Second Life Currency Trading

14 Apr

Here’s a currency you’re not likely to see offered by your forex broker any time soon: the Linden Dollar, the official currency of Second Life, an online virtual world with hundreds of thousands of members and an economy that’s growing by over 10% a month.

Named after Linden Lab, the company that developed Second Life, the Linden Dollar is completely exchangeable with the US Dollar at a rate of around 280 LDs to one USD. Currently over $500,000 in transactions (in USD) occur on Second Life every day as members buy virtual cars, real estate, gadgets, and just about anything else you can find in the real world, as well as a lot of things you can’t: your very own ninja avatar, for instance.

Second Life is in many ways like its own country, albeit one without borders as they’re typically understood, and its currency is as tradeable as that of any other small market economy’s – say, New Zealand’s. But since it’s not a foreign country, but rather a virtual one, “forex” probably isn’t the best term for such trading. Instead, the name that’s been coined for it is “LindeX”. You can currently trade Linden Dollars at the Second Life Currency Exchange (you’ll need a Second Life login) and at SL Exchange, where you can check out a LindeX price chart, place buy and sell orders, and view daily high, low, and volume data. Here’s their latest LindeX market data for the US Dollar/Linden Dollar pair:

Bid/Ask: 280.3/261.9
Daily High: 289.1
Daily Low: 260.7
Daily Volume: 573,256

What you can’t get at SL Exchange is the type of leveraged trading account typically offered by forex brokers. So that’s strike one against a career in LindeX trading. Off the top of my head, the other strikes (and there are many) include: a high spread, low liquidity, no interest rates and therefore no carry trade opportunities, no regulatory oversight (actually that’s not so different from forex, is it?), no Fed, complete dependence on the solvency of Linden Lab, and probably about a dozen other things I’d be aware of if I actually spent time playing in Second Life.

But all that aside, LindeX still offers a fascinating look into a thriving virtual economy and the currency it relies on. So just to speculate a little bit, what might move this currency dramatically? Are there events comparable to Non-Farm Payroll reports and inflation comments from the Fed Open Market Committee? If I had to guess, I’d say:

* Reports on the financial condition of Linden Lab
* Rumors of acquisition of Linden Lab
* Incidents of hacking or other security breaches
* Technical issues like server crashes (though these might shut the market down entirely)
* A real estate boom or bust: much of the Second Life economy involves the buying and selling of virtual real estate and so it heavily skews the economy as a whole. (Sound familiar?)
* An abrupt spike or drop in population following positive or negative publicity

For now I’m happy to sit on the sidelines and observe the evolution of this entirely digital economy and its markets. But who knows, maybe someday when Second Life’s GDP exceeds that of Canada’s and Oanda decides to offer trading in Linden Dollars I’ll try placing a few trades. In a demo account, of course.

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