Two second concept: a stock market for collectibles.

The idea comes from this thread: http://forumserver.twoplustwo.com/30...011-a-1046960/

where people talked me out of selling cards on ebay and mentioned that I should work on a website with the code I'd developed instead. I did (www.mtgprice.com) and it's coming along very well - returning visitor numbers are up 20-40% a week every week for the last several months and I'd getting a lot of chatter from big players (including an offer for an exclusive deal which I've declined so far.)

Anyway, since I'm a finance MBA, I can't stand to see ridiculously inefficient markets (you mean the EMH isn't gospel?) and I've been mulling a larger site over the last several months.

Simply put, I want to create a stock market for collectibles. Right now, the main way to sell collectibles is to sell them on ebay or maybe amazon, or sell them to a dealer who will give you around 40% of retail. The transaction costs are huge, the market is illiquid and pricing information is often lacking. There are also lots of trust issues when trying to sell expensive things on ebay - it's far too easy (as a seller) to be scammed.

I want to build a market with a few key ideas behind it:

1. Realtime pricing information from many sources (I have this at mtgprice.com)
2. The ability to put in limit orders. This is the most important bit - I want to give people the ability to say "I will pay $100 for a mint condition babe ruth rookie card" and have the transaction happen immediately if someone has one for sale and is willing to part with it at that price.
3. I want to improve market liquidity by becoming a market maker - I'll buy and sell illiquid items with a spread that reflects liquidity.
4. I'll solve the trust issue by becoming the conduit through which trade flows. Essentially, I'll warehouse a collectible until it gets sold if there isn't a high enough price for it and then I will mail the items out to people (with insurance, tracking etc. if needed).
5. I'll allow people to short the market by letting people lend items to others with a daily vig.

Main user scenarios:

The user has $200 of cards to sell. They mail them to me and they are added to their account like stocks (to be clear, I'm talking fungible goods here like magic cards, not one-off items). They can then immediately sell them at the market rate (with me acting as a market maker if there are no other bidders) or they can simply hold the virtual representation of the item for a while and trade it later. (Or they can loan them to others for shorting purposes).

Another user has some cards they want to buy. The come to the site and simply buy at market rate then ask for delivery.

Another user knows some interesting information that will affect the price of a card (or other collectible) and places a limit order to buy at a particular price.

Other scenarios like stop losses etc.

Will offer options in the future. (pun intended, and unfunny.)

So - obvious risks of a market maker are there, as are issues with fakes. Can anyone see any other major issues?

My plan is to start with magic cards, build the market, then branch out to other card games, then move into any other collectible space where the items involved are non-unique (i.e. two sealed original edition star wars toy luke skywalkers in mint condition are roughly fungible). If condition matters, then all items in the came condition should be considered identical.

In terms of market size: the trading cards market is a couple of billion yearly and the collectibles market is absurd - something like 100 billion if simply talking about obvious stuff and much more if you add in antiques etc.

Also, any legal issues with the idea? I'm not dealing in securities so the SEC shouldn't get involved, right? And it's not gambling either, I think...

Finally, I will need investors/ an angel/ a bank loan to make this happen quickly enough. I think everything can be bootstrapped on $50k assuming I continue to work for free for the next year. Any advice on that would be appreciated.

Who is your targeted audience?

Don't some items have pretty varying quality? Will you split the markets based on quality?

Humorously, the largest Bitcoin exchange, MtGox, used to be Magic The Gathering Exchange. Yeah, I don't know why it wasn't MtGex.

Right now, anyone who wishes to buy and sell magic cards. Then any trading cards. Then pretty much any collectible.

But, importantly, I'm only going to deal with items that are pretty much identical to each other, like individual shares. If there aren't at least a thousand of the item in existence, I won't touch them for now. Additionally, nothing less than a dollar each.

I'm not sure I understand the concept, I have some cards so I sell them then post them to you? Or do I post them to you then you credit them to my account?

Also if postage is like rake I don't know how much that would kill things (I don't know anything about collectibles so might be insignificant, but you might want to consider postage insurance).

Also differences in the same card (damage for example). If someone posts a pristine card and gets a dented one back is this problematic?

Is the market not efficient enough already? Or is there really a demand for something more liquid? Is the market volatile enough to make this worth while/exciting enough or are price fluctuations very small?

So you want to start a pawn shop with small margins? Does not seem like a good idea to me.

The reason you can buy and sell stocks for almost no transaction costs is

1. All stocks are the same (my appl shares are the same as yours) and
2. No physical good changes hands.

Neither of these are true for collectibles which is why the market is so inefficient. Finding a buyer, shipping the product, valuating the good all take time and money.

If you have cards you mail them to us and when received, you will be paid whatever the market rate is for selling the cards. We will accept entire collections so this is a good way to sell off everything you own instead of trying to piece it out.

Buyers can place limit orders to buy a quantity of cards at a specific price. i.e. if I own a gaming store, I could say I was willing to buy 5 copies of card X for $11 each.

When a card is sent to us, the money goes into the sellers account. They can then withdraw it immediately or they can use it to trade with.

When a person buys a card, the same thing happens - we can mail it out to them, or they can keep it in their account and potentially sell it off later.

We also offer things like stop losses (if the card is kept in the account instead of withdrawing), shorting, market making, research, realtime graphing and historical analysis. i.e. all the stuff you expect from a stock market app.

In terms of postage, yes it's sucky but ultimately you are going to have to mail the cards to someone if you want to sell them. The goal is to make your transaction costs around 30% of what ebay charges.

You also get to sell everything immediately - no waiting for an auction to send. It's like ebay with people lined up to buy instantly - you can sell and have the money as soon as the cards reach us.

In terms of condition, I'm only dealing with homogenous cards where there are thousands of functionally identical copies. i.e. all mint condition cards of a specific type. (We will verify condition).

As for market efficiency - the market sucks right now. It's common to have a 200% spread between buy and sell prices when trying to sell an entire collection at once and often it's near-impossible to sell certain cards because the market is so illiquid.

Also, major news events can triple (or halve) the price within hours but ebay takes a long time to adjust since there are no limit orders - you need to wait for auctions to start failing to sell before you know to lower your prices. Yes, it's fairly exciting and volatile.

The idea is to build niche sites using a common platform with things like graphs and autocomplete words that are unique to the niche.

It's like ebay except:

1. Targeted market for collectors - each site is unique
2. Much lower fees
3. Has limit orders to buy at a specific price - you can sell and get money without waiting for someone to buy your auction.
4. Has stop-loss orders to sell at a specific price (assuming we hold the inventory)
5. Market maker - guaranteed purchase or sale.
6. You can short!
7. Shipping costs are massively reduced - everything sent to/from one location
8. Access to realtime and historical market information, graphs etc
9. Access to streaming news services about the niche
10. No listing fees, only fees when the transaction occurs and on withdrawal. The transaction fees can be very small if you keep everything in your account.

Not really (although I see the analogy and I'm glad you pointed it out.

What I want to do is open a commodities exchange for identical, fungible items in a specific niche. I only want to deal in items where there are many copies of the same item in essentially the same condition.

Additionally, I only want to deal with items that are cheap (< a few % of total cost) to ship within the united states.

Collectible card games fit this concept and, I hope, there may be other items that are similar - perhaps used videogames, virtual goods, sealed barbie dolls etc.

It's key that we are talking about a commodity however - I don't want to run a pawn shop or be an appraiser.

Also, to be clear: even with stocks, ultimately you can request a physical certificate (or request a book entry from the transfer agent). Almost no one does however, they just let their brokerage hold the item.

Commodities trading is probably a closer analogy however - almost everyone who trades commodities fails to take delivery. I'd guess that a single barrel of oil changes virtual hands 20 times or more before it gets delivered.

Why would you want to give someone the market price on their collection when they'll sell it to you for less than the market price?

If you know a cards price is going to triple, why would you tell people this? Wouldn't you make more money by buying all the under priced cards on the market and reselling them?

i think i get it. people can sell their cards to you directly, or simply "deposit" them in their account so that they can sell them at the market rate. if i buy something, i dont actually have to receive it, I can simply have it placed in my account so that i can sell it later.

i think its an interesting idea, i guess i just dont really know if there is a demand for it. i feel like these industries arent very technologically or financially sophisticated. do enough people really want to trade in this markets? i also think that its going to be really hard to guarantee quality, because it simply wont be consistent so they arent really commodities. with cards you could require that they are graded, but other than that it wont be easy and then if somebody takes delivery and disagrees, get ready for a big fight.

being a market maker in a really inefficient market like this is also really dangerous because you are have negative selection on all your trades; the buyers or sellers have more information than you and in such niche markets that edge can be huge.

if you can be more efficient and/or take advantage of information faster, then do it personally as a sort of arbitrage. i dont think there is a market for this sort of market.

Pretty much spot on.


The way I see it, there are four main groups:

1. People looking to cash out their entire collections because they are done with the game. They usually post on craigslist but it's hard to know if they are getting ripped off and the buyers pay them only around 40% of retail usually. I offer these people the ability to package everything up, send it in and get pretty close to the market rate for everything within 2 days.

2. Professional store owners who run hobby stores. There are literally thousands of these guys in the US. I can see them buying stock to sell in their retail stores by placing a limit order to buy certain cards when they are running low in their local stock. Then once a month, say, I just deliver them a big box of cards. They can also dump excess inventory.

3. Speculators. This is a growing segment of the market, and I think with good tools I can cause it to grow. These people usually don't take delivery. Their goal is to use their knowledge to buy (or sell) before the news of a card and then do the reverse when the market has adjusted.

4. Casual buyers and sellers. I think this group will be attracted by the knowledge that they can probably get the best deals from my site.





being a market maker in a really inefficient market like this is also really dangerous because you are have negative selection on all your trades; the buyers or sellers have more information than you and in such niche markets that edge can be huge.

if you can be more efficient and/or take advantage of information faster, then do it personally as a sort of arbitrage. i dont think there is a market for this sort of market.

Cool idea Sharpie, You may want to check out this site.

http://www.thepit.com/

Awesome! Thank you I had never seen that before - it's funny how similar it is to the idea I mentioned (another demonstration of the concept that ideas don't matter - execution does).

This is pretty much exactly what I want to build but for other niche markets. It's good to see that someone else is doing something similar actually - it makes it clear that it's a potentially viable business.

Ok I think I get it! Theoretically I could put $1k on your site, buy 100 of the same card for $10 each and have them held in my account safely. I come back 1 year later and they might be worth more, I can either have you post them to me or I can sell them on the site. On top of this, you can add more complex dynamics like shorting the price of cards.

I quite like the idea, if the market is big/liquid enough (I get the feeling from your posts it is, but I don't know anything about it!)

Problems I see:
- Developing that type of site is going to be very expensive if you want to do it right
- Legal issues, this may require a difficult to obtain/expensive license. I have no idea, but it might if your classified as some sort of financial service provider.
- Secure storage of cards
- Insurance. Damaged cards in transit, fires in your storage, water damage, theft of cards etc. I'm not sure how much it would cost to say insure 10,000 cards worth on average $20 each.
- Forgeries (already noted by you)
- Disputes over condition of purchased/returned cards
- Safe insured postage as an expense that still allows people to use your service profitably
- Small transactions becoming overwhelming and sapping your time. If 90% of your customers provide on average $1 profit for you per month or whatever and they take up 99% of your time with requests to post single cards, receiving single cards in your inventory etc it could become very unprofitable and time consuming

Your liability is going to scale linearly with the sucess of your business. The more people you have using it, the more storage you will require, the more devastating something like a fire would be.

I wouldn't aim to create a big website for all niches, I would start in a localised area like you know (MTG cards) with the other niches being a plan to scale in the future. Each niche probably comes with it's own set of problems, and I imagine some would be hard to predict/plan for. Stick to what you know, make a success of it then scale it.