Over the past several weeks, I’ve been actively trading on the stock exchanges of Second Life and it seems as if this style of trading has broad implications for capital markets for small businesses.

Second Life is a three dimensional virtual world. Like other such worlds its own currency, yet unlike other such worlds, Second Life goes beyond the goal oriented game paradigm and allows users, often referred to as ‘residents’, to create whatever they can imagine and program.

One thing that has been imagined and programmed is stock exchanges. In a previous entry, I have provided a brief history of some of the Second Life Stock Exchanges. Theses exchanges, for the most part, are dependent on the Linden Dollar, the currency of Second Life.

The Linden Dollar is a fairly stable currency. There is an active exchange between Lindens and U.S. Dollars. Currently, they are trading around 265 Linden Dollars to U.S. Dollar and fifty to sixty million Linden dollars are exchanged each day.

Every resident receives fifty Linden dollars each week that they are active in Second Life. This money can be used for a variety of purposes. Some are basic to the functioning of Second Life. For example creating a new group, or uploading an image into Second Life costs Linden Dollars. Linden Dollars are also used for buying, selling, and renting property and objects in Second Life. Performers at live music events often have a tip jar where listeners can contribute to Linden dollars. Charities often hold fundraisers where people contribute Linden dollars. Others have used Linden dollars for things like gambling and virtual prostitution.

I have contributed to performers and charities in Second Life. I have bought objects that allow me to post to blogs on the web from inside of Second Life. I even bought a car from Toyota in Second Life. I have also stored money in a bank, the collapse of which brought me into the world of Second Life Trading.

Ginko Financial had ATMs around Second Life where you could deposit your Linden Dollars. They were returning a high rate of interest, approximately 44% annually. I placed a small amount of my free Linden dollars in Ginko Financial and when they collapsed , Ginko Financial’s deposits where transferred into Ginko Perpetual Bonds (GPB) which are traded on the World Stock Exchange (WSE).

Over the past month, I’ve executed over 150 trades on various Second Life Stock Exchanges for a total of over 12,000 Linden Dollars. I’ve earned over 1,200 Linden Dollars after spending over 150 Linden Dollars in commissions. Translated into U.S. dollars, my average trade was for thirty cents.

While the fifty cents in U.S. Dollars that I’ve spent on commissions isn’t a lot, if enough people trade, this can add up to a reasonable amount of money. Likewise, the four dollars in U.S. currency that I’ve earned isn’t something I can make a living off of, it is something that I can use to enhance my experiences in Second Life.

As I’ve researched the different companies that I’ve invested in, I find that they have capitalizations in U.S. dollars ranging from $500 to over $300,000. This can be a tad misleading, since many of the companies have significant insider holdings. Excluding the insider holdings, these capitalizations drop to the range of $300 to $26,000.

Many years ago, a friend of mine learned trading by trading pennies with an experienced Wall Street trader. The pennies that he lost were miniscule compared to the value of the education that he received trading. Likewise, the stock exchanges of Second Life provide an extremely valuable environment for individuals to trade and learn from the experience.

Years ago, my wife worked on setting up a brewpub. The brewpub’s capitalization was in the range of $200,000. It was a painful and onerous process recruiting investors. Some of this was because the minimum investment was in the hundreds of dollars and there was no active secondary market. Raising capital would have been orders of magnitude easier if individuals could easily have invested five dollars here and there, perhaps even at a bar, and been able to get out of those trades with similar ease.

Building upon the current trading environments of Second Life could provide valuable resources both for educators as well as for the small business community. It is time to take this trading to the next level.