is using models to take highly specific directional bets that have high risk-adjusted return (i.e. high Sharpe ratio). 

Fair enough, yes.

3 hours ago, Blade of Grass said:

Sorry if I was unclear, I just meant to highlight the price discovery that happens in exchange traded markets to be quite different. The example of a large block of stock being sold in the stock market is quite different from a company releasing a new product, as evidenced by the price impact they have. 

Yeah, in the end one would have to kind of engineer a detailed specific situation to make an example that overcomes the differences between markets. I don't intend to push an analogy beyond automated tools exacerbating market forces (you can do what both trading bots and scalping bots do on your own, and people did for a while, you're just much less efficient than them).

 

3 hours ago, Blade of Grass said:

Liquidity certainly is something “available” in a market. We see this all the time—liquidity takers and liquidity providers are two concepts crucial to market making, exchanges even pay you to provide liquidity, reverse markets pay you to take liquidity.  

 

That's more like market slang, though  

3 hours ago, Blade of Grass said:

Again arbitrage is the wrong word here, with no guarantee it is not arbitrage. 

 

I agree with you that what I described hedge funds doing isn't "arbitrage" strictly speaking, but I do think that scalp-prone situations, while not having a guaranteed return, have, or are perceived as having, a guaranteed positive return, and in the particular case of consoles/GPUs it is indeed arbitrage. I mean, yes, you could end up being the guy with the truckload of toilette paper and no way to sell it, so it's not "guaranteed", but almost nothing is to that extent 

 

3 hours ago, Blade of Grass said:

I have taken Econ 101  

I was sure of it, and being hyperbolic  

3 hours ago, Blade of Grass said:

margin doesn’t dictate supply though, it needs to be in equilibrium with demand.

Now you are conflating two things: in equilibrium, there will be an equilibrium supplied quantity, that matches demand. I mean, unless we discuss GPUs and consoles  But why supply and demand meet at one point and not another? That's based on the slope of each curve, and those slops depend on the marginal utility of the (marginal) consumer, and the marginal profit of the (marginal) supplier. In a perfectly competitive market, profits are zero, so the supply curve is purely driven by marginal costs. But in less competitive environments it will deviate from that.

Hence, movements along the supply curve are dictated by how profitable producing/supplying each quantity is.

3 hours ago, Blade of Grass said:

To go on another tangent, this is one of my gripes with a lot of the basic economic theories, they’re only applicable in specific circumstances and have certain preconditions that don’t exist in a lot of market cases, do you think the PS5 market meets the preconditions to apply the law of supply and demand? 

Yes. "The law of supply and demand" is just shorthand for market forces, and those are always at play, and emerge everywhere even against the will of institutions, corporations, people. However, "perfectly competitive markets" is not something you see that often, and different market structures (monopoly, perfect competition, monopolistic competition) are (like any model, from a map of your neighborhood to Bohr's atom model) just stylized approximations to what we may find in the wild. You never use a model because it's real, or even "realistic", but only because it's useful, and many simple models are enough to understand and highlight the role of certain forces  

 

[kewtz]

On 12/10/2020 at 9:20 PM, xtroria said:

It’s a simple supply and demand condition

 

People are still buying despite the jacked up price, so there’s simply no reason to lower the price

This.

This x 100.

 

Everyone, this is capitalism. This is a prime example of demand driven economy.

I have something, you want it and are willing to pay X.

Whatever the X is equals the market value of the item which may not be the MSRP. In fact, it's quite higher.

However people are willing to pay it. If people are willing to pay it, is it really a problem? No, not really.

[jagdtigger]

14 hours ago, weez said:

nothing is going to stop them

Tx agency boning scalpers for the missed tax revenue definitely could, highly doubt scalpers paying tax after their  sales......

[Roswell]

It's funny how outraged kids get when they get their first dose of supply and demand. All of a sudden the government, retailers and everyone else under the sun must get involved to fight the resellers!

 

Uh, no. That's not how any of this works.