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Don't try this at home. How credit card arbitrage funded my first company.

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Re: Don't try this at home. How credit card arbitrage funded my first company.

#41

Post by feral »

nirvana wrote: post #35

This isn't credit card arbitrage. Let me describe one idea for how Credit Card Arbitrage could work. You take out a bunch of credit cards, as he describes. Preferably ones with zero interest for the first year, or 6 months. You extract as much cash from them as you can. You put a chunk of that cash in the bank to make minimum payments from, and then you put that cash into an asset that will return more over the next…

I don't think what you are talking about is arbitrage, either.

You are talking about using interest free loans from credit cards in order to make a leveraged bet on the price of gold; that is not arbitrage.

If gold decreases in price - and its close to record highs, however you want to intrepret that - you are taking a huge risk.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#42

Post by feral »

jarnold wrote: post #37
decklin wrote: post #16

Is this actually considered 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.

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.

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.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#43

Post by nirvana »

SurfScore wrote: post #34

I feel like this is one of those "how to rob a bank" lessons that you find sometimes from old-time thieves. It shows you how to do something to take advantage of the system, definitely a hacker thing to do, but at the same time its very dangerous and often unnecessary. More than one person is reading this article and thinking "hmm..." I think this puts a lot of the "put the house on the line" risk back into startups.…

Imagine he had $50k in the bank. So he didn't need to use the cards. He takes the $20k out of the bank at the beginning of the year, puts it into the startup, which fails within the year.

What's the difference between the two situations? In one, he spent however amount of time earning the $20k before he put it into the startup, in the other he spends however amount of time working off the credit card debt after the startup fails.

The real difference between these two is the interest rate on the credit cards, and that's about it. In both cases he has to work to earn the money he put into his startup, though it might be more painful to do it after failure than before.

[I think its amusing that this comment has been down voted. I wasn't disagreeing with the person I'm responding to, didn't say anything offensive, and offered a different way of looking at things that seemed to be missing.]

Re: Don't try this at home. How credit card arbitrage funded my first company.

#44

Post by djloche »

peteretep wrote: post #26
bradleyland wrote: post #17

Earlier quoted context omitted.

Credit card debt is, in most states, entirely dischargable in bankruptcy. So while it would be unethical to take on all this debt specifically with the purposes of squandering it, the CC companies are extending you an unsecured loan. It's really not all that bad of an idea, provided you can survive a bankruptcy and a few years of exceptionally poor credit.

> while it would be unethical to take on all this debt specifically with the purposes of squandering it Actually, in the UK, if they can prove it, it's illegal . Be surprised if that wasn't the same in the West.

in the united states, if you borrow with the intention of defaulting, it is illegal. What you do with your borrowed funds doesn't matter.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#45

Post by bluena »

feral wrote: post #41
nirvana wrote: post #35

This isn't credit card arbitrage. Let me describe one idea for how Credit Card Arbitrage could work. You take out a bunch of credit cards, as he describes. Preferably ones with zero interest for the first year, or 6 months. You extract as much cash from them as you can. You put a chunk of that cash in the bank to make minimum payments from, and then you put that cash into an asset that will return more over the next…

I don't think what you are talking about is arbitrage, either. You are talking about using interest free loans from credit cards in order to make a leveraged bet on the price of gold; that is not arbitrage. If gold decreases in price - and its close to record highs, however you want to intrepret that - you are taking a huge risk.

agreed. buying gold is risky. instead puting it in a 2% account would be wiser.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#46

Post by nirvana »

feral wrote: post #41
nirvana wrote: post #35

This isn't credit card arbitrage. Let me describe one idea for how Credit Card Arbitrage could work. You take out a bunch of credit cards, as he describes. Preferably ones with zero interest for the first year, or 6 months. You extract as much cash from them as you can. You put a chunk of that cash in the bank to make minimum payments from, and then you put that cash into an asset that will return more over the next…

I don't think what you are talking about is arbitrage, either. You are talking about using interest free loans from credit cards in order to make a leveraged bet on the price of gold; that is not arbitrage. If gold decreases in price - and its close to record highs, however you want to intrepret that - you are taking a huge risk.

Maybe I should have been more clear. What you're arbitraging is two rates of return-- the interest rate of the loan, and the return of the investment. In more conventional arbitrage, you're buying a commodity at one price in one market and selling it at another price in another market at exactly the same time. Here you're doing that, only the commodity is money. (Gold is money.) You could substitute a foreign currency, or foreign bonds for gold in my example, just as easily.

In that case, you'd be borrowing US dollars and buying, say, Greek Bonds. I picked that example because greek bonds have a high rate of return. They're also debt... you're getting debt in one market and selling it in another.

Greek Bonds obviously have risk. All arbitrage has risks, and those risks can be huge. That the risk is huge doesn't make it any less arbitrage.

FWIW, I don't think gold is at a particularly high price. I think the dollar and other currencies, which have been long over valued, are a little less overvalued than they were. I don't price gold in dollars, I price dollars in gold.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#47

Post by spokengent »

cosgroveb wrote: post #27
spokengent wrote: post #21

For bonus points: Find the credit cards affiliate program. Sign up to it, and use it. You might get for example $50 commission, for signing up to a 0% credit card, if you use your affiliate link.

I don't think the fraud is really worth $50.

Several affiliate networks explicitly allow you to use your own affiliate links.

Also, if you're more concerned about it and want an easier way, use some reward/cashback program website.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#48

Post by klochner »

nirvana wrote: post #46
feral wrote: post #41

Earlier quoted context omitted.

I don't think what you are talking about is arbitrage, either. You are talking about using interest free loans from credit cards in order to make a leveraged bet on the price of gold; that is not arbitrage. If gold decreases in price - and its close to record highs, however you want to intrepret that - you are taking a huge risk.

Maybe I should have been more clear. What you're arbitraging is two rates of return-- the interest rate of the loan, and the return of the investment. In more conventional arbitrage, you're buying a commodity at one price in one market and selling it at another price in another market at exactly the same time. Here you're doing that, only the commodity is money. (Gold is money.) You could substitute a foreign currenc…

so by your definition, any leveraged investment is arbitrage.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#49

Post by nirvana »

bluena wrote: post #45
feral wrote: post #41

Earlier quoted context omitted.

I don't think what you are talking about is arbitrage, either. You are talking about using interest free loans from credit cards in order to make a leveraged bet on the price of gold; that is not arbitrage. If gold decreases in price - and its close to record highs, however you want to intrepret that - you are taking a huge risk.

agreed. buying gold is risky. instead puting it in a 2% account would be wiser.

I covered the idea of putting the money into a CD in my comment. Even if you get a CD that returns %6, you'd need $400k in debt to raise the $20k.

Maybe mentioning gold is "politically incorrect" and so I'm getting down votes and disagreement, when the gist of my comment was talking about different ways you could arbitrage to raise money for a startup.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#50

Post by waterside81 »

JacobAldridge wrote: post #30
waterside81 wrote: post #13

This is crazy - crazy interesting and crazy nuts. The idea of arbitraging has always be fascinating to me. I've had an idea for currency arbitrage in the travel industry, but never done anything other than back of the envelope calculations. Feel free to take the idea: Tour operators publish their prices for the upcoming year's trips. They publish them usually in one currency, sometimes in two, rarely in three. They'r…

And then you get a client like me, who points out that the price in Euros in 10% cheaper than the price in AUD because of currency fluctuations in that period, and I would like to pay in Euros please. The travel agency (in Australia) weren't able to do that for me, however - so it seems their agreement was in a single currency as well. I'm not sure how hard I could have pushed it, because the dates ended up not quite…

Ha, yes, but you'd be in the minority of travellers who think like that. But I know of tour operators who refuse to allow this. If you're an Aussie resident, you have to pay AUD. If you're in the EU, you have to pay in EUR etc.
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