Sunday, December 21, 2008

Risks and Rewards of Runescape Merchants

Every time some big ticket item's price reverses its course, every big Runescape forum sprouts new topics about "lowly merchants", "pump and dump schemes" and "how merchants ruin the game for honest players". It's so repetitive that it is not even funny. If anything, it is sad and pathetic. People who never really made an effort to understand Runescape merchanting are eager to bash it and use merchants as scapegoats for their own inability to make desirable amount of money within the game.

First of all, it is a huge (yet common) misconception, that Runescape Merchants make most of their money by trading big ticket items and/or participating in "pump and dump schemes". While I can't deny that there are people and clans involved in "pump and dump" (I personally don't), I would still claim that vast majority of money made from merchanting in Runescape is made through "intraday" or "0-1 cycle" transactions which involve medium price items or even commodities. These transactions go completely unnoticed by the general Runescape population, but to Runescape merchants they provide stable low risk/high profit results. I wrote about it earlier this year and I can confirm that nothing has really changed since then. The items I trade has changed, their prices has changes, Jagex put more restrictions on volumes but I still get my average 1.5-2M a day quite easily spending no more that 10 minutes on swapping orders. And I am sure I could at least double the returns by merchanting more aggressively.

Now let's go back to the notorious big ticket items trades. Players who try to merchant these items put a lot of money at stake and, if they make just a little timing mistake, they may end up with huge losses. But at the same time if they predict the price movements just right, the rewards could be quite substantial. I want to show you one example which illustrates how risky and yet how profitable such trades might be.

Let's look at the most recently added big ticket item - Dragon Platebody (well, of course). The plates were released along with the While Guthix Sleeps quest and possibility to obtain them was tied to this most challenging quest. The initial price tag was set high and it spiked even more during the next few days (up to 39M). Then it was discovered that it was possible to get pieces of the dragon armor from Tormented Demons as well as realization of plate "not as superior" stats settled in. The price plummeted and went all the way down to 10-12M in two weeks. All this time there was no way to merchant this item, but Runescape merchants were waiting and pondering on a question where was the turning point. This is always the most important question. You have to buy the item while it is still on decline (thus taking a risk of stepping in too early). Jump in a day later and you won't get any profit. Jump in two days later and you loose huge money. Fortunately for me, Tim made very good prediction about the turning point and I trusted his judgment: I bought 7 Dragon Plates for 10.4M each (still during the decline at the minimum price). The very next day the price flattened and it was not possible to buy more for minimum or even medium, so I added 5 more plates for 12M each. Then the price went up and I was selling 1 plate per day trying to catch the inevitable turning point. I sold 1 plate for 13.5M, then another for 14.3M (both for maximum price). Then I missed a day and when I came back to the game, the turning point was already reached! I couldn't sell the remaining 10 plates even for minimum. One day passed, then another. Finally I sold 6 plates for 12.7M and remaining 4 for 12.1M. So...

  • Average cost per plate: 11.125M (total 133.5M).
  • Average return per plate: 12.7M (total 152.4M).
I ended up with 18.9M of pure profit (mostly thanks to Tim clue for the entry point and my trust in his prediction).

Now let's look at 3 alternative scenarios, all three of them very possible and could have happened to me during this trade.

Scenario 1
I could be less greedy and sell 11 plates at 14.3M mark.
The profit would be very good: 33.7M !!! Almost twice as much as I really got!

Scenario 2
I could decide to check Tim's prediction by waiting one extra day before entering. In this case I would buy all of my plates for 12M each.
The profit would be: 8.4M. Not bad, but not very good either considering the risks.

Scenario 3
Finally, if I would wait yet another day for the price to turn before entering the trade, I would have to buy the plates for something like 13.1M.
Then I would have LOST: 4.8M

And let's not even talk about possibility of buying the plates just before they started to move back down (hoping that the upside move wasn't over).

So what does this example show? The point I am trying to make that even for experienced Runescape merchants big ticket items trades are always very risky. In this particular trade I could have ended up with a loss of 4.8M, or profit up to 33.7M. And, frankly, both possibilities were equally likely. I was simply fortunate to end up with profit.

So, when players are moaning about merchants making it difficult to buy big ticket items and thus ruining the game, they don't have a clue about what is really going on and what they are talking about. And ignorance, by all means, is not a virtue.


Timothy Gold said...

Nicely done, Vaskor!

Jagex is looking into improving the appearance of the Dragon Platebody. If they succeed, we could expect yet another price jump. Perhaps this is something you could take advantage of?

Personally, I'm not through with the D platebody market just yet ;-)

Vaskor said...

I am not sure I want to risk it again , but we'll see :-)

G said...

Thanks for the detailed explanation for those (me) who don't get merchanting!

I personally don't bother with it, but I'll be the first to say that's its purely because I don't 'get it.'

Anonymous said...

another good way to make money is mine iron. its at least 89gp each. that mean that 1 load of iron is 2.4k and 2.4k x 100 = 240,000
that would also mean that 1k iron would equal around 2.4k x 1000 = 2400000(2.4mil) and imagin what you could do if you get 5k or 10k iron. lets calculate.
2.4k x 5000 = 120000000(120m)w00t
2.4k x 10000 = 240000000(240m)in other word holy $#!* best way is to keep track of how many loads you have with a open text doc. and to also not talk to anyone cuz iron goes fast and u gotta stay focused. it takes about 3-4 days to get 120m. have fun!!

Anonymous said...

To the 'iron miner' above

You need a better calculator. Those number do not add up lol.

Anonymous said...

Please let me know if you're looking for a writer for your weblog. You have some really great posts and I feel I would be a good asset. If you ever want to take some of the load off, I'd
love to write some articles for your blog in exchange for a link back to mine.
Please shoot me an e-mail if interested. Cheers!

Check out my site: Cat Fun Video

2006-2009 RuneWise, all rights reserved.
Reproducing or copying any material found on this page is not allowed.
Runescape is a trademark of Jagex 2000-2009 Andrew Gower