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Arbitrage, popularly called merchanting or merching, is the act of purchasing an item at a low price and then selling that item at a higher price to generate profit. It is a popular method used by wealthy players to make money. Merchanting became much less common after the addition of the Grand Exchange. With the addition of the Grand Exchange, it is no longer simple for merchants to act as an intermediary between players who seek to easily sell and players who seek to easily buy — the Grand Exchange replaced this. Modern merchants, however, have found ways to work with and around the Grand Exchange to make money, including: long term investments, time-based arbitrage, price manipulation, "Market Value" to "Street Value" arbitrage, and item conversion.
Types of Merchanting Edit
Players can make money through several methods:
- "Investing": This involves predicting an item's long-term price trend and then acting upon it. A player will buy as much as possible of an item when they think it is at a low point and sell it when they think it is reaching a high point. To make money with this method, players must accurately make a prediction as to how a future or current game update or other in-game event will affect item prices in the future. Investing is more profitable when the item has large changes in price, and safer when these changes are predictable.
- "Flipping": This involves buying items and then selling them at a slightly higher price in the short term, often immediately after buying or even while buying. The main difference from investing, which relies on price changes over time, is that flipping exploits the spread between pending buy orders and pending sell orders as the source of profit. The buy-sell spread is created by the diversity of buyers and sellers with varying degrees of patience. Flipping is more profitable when the item can be bought and sold within a large price range, and safer when the item has a high trade volume.
- "Bulk Quantity Flipping": This involves buying large quantities of an item with a stable price range of a few coins, then selling that item for a slightly higher price. The profit on each item is very small, often only a couple of gold each, but the massive quantity results in large profits. Large amounts of available cash are often required to perform Bulk Quantity Flipping, but can result in a higher profit than other merchanting methods.When bulk flipping, 20m or more is almost surely needed to make money faster than possible at common high level training areas.
How the Grand Exchange WorksEdit
Understanding the Grand Exchange is important to trading.
If an offer is placed in the Grand Exchange, the game will search for all offers meeting your price or better, and instantly completes those trades, using the price of the already existing offer. If an offer is not instantly completed, it will remain until a matching offer is entered or it is cancelled. Thus, all trades occurring in the Grand Exchange occur instantly for one person and not instantly for the other.
Free players can only have a maximum of two offers in the Grand Exchange at any time, while paying members can have a maximum of six offers.
Most items have a maximum quantity that can be bought every four hours. This limit was implemented by Jagex to prevent price manipulation. A full list of the maximum purchases can be seen here.
A common misconception about the Grand Exchange is attaching special meaning to the guide price. In reality, the guide price is the average price of yesterday's trades (provided that it is not more than 5% different from yesterday's guide price) and may no longer be relevant.
In general, items are always rising in price or falling in price. If an item is rising in price, an attempt to sell it for guide price will be instantly completed, and an attempt to buy for the guide price will not be instantly completed. The opposite is true for items falling in price.
One of the most important factors in successfully profiting from trade is being able to properly determine the price of an item.
There are two values that must be considered in every trade: the Market Value and the Street Value. The market value is the price that an item can be bought or sold for in the Grand Exchange, whereas the street value is the price that an item can be bought or sold for in person, often through the forums.
The Buy/Sell Test is an important tool used to determine the market value of an item in the Grand Exchange. The price at which an item is trading for in the Grand Exchange may differ slightly or even greatly from the guide price. In order to determine the market value of an item, we first put in a buy offer for one quantity of it at considerably above the guide price. The amount that it buys for is the instant-buy price (high end of the price range). Next, we offer to sell that one quantity of the item for considerably below the guide price. The amount that it sells for is the instant-sell price (low end of the price range). So, if you bought the item for 135gp and sold it for 130gp, then its market value is anywhere between 130gp and 135gp.
Warning: The Buy/Sell Test is not suitable for expensive items and may result in a substantial loss of wealth.
For several reasons, items often have street values (prices at which they are traded in person) that are different from that item's market value. Those reasons include:
- The item is hard to obtain. (Example: Christmas Cracker)
- Investors desire large quantities that cannot be obtained through the Grand Exchange.
- People may feel the item's value is not being properly represented by the Grand Exchange.
People often trade items at these street values in trade worlds, or arrange trades on the forums. By checking other players' offers at these locations, one can find wider price ranges and therefore generate more profit. As an example, if the market value of an item is 120gp to 125gp each, but a buyer offers to pay 127gp each on the forums, additional profit can be made by buying that item from the Grand Exchange and selling it to the buyer on the forums.
In almost all cases, it can be guaranteed that the street value of an item is higher than the market value. This is because if the instant-sell value in the Grand Exchange is higher than the street value, suppliers will just sell to the Grand Exchange instead. However, it is only guaranteed that the street value of an item is higher than the market value if the item is actually even traded on the street. If you intend to rely on street values to make money, make sure that the relevant items are traded on the street first.
The two most important elements of investing are: to be aware of prices and price trends, and also how recent updates or general trends in Runescape are affecting the market. Following are some investment strategies. However, as with all investments, there is never an absolute guarantee for profit or loss.
Carefully watch the price of an item and buy it when the price is decreasing but starting to bottom out. Ideally you would sell while the item is still going up in price, the day before the price reverses and item starts going down in price. However, it is not always easy to predict exactly when this will be. Players may want to explore the exchange graphs on the item's page to examine price trends. Players may also find the Grand Exchange Market Watch helpful. Examining the graph an item's market price may show that it always stays within a certain price range, while moving back and forth. This makes it safer to buy at the low end of that price range and sell at the high end.
Reading the Behind the Scenes and other updates can give a hint of what items may become high demand in the future. However, be cautious of the fact that if enough players think likewise, they may also stockpile large quantities of that item, resulting in a large surplus and a drop in value when the update occurs.
Jagex often releases content in advance of an update so that the price will be more stable when the update occurs. A classic example of this is the release of teak and mahogany logs before the release of the skill Construction, which made significant use of both. When construction was released, investors already held a decent supply of Teak and Mahogany Logs to meet the demand of players training the new Construction skill.
Flipping involves buying an item for as little as possible and then selling for as much as possible within a few hours. Flipping is unique in that it can be used to profit from any item, regardless of its price trend. Flipping is only recommended for players with plenty of starting cash (10M at least) to do it, as not doing so will result in low profits.
Remember that it can be difficult to buy an item for below guide price and sell for above guide price, unless the price actually changes from falling to rising, because prices are virtually always either falling or rising, and often only switch every few days.To determine the buy/sell range, buy one item at considerably above the market price. The amount it buys for is the high price (the highest price the item can be sold for). Now sell that one item at well below the market price. The amount it sells for is the low price (the lowest price the item can be bought for). If the item cannot be bought or sold at a significant margin, it is unsuitable for flipping.
If you buy an item and find that a major crash has started and you cannot sell at a high price, you can either hang on to it until the price rises again, or dump it at a low price. If you choose your items carefully, this shouldn't happen very often. A wise rule is to always do a test buy of a small quantity, and then resell to see how quickly the item moves. If you can buy ten easily, then sell ten easily, next time try to buy 50/sell 50, then try to buy 250/sell 250. Never start out buying a huge quantity of an untested item.
You also want to find items that are in your price range. If you have only 100,000 coins to invest on an item, you probably don't want to pick an item that is 50,000 coins as you would only be able to buy 2 of them. Instead pick items that are about 250-500 coins, that way you could buy up to 200-400 of them. Quantity is usually more important than price. The key is profit per hour. If you can move more items quicker, you might make more money even though it's a smaller profit on each individual item. Ever wonder why stores have big sales? This is why.
Another important concept is diversification. Do not put all your money on one item. If it drops in price, you are in trouble. Try to pick four to six good items (you may have to experiment to find four good ones) and just keep buying low, and selling high. Remember there are always impatient players who get rare items as a drop, such as corrupt dragon items, and they need cash fast, so they will sell for a low price. Then later will come the impatient buyer, who has to have that item right away and is willing to pay a lot of money. Patience is one of the keys to making money in trading.
Common flipping itemsEdit
Remember to always check the price graphs on item pages before considering using them for flipping.
- Arrows (steel, mithril, adamant, rune)
- Throwing Knives (bronze, iron, rune)
- Darts (bronze, iron, dragon)
- Hides (yak, snake, green dragon, blue dragon, red dragon, black dragon)
- Rune and pure essence
- Runes (air, water, nature, dust, cosmic, chaos, law, death, blood)
- Logs (normal, maple, yew, magic)
- Bars (iron, silver, mithril, adamant )
- Seeds (harralander, ranarr, snapdragon, limpwurt, watermelon)
- Herbs (harralander, kwuarm, ranarr, lantadyme, snapdragon)
- Pouches (Yak, honey badger, ibis)
- Summoning ingredients (marigold, red spider eggs, raw bird meat)
- Raw fish (tuna, lobster, swordfish, shark)
- Food (lobster, swordfish, tuna, tuna potato, monkfish, shark, pizza, rocktails)
- Ores (iron, coal, gold, mithril, adamantite)
- Misc. (eye of newt, feathers, vials of water, ashes)
- PvP and PvM gear (dragon boots, barrows equipment, bandos godsword)
- Prayer training commodities (dragon bones, frost dragon bones, infernal ashes)
If a money making method is out of date, you can this page to improve it.
RuneScape Merchanting Guide(RSGuides)