Over the past month, when I’ve had free moments here and there, I’ve been exploring virtual stock trading in Second Life. This article will provide a brief history of virtual trading in Second Life, a review of various virtual stock exchanges, and ideas for future trading development.

A brief chronology of Second Life Stock Exchanges

Second Life Solutions, Home of the Metaverse Stock Exchange, registered their DNS entry back on January 24, 2005. According to the Second Life Herald, they began trading on July 8, 2005. As of August 30th, their Global summary reports 885 members, 4,123 total trades for a total of 678,586 shares traded. They list a commission level based on trading volume, ranging from 1 to 3%. Over the past week, there have been no trades.

They have a legal disclaimer emphasizing that it is a virtual, and not a real stock exchange as part of a virtual game world, and that the

On January 13, 2007, the World Stock Exchange (WSE) was launched. An article in the Secondlife Newspaper details a special meeting of the World Stock Exchange, a month later. At the meeting, they discussed some of the issues they had as a startup and announced a merger between Metaverse Stock Exchange and World Stock Exchange.

In March, Wall Street and Technology had an article about WSE. IntLibber Brautigan, CEO of Brautigan and Tuck Holdings, (BNT) which was then listed on WSE provided corrections to the article and got into a discussion with another reader about the role of oversight of the virtual exchange.

By the end of April, the International Stock Exchange (ISE) issued a Press Release announcing that they were beginning trading in Second Life. The

On May 22, Your 2nd Place reported that Allenvest Investment Capital Opened the Allenvest International Exchange (AVIX). It was later bought out by JT Financial, and I’ve had no experience with what their exchange had been like.

On July 25th, Reuters reported that the World Stock Exchange hit by L$3.2 million theft. Over the coming days, there was considerable discussion about how to better regulate Second Life trading.

On August 4, the Second Life News Network (SLNN) reported that JT Financial had bought out the AVIX stock exchange. They rebranded the exchange as the Second Life Capital Exchante, (SLCAPEX) The following day, the Virtual Stock Exchange (VSTEX) announced its IPO.

On August 8th, Ginko Financial collapsed after the Second Life ban on gambling and a run on their bank. Ginko Financial was a bank and not a stock exchange. They had been paying interest annualized at around 44%, which was not sustainable. With their collapse, everyone’s account was converted into Ginko Perpetual Bonds (GPB) which were listed on WSE. This brought an influx of people into WSE and trading was particularly active for the following few days.

On August 20th, ISE implemented ‘Rule 144’ to provide additional transparency. Several companies delisted and moved to VSTEX. There were also allegations that a person ran of with L$ 150,000, but this was later resolved. Much of the discussion about Rule 144 and the L$ 150,000 can be found in this ISE press release.

State of the exchanges

As of August 30th 2007, WSE, listed sixty-seven stocks. As I am writing this, they have traded approximate 1.5 million shares over the last 24 hours, for a volume of approximately L$ 1 million. At current exchange rates, that translates to approximately $4,000 in U.S. currency. Like the Metaverse Stock Exchange, their terms of service notes the fictional aspect of the exchange. Their terms of service has many other caveats including lines like, “We may also in our sole discretion, and at any time, discontinue providing, temporarily or permanently, any or all of the web site, without notice” and “You may not reproduce, publish, translate, merge, sell, rent, distribute the content, or create a derivative work of the content on any other web site or as part of any educational, training or reference materials.” You cannot get to any information about stock prices without logging in, making efforts to extra content even more difficult.

SLCapex has 16 companies listed. They list their volume from 9 AM Eastern Time in the United States. Half way through the day, they have a volume of around one million shares and L$ 700,000.

ISE lists 11 securities. Their volume, on a 24 hour cycle is around 30,000 shares with an equivalent number of Linden Dollars traded.

VSTEX has gotten off to a good start with six companies listed. Over the past 24 hours, they have had around 160,000 shares traded with a value of approximately half a million Linden Dollars.

Personal experiences

I first started trading in Second Life when Ginko Finanical collapsed. I had a small amount deposited with Ginko and it got transferred into Ginko Perpetual Bonds on WSE. GPB is currently trading at about nineteen cents on the dollar.

When they were first listed, there was considerable volatility and I did a little day trading in GPB. It worked well, and for the following several weeks I continued to day trade other stocks on WSE. I still hold my original position in GPB, but am considering finally selling it off to use the funds for other day trading.

I was frustrated by the difficulty getting information in and out of WSE. I cut and pasted information from their trading screen into a spreadsheet I built. I used formulas there to implement my trading strategy and did a fair amount of trades. I have been keeping a log of values and trades. One of the biggest issues is that WSE seems to arbitrarily halt trading on various stocks. I currently have positions in two different stocks that I cannot trade.

Because of this, I’ve been moving more of my trading over to SLCapex. SLCapex has a very simple web services interface. I’ve used this to load data, which is much closer to tick data into an SQL database I maintain. It also provides a pseudo realtime ticker showing every time a bid or ask changes, or every time there is a sale.

As we move forward, I hope to be able to incorporate this into a real time trading system, perhaps even working with some of the event and stream processing systems I’ve been investigating in a different aspect of my life.

VSTEX is just getting going and their website seems to be changing daily. They do not yet appear to have any good analysis tools like SLCapex does. I have traded a little using their in world Heads Up Display (HUD). It provides the basic functionality needed to trade, but to be effective, you really need to use their website. I also worry a bit about the companies that are listed there, since they seem to be companies that have fled disclosure rules. Hopefully VSTEX will have rigorous disclosure rules as well.

ISE provides great historical data. It would be nice if the other exchanges had such good data. However, they lack the sort of webservices interface that SLCapex has, so real time data analysis is a bit lacking. I am concerned about their long term viability given their low volume after all the issues this month.

All of the companies have different interfaces for disseminating news about companies listed. ISE provides an RSS feed of its news releases and the releases can be commented upon. They also have forums for different companies. SLCapex has forums as well, but no RSS feed that I can find. WSE provides an RSS feed of its news releases, but does not have forums or the ability to comment.

Moving forward

The exchanges are going to need to become more reliable concerning listing and delisting stocks. The disclosure rules will need to be more robust. Tools for gathering information, such as the webservices interface that SLCapEx provides, the historical data that ISE provides and the HUD that VSTEX provides will need to continue to evolve and become ubiquitous. It looks like Second Life Virtual Stock Trading is here to stay. So much so that Reuters reports that ”Nasdaq CEO Bob Greifeld said … he could imagine opening up a stock exchange in Second Life.”

As I have more time, I hope to provide additional details of my trading experiences in Second Life, reports of what is going on with companies, and information about tools that I’ve built and data that I’ve gathered. If you have questions or comments, please contact me, here on the blog, via email or in world, where I’m known as Aldon Huffhines.