Friday, January 17, 2014

Expanding Your Empire

I have given a lot of thought lately as to why I experienced such amazing profits relative to my liquid capital when I first started trading and how poorly those profits scaled with an increase in capital.  The principal seems sound: what I can do with 100 mil, I should be able to do twice as well with 200 mil.  Why was this seemingly extremely simple concept not translating from a sound idea on paper into a working theory in EVE?  I began to look at exactly what I had been doing to increase my involvement in the market as I grew in wealth and how I could change that to increase my profits and I believe I have figured it out.

Previously, the way I had increased my stake in the market was to increase my investing in a blanket fashion.  Whereas before, I might have been investing 10 mil an item into 10 items, I was now investing 20 mil an item into 10 items.  This pattern continued with slight variations; although I did invest in more items, I continuously put more ISK into the amount I was investing per item as my wealth increased.

That is the reason my profits were increasing at a snail's pace: the correct way to grow as a trader is not to increase amount invested per item, but rather amount of items invested in.

Had I gone from investing 10 mil an item into 10 items to 10 mil an item into 20 items, my profits would have approached, if not achieved, a level twice as high as they previously had been.  The reasoning behind this is simple, once you think about it: if it takes an hour to move 10 units of X at a profit of 1 mil/unit, and I have invested enough ISK to purchase 10 units of X, I should make 10 mil ISK/hour off of X.  If I invest enough ISK to purchase 20 units of X, I should still make 10 mil ISK/hour, but this time for 2 hours.  However, if I invest in 10 units of X and 10 units of a near-identical item Y, I should make 20 mil ISK/hour, 10 from X and 10 from Y.

Though it seems as though investing in double the amount of an item and then going twice as long between updating orders is a sound idea, you have to consider that the real world is not the perfect example I included above, and in reality, there are other people like you, sitting in a station, spinning their ship, and updating their orders to stay on top.  When you invest in an item, you are much more likely to be undercut than you are to have your order completely filled.  Each order I place on the market is generally undercut at least 10 times before being fulfilled completely.  By investing in more items, in addition to having the chance to make more ISK per time, you also have the opportunity to avoid being undercut; if you are trading in item X and you are undercut, you immediately lose the ability to profit, whereas if you are trading in X, Y, and Z, and X is undercut, you continue to profit off of Y and Z.

I have been practicing this method of expansion very stringently the past few days, but today I kicked it into overdrive, and the results were very satisfying.  Today alone, I went from about 2.65 bil to 2.85 bil, a profit of about 200 million ISK.  That's a return of about 7.5%, which isn't bad for one day's investing.  However, this practice comes with a price: with my skills, I have a maximum of 113 orders on the market at any given time.  For the majority of my trading today, I did not have more than 20 remaining orders available to me.  This level of expansion means that in the near future, I may be required to train up my skills in order to be able to make more market orders (or make another market alt to put in a different hub, or both).

All I know is, since beginning to use this strategy, I've noticed definite increases in my profits, so unless something changes in the future or I discover a better method, this is the method I will continue to use as I grow my empire, and it is the method I will recommend to others in their expansion as well.  Good luck increasing the size of your empire and fly safe o7

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