Runescape Merchanting Guide


Table of Contents
Introduction
What to Merchant:
How to Merchant:
Hazards:
Other:

Investment Banks


Recently we have been getting a lot of emails from users asking us to comment on Runescape investment banks - whether they are safe, first and foremost, but also whether they are even useful? Below you will find our thoughts that may help guide your decision-making.

What are they?
Runescape investment banks are a phenomena that started appearing on Runescape forums recently. In their simplest form players lend gold coins (GP) to another player for a pre-established period of time, usually for a fee in the form of interest.

What do they do?
Chances are you've heard the phrase, "it takes money to make money," right? This is an underlying premise. Players lend startup capital to would-be merchants so as to help fund their merchanting endeavors. Increased capital translates into larger returns on investment. For instance, a modest 1% return on an investment of 500,000,000 gold coins is nearly 5,000,000 GP (5M), which is a whole lot more than the same 1% return on an investment of 500,000 coins, which is only 5k. Percentages are a very, very powerful tool. You can imagine then the allure of investment banks.

So to summarize, in a perfect world you take this money, you merchant for a bit (hopefully following our advice) and then turn a profit. You then reinvest all of your profits back into your next round of merchanting so that you have even more gold to invest with and earnings begin to compound. Once the agreed upon period of time lapses, you return the gold that you borrowed to the player who initiated the loan with additional interest and the deal is done.

How do I know I will get my money back?

And that is one of the problems though investment banks attempt to account for risk. Loaning money to experienced and competent merchants is typically not problematic. But you ought to be aware that you are loaning gold to (or receiving a loan from) another player; there is no guarantee that they will pay you back your original money, let alone any agreed upon fees. What this comes down to is not only player trust - will this player take my money and run - but also merchanting competence.

Remember: merchanting can be a high risk activity; some players can lose a lot of money very quickly. This is precisely where the interest (fee) comes into play. Interest is supposed to offset the risk that the lender assumes for lending another player the gold coins. In a rational market loans without collateral are extremely expensive.
(Take for instance, buying a house - if a homeowner stops making payments, the bank has something to repossess; cash advances on the other hand -- with nothing to repossess -- are high risk so lenders charge a very high interest rate.)
  • Lending: This side of the investment carries with it a greater risk profile. If you know someone well enough to make that decision it can be helpful to them and perhaps profitable for you; absent this it might be best to stick out the opportunity and invest in your own merchanting capability!
  • Borrowing: Borrowing money to invest is not the most ideal situation ever. It means that you must produce incredible results to make a profit for yourself (after paying someone else their percentage in the form of interest). Just like borrowing on a credit card to invest in Wall Street there are plenty of risk, but also potentially great rewards. More experienced merchants that are comfortable with their style and abilities can certainly use additional leverage. If that's the case. Go ahead.
In conclusion: if you are comfortable with the terms of the loan (the interest) as well as the player's merchanting knowledge, then an investment bank model should not be a problem. Just be weary of the fact that, as we've discussed previously, Runescape is not a prefect market. The only thing you can be assured of is your own capacities to success as a merchant. We would encourage you to invest in yourself and not in others.

But there is also something else to be consider. That is part II of the story.
 
© 2009-2013 GEUpdate.com|| All Rights Reserved. Runescape and all related indicia are the property of JAGeX Inc. | Legal