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Great Question on Big Profit Margins

"Hi Markco,


Love your blog, your tips have been very helpful and I'm now a novice TP trader.

I have a couple of questions about things I noticed the past few days while browsing the TP.  It'd be great if you could help answer any one of them if you have the time.

1) Do you think items that have very low supply and/or demand are worth playing?  Sometimes I see items with massive margins between buy and sell price, like 4x or more, but both supply and demand are very low so I can't tell if I'll ever get any or if anyone would buy it if I got one of those items.

2) On a similar note, sometimes I find a relatively normal item in terms of supply and demand, with a difference greater than 2x.  I get very excited at first, but then I'm not sure how to take advantage of this to the fullest.  If I try to buy too many or sell too many, I'm afraid it will attract attention and it will collapse.  But I don't want to sit at the margins either (undercutting by only a few copper) because others might discover it and undercut me or I'll have to wait a long time.  Should I undercut by a lot to get some profit before the opportunity dies?

3) How do taxes work on transactions that are very small, such as for mats where sometimes the difference between buy and sell is only 1c or so?  Can you still make a profit from flipping items like that?  It's one of the reasons I've only been flipping items that are worth at least a few silver, but then I don't get high volumes.

Thank you for your time!"
This is a terrific email. Great questions by someone who claims to be a novice for sure.
1. Yes, items with low supply/low demand are indeed worth playing. But the way you play these is far different from other markets I've shown on this blog. Like the gold guide strategy that has been so popular amongst visitors here.

Basically, in a word: you need to be less greedy. Instead of undercutting by a copper when you go to sell, you need to undercut by like 50%. So let's say you have an exotic pistol that is being bid on for 1 gold and the lowest sell order is 10 gold. Instead of listing at 9 gold, 99 silver, you should be listing at 5 gold. The truth is that demand is not strong enough for someone to spend so much gold on this item, but if you provide the handful of people who want this item with a great deal, then you will sell off quickly.

2. You can't attract attention by trading in that market. If anything, you will reduce the profit margins from your under and over cutting buy and sale orders. The way to attract attention is to buy like crazy at the lowest sale order, which isn't something you're going to do if you want to actually make any gold. So play on! But maybe undercut more than 1 copper in order to ensure faster sales and less competition.

3. It's the same, but I believe that fees per transaction or cancellation are a minimum of 1 copper. So if you sell for 2 copper, or cancel a 2 copper listing, you will always lose 1 copper in either scenario. Not trust me 100% on that but that's what I believe is happening. Maybe someone else can shine light on this question?

3 comments:

  1. The Black Lion said...:

    In regards to markco's answer to question 1, yes of course you should always be on the look out for new markets to invest in!

    A low supply/demand can work in your favour, sometimes even allowing you to have complete control over the market prices if the supply is low enough. If the item is rare or newly added then it may be the case that not many people know about it. (you can find these here: http://www.gw2tp.net/items/latest)

    For example, "Apothecary's Destroyer Maul". was recently added to the trading post with a buy price for 50 gold and only 4 buy orders. If this is the case, you have several options:

    1) follow markco's advice and list the weapon for for 25 gold (50% undercut)
    2) Wait for the market to adapt as more buyer's place offers
    3) Undercut by 10% and list the item for 45 gold
    3.5) Vendor the item, why risk it!


  1. Staisman said...:

    I don't agree with 50% undercut either, putting lower on 50% killing a market, unless you are not planning on doing it again. So if it's one time sale and you need money right now, that's fine.

  1. fireboytroy said...:

    On #1.
    The 50% under cut makes perfect sense. The reason most of these markets have such huge profit margins at these times is that they don't have enough supply and demand to have stabilized. If you look at any number of items in the gw2spidy and look at their longest term history, you'll see they always start with a wide profit margin that rapidly closes as more buy and sell orders are listed. Part of the reason is that the original sell listings are much higher than anybody is really willing to buy the product for, so the people who are planning on flipping as well as the people who want the item are placing buy orders. As the price continually gets under cut and still not sold, and more buy orders are constantly being placed than are being fulfilled (because nobody wants the item at the listed price), you'll see the profit margins narrow on the graph rapidly at first and then slowly over time. Also though if you look at half the graphs, you'll notice that they usually have a deep valley in the sell price that, where it rapidly drops in price and then jumps right back up to the original price. These are the deep undercuts that we are talking about, and as you can see, they sell almost immediately, where everybody else's items stay indefinitely.

    On #3.
    Making profit on the super cheap. Okay, so it is possible to make a profit on something that buys and sells at say 2 and 3 copper respectively, but it is also risky. Here's how it works. In order to make a profit, you have to be absolutely positive you can move a lot of said item, say at least 200. You place a buy order for 200 of said item at 2 coppper (tax free at this point). then list it all at once (the listing fee is calculated per listing, not per item at price, so 200 items at 3 copper would be a listing at 600 copper (6 silver), so the listing fee at 5% is 30 copper).
    Now here is the tricky part that you don't have control over. The sale's tax of 10% is calculated per transaction and at least 1 copper per transaction. So if your entire stock is bought by two players who each buy a 100 of your item at once your tax will be (3 * 100 * .1), 30 copper per transaction, totalling a tax of 60 copper to clear your stock. Adding that with your listing fee of 30 copper, and you've made a handy profit of 110 copper (with a tax free profit margin of 200 copper, remember?). Let's now look at the worst case scenario. You sell all 200 of your item, but to 200 hundred unique players whom each only wanted one. Each transaction will be 10% of 3 copper rounded up to 1 copper, and so now you've paid 200 copper (2 silver) in sales tax, plus your 30 copper listing fee, for a net loss of 30 copper. So in order to make money on these narrow margin markets, you need to be sure that you're in a market that people will be buying from in bulk. Markets such as beginner craft mats, often meet these requirements, and with such huge supply and demand and prices both just above the vendor price, make them indefinitely profitable regardless of how many people get into them, so I have no qualms about sharing this tip with the masses, as the market in this case is impossible to ruin with over speculation, as the prices are already rock bottom, and with more players, it will likely just increase the time on profit, but won't eliminate it.

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