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INTRODUCING IDEAL GEMTRADER
Welcome, one and all, to Ideal GemTrader, the world’s first simulated gemstone trading game. That’s right, you (yes, you, sitting there in your underwear) can trade virtual gemstones from the comfort of your home and become the world’s first gemstone millionaire. Or the second, or the third — heck, let’s create a whole bunch of gemstone millionaires!
Addressing the obvious question right from the start: why in the world would anyone design a simulated gemstone trading game? Good question. At first glance, it might seem pretty random. The primary reason is that I’m psychotic and need professional help. And while there are kernels of truth in that, the real reason is this: I studied the foreign exchange (forex) market for years, and observed nuances in the price movements that most people don’t pick up on.
Along with the eight majors (British pound sterling (GBP), Euro (EUR), American dollar (USD), Swiss franc (CHF), Canadian dollar (CAD), Australian dollar (AUD), New Zealand dollar (NZD), Japanese yen (JPY)), I followed my curiosity into studying many of the obscure national currencies, the ones that nobody trades (“what, you’re saying that Madagascar has their own currency?”). I found that there is an underlying balance and symmetry to the currency movements that is, if allowed to function independently, beautiful. Yes, I’m saying that numerical movements are beautiful. Ahh, there’s the psychosis…
[And yes, Madagascar has their own currency.]
Now, before you send me for a check-up from the neck up, to quote the immortal Austin Powers, “allow myself to introduce … myself”. I’ve studied advanced behavioral statistics as well as sports statistics. And what I’ve found is that the currency market is no different. Numbers reflecting movement, trends and patterns are similar regardless of the system they’re embedded in. This is due to the fact that they are measuring either behavior or natural phenomena. Numbers embedded in systems, you could say, take on a life of their own. Even numbers that aren’t embedded in systems can take on a life of their own. Do you remember the scene from “I, Robot” where the discarded robots huddle together in boxcars? Numbers are like that. Objectively, they shouldn’t show signs of life or consciousness, and yet they do. I’ve always been fascinated by numbers and stats, and have created sports simulations based on realistically predictive patterns and algorithms (see Ideal Sports / Ideal College Football).
I mentioned previously about the currency market being allowed to function independently. What in bloody blazes did I mean by that? Put simply and bluntly, there are large institutional players who affect the currency market – all markets – dramatically. These institutions have an outsized influence on markets precisely because they have access to information and technology that the average trader does not have. This is anathema to true capitalism, which asserts/implies that everyone has the same access to these resources, thus having the same access to opportunity. However, this is not the reality on the ground, as we know. Insider information and high-speed machine trading of various sorts serves to keep the well-connected wealthy (see Wall Street Wolves Have Turned On Each Other for a scathing indictment, as well as Dark Pools: Rise of the Machine Traders), while effectively shutting out all but the most intrepid day traders. The wealthy and well-connected have been able to effectively game the system for centuries. What’s so fair and competitive about that (he asked rhetorically)?
So, I got to thinking (which I’m known to do from time to time), what would a gemstone trading market look like? How would it function? Free to operate according to what I like to call the “physics of the market” (ie an even playing field for everyone), how would it evolve? What would it look like after years of price movements? What types of patterns would emerge? Would any patterns emerge? A lot of questions here, Sparky, let’s get some answers.
PREMISE OF IDEAL GEMTRADER
Ideal GemTrader is going to function a bit differently than standard commodity markets you may be accustomed to. In these markets, you buy and sell single commodities. You buy steel or sell oranges, that sort of thing. And you do so based on information, patterns, history, precedent, intuition…..whatever your preferred trading methodology is. The commodities themselves are not necessarily connected with each other in any formal sense. With Ideal GemTrader the gemstones are traded against each other, in pairs. In this sense, it functions more as a currency market, where all pricelines are expressed as pairs. Instead of trading Euro vs Dollar, you’re trading Emerald vs Turquoise (as an example). Strength and weakness are relative to each pair, and to the entire set of possible pairs.
If you think Diamonds are going to be strong, then go long (buy) versus another stone that you think will be weak. If you think Sapphires are going to be weak, then go short (sell) versus another stone you think will be strong. You can trade Diamond vs Emerald, or Topaz vs Carnelian, or Opal vs Onyx, etc, etc. You can go long (buy) or short (sell), but you’re not buying or selling these gemstones in isolation. You’re always buying or selling one gemstone versus another. Capeesh? It’s important to understand this before reading further.
The trading in Ideal GemTrader itself will be fair and equitable. No one will have an artificial advantage over anyone else. All participants will have access to the same exact information at the same exact time. Perhaps we’ll set some type of precedent with this.
After much deliberation, here are the gemstones that will comprise Ideal GemTrader (in alphabetical order):
- Lapis Lazuli
- Rose Quartz
These 21 gemstones are going to be traded against each other every day for eternity. Or….most days for the foreseeable future. Or until I get bored and move on to something else. Whichever comes first.
And here is the list of all possible pairs in Ideal GemTrader.
“So, how is this actually going to work, GemTrader Dude? What are the nuts and bolts?” Glad you asked. I was just getting to that. I’ve set up mathematical algorithms that realistically mimic the real-world currency market. This, as I mentioned above, after years of intense study of said market. I’m going to use these principles and algorithms to simulate a gemstone trading paradigm. I’m going to trade each of these 21 stones against each other, in pairs, and post the results. Should be a blast.
So, the next issue is, how will we measure strength, ie performance? Because all gemstones will be traded in pairs, no one gemstone will have an absolute ‘market price’. Fear not, me laddies and lasses, ol’ Steve’s got an innovation for that. Because I’m all about innovation. It’s sort of my middle name. I’ve instituted a metric called the Power Index (PI). What the PI measures is each element’s (ie gemstone’s) relative strength/weakness for any given timeframe. This will be done for days, weeks, months, quarters and years. Nifty, eh?
Probably the best way to illustrate this is to simply roll this out. It should become clear. So, let’s get this colossus moving, shall we? As Ideal GemTrader takes shape, there will be an opportunity to actually trade live. That’s right, you’ll be able to make trades, develop your own trading style and perhaps make some money. And who doesn’t want to make money?
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