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Is this actually considered arbitrage? http://en.wikipedia.org/wiki/Arbitrage http://en.wikipedia.org/wiki/Arbitrage While the 4th credit card company he appl

by decklin 15y ago

Is this actually considered arbitrage? http://en.wikipedia.org/wiki/Arbitrage http://en.wikipedia.org/wiki/Arbitrage While the 4th credit card company he applies to has imperfect information about what his credit is (at that point) actually worth, it seems like all the deals are independent.

klochner 15y ago
No, it's not even close. I was expecting a story about generating profits with arbitrage, and using the profits to fund the company. Though inaccurate, the title was much catchier than: "How credit cards funded my first company"
ssharp 15y ago
I'm not sure when this took place, but prior to the credit market crash, you were able to get risk-free savings accounts at around 5% interest. As long as your credit-card rates were below 5%, I think you could call it arbitrage, though it's value is lost in this case since the startup was burning the cash, not just letting the arbitrage run its course and used the proceeds. This wasn't a particularly uncommon scheme in the mid-2000's with easy credit and high savings rates. A rough calculation shows that with a zero-interest card (you could generally negotiate 0% cash-advance checks as well) and a 5% savings account, you could make in the ballpark of $450 over the course of a year per 10k borrowed. If you had good credit and could quickly get access to 100k, you'd be making a few thousand for a not much more than a days work + some short-term damage to your credit score, though at that time, credit scores didn't really mean all that much.
jarnold 15y ago
I actually did credit card arbitrage in one of my first startups. We discovered a niche market where online credit card transactions were charged exorbitant rates for low-volume, non-swipe monthly subscriptions. By taking on the risk ourselves we aggregated many smaller sites, and was able to become a merchant bank ourselves. That's arbitrage to me.
- feral 15y ago
  Yeah, but that's not arbitrage, either, right? Like, you took on a risk, and you got compensated for the risk. You essentially issued insurance. Perhaps you were lucky that you didn't have to pay out. But that doesn't mean you found an arbitrage.
veyron 15y ago
True credit card arbitrage, which is what helped me bootstrap, involves real accretion of money In my case, it was playing the us mint. They sell 250 $1 coins for 250 with free shipping. Fidelity Amex card gives 2% cash back. So I would order tens of thousands of coins and use the coins to pay the credit card build. 1K roundtrip = $20, and it was pretty scalable. Nowadays there is a limit
- 2arrs2ells 15y ago
  Nowadays you can't buy $1 coins with credit cards at all. Those were the days...
mynameishere 15y ago
Of course not. In arbitrage you are both a buyer and seller. Real arbitrage would be, for instance: 1. Get a bank to loan you at 0 percent. 2. Buy something liquid. 3. Sell said something. 4. Loan the money to another bank at >0 percent. (ie, buy a CD.) ...it's still stupid, because if they caught on to your shenanigans, that zero would turn into 29.95% overnight and you'd lose a pile of money trying to unwind the mess. The unavoidable problem is step #2. Good luck buying anything except for treasury bills that don't immediately drop 5 percent or more in value the minute you purchase it.

by decklin 15y ago

klochner 15y ago

No, it's not even close. I was expecting a story about generating profits with arbitrage, and using the profits to fund the company. Though inaccurate, the title was much catchier than: "How credit cards funded my first company"

ssharp 15y ago

I'm not sure when this took place, but prior to the credit market crash, you were able to get risk-free savings accounts at around 5% interest. As long as your credit-card rates were below 5%, I think you could call it arbitrage, though it's value is lost in this case since the startup was burning the cash, not just letting the arbitrage run its course and used the proceeds. This wasn't a particularly uncommon scheme in the mid-2000's with easy credit and high savings rates. A rough calculation shows that with a zero-interest card (you could generally negotiate 0% cash-advance checks as well) and a 5% savings account, you could make in the ballpark of $450 over the course of a year per 10k borrowed. If you had good credit and could quickly get access to 100k, you'd be making a few thousand for a not much more than a days work + some short-term damage to your credit score, though at that time, credit scores didn't really mean all that much.

jarnold 15y ago

I actually did credit card arbitrage in one of my first startups. We discovered a niche market where online credit card transactions were charged exorbitant rates for low-volume, non-swipe monthly subscriptions. By taking on the risk ourselves we aggregated many smaller sites, and was able to become a merchant bank ourselves. That's arbitrage to me.

feral 15y ago
Yeah, but that's not arbitrage, either, right? Like, you took on a risk, and you got compensated for the risk. You essentially issued insurance. Perhaps you were lucky that you didn't have to pay out. But that doesn't mean you found an arbitrage.

veyron 15y ago

True credit card arbitrage, which is what helped me bootstrap, involves real accretion of money In my case, it was playing the us mint. They sell 250 $1 coins for 250 with free shipping. Fidelity Amex card gives 2% cash back. So I would order tens of thousands of coins and use the coins to pay the credit card build. 1K roundtrip = $20, and it was pretty scalable. Nowadays there is a limit

2arrs2ells 15y ago
Nowadays you can't buy $1 coins with credit cards at all. Those were the days...

mynameishere 15y ago

Of course not. In arbitrage you are both a buyer and seller. Real arbitrage would be, for instance: 1. Get a bank to loan you at 0 percent. 2. Buy something liquid. 3. Sell said something. 4. Loan the money to another bank at >0 percent. (ie, buy a CD.) ...it's still stupid, because if they caught on to your shenanigans, that zero would turn into 29.95% overnight and you'd lose a pile of money trying to unwind the mess. The unavoidable problem is step #2. Good luck buying anything except for treasury bills that don't immediately drop 5 percent or more in value the minute you purchase it.