eBaytrage, noun, buying and then re-selling an eBay auction item for different prices and making a profit equal
to the difference between the purchase and selling price.
Why some eBay items are incorrectly priced
In order for an arbitrage to be successful we must be able to identify items for sale that are under-priced relative
to the 'normal' market price. On eBay some items are under-priced because they cannot easily be found due to spelling
errors, and therefore attract fewer bids than they should.
The Hypothesis
Popular 'commodity' items that are misspelled on eBay will ultimately sell for less than the prevailing market value
for the item if it was listed correctly. Therefore it should be possible to 'low-ball' these items, purchase them, and
relist them for a significant profit.
Examples of misspelled eBay items are listed below: (you can click on them to perform current Ebay searches)
Trade Setup
The item for sale must have a history of selling for a high price (based on a completed auction search) and be a commodity,
rather than a 'difficult-to-value' item. Examples of commoditized items include electronics, software, and books.
Trade Filter
Not every item will be a good candidate. It is important to check the seller profile to ensure they have sold a
reasonable number of items and have a high positive feedback number.
Risk/Reward
Not every trade will offer a good risk/reward. It is important that the item has a high historical sale price compared
to the anticipated sale price for the misspelled auction. Using a maximum bid that is half of the historical ending
auction price for the item gives a good margin of safety.
Implementation Costs
The implementation costs for the arbitrage are the shipping and handling costs to buy the item, and the eBay listing
fee to sell the item. The potential profit should be a reasonable multiple of the implementation costs to make
the trade worthwhile.
Position Sizing
As with any trading system, position-sizing is a key concept. Never allocate more than a few percent of available
capital to any one trade even if it is possible to simultaneously buy and sell the same item. It is always possible
for something to go wrong (for example you end up with an item that doesn't function and you can't relist it and may lose
the entire cost of the item).
Contact Us if you have any interesting comments about this system.
An Arbitrage System for eBay Auctions