The Two Flavors of Trade

There are only two types of trades – those of necessity and arbitrage. Let’s talk about them today.

Trades of Necessity

It almost feels silly to write about need-based trades. A younger, naive version of me considered trade to be a pure function of need. A “fair” swap was judged based on the merits of the players involved and how those you acquired fill your Roto or H2H requirements.

Ideally, you’ll either add more scoring value than your rival or make a swap with a less competitive owner. The purpose of a needful trade isn’t just to accrue more stats or fill a roster hole, it’s to climb the standings. You can do that at the expense of your foes. However, it’s completely allowable to let your trading partner profit just as much as you – as long as you both benefit relative to your other rivals. If I have too many shortstops and you have too many third basemen, then a swap of Carlos Correa for Manny Machado helps us both roughly equally while hurting our opponents.

At some point, your roster will reach a point when you no longer need to make a move. Sure, you can always improve, but there is such a thing as good enough. Once you reach that plateau, you can begin to approach trade from a completely different perspective. Rather than need, you can focus on want.

Trades of Arbitrage

As someone who plays mostly dynasty and deep keeper leagues, I’ve grown less and less accustomed to making trades to fill an actual need. For the most part, the vast majority of my roster is built before the draft. A needful trade may look like swapping six of one for half a dozen of the other. Or however that phrase works. Once my needs are met, I’m solely trying to deal my six units for your eight units. In economics (and the dictionary), this concept is called arbitrage.

No sane person would agree to such terms, thus you have to hunt for divergent valuations. This is your typical sell-high, buy-low advice. We’re basically dealing with two axes – who the player appears to be right now and who the player will become over the rest of the season.

When you sell high, it’s because you think your attractive asset, say Yasiel Puig, is going to slump going forward. You find someone who believes otherwise. When you buy low, it’s because a rebound appears imminent – or at least possible. So you find somebody ready to quit on a good, struggling player. When you combine both high and low in the same trade, you open the door for massive profit.

In my dynasty settings, time presents an interesting z-axis for player value. Personally, I focus very heavily on present value. I’m not convinced America will exist in 2020 let alone my specific fantasy leagues. I want my players to perform in the intervening time. I’ll let my arthritic roster hobble across the rebuilding bridge when I get there. As such, I’m generally willing to trade something young and shiny for something older and more productive. I believe I’m arbitraging future assets for present talent. My trade partners either believe the opposite, or I’ve met a pressing need for them.

Unfortunately, when you own something, you almost immediately ascribe more worth to it. This phenomenon goes by many names – the endowment effect, ownership effect, or ownership bias to name a few. Let’s say your rival thinks all of his or her assets are worth 20% more than is strictly true. And let’s also say this same rival thinks all of your assets are worth 20% less than you believe (you also suffer from endowment disease).

That’s a serious barrier to trade. When dealing with simply who a player is and who he’ll become, it can be hard to find these arbitragable swaps. That’s why they’re much more common in formats where time is an important factor. I’m smelling a conclusion…

In redraft settings, it makes much more sense to focus your time and attention on assessing and acquiring incremental needs. Say you find yourself holding too many closers, then trade one for somebody’s surplus outfielder or starter. In a dynasty or keeper format, it’s much easier to “fool” your rivals into misevaluating the relationship between present and future value. That makes these leagues the best opportunity to really fleece your opponents.

Postscript

Notably, while I have my own hard won beliefs about present and future value, there’s no data to support my assertions. To wit, I think I’m committing grand theft arbitrage. I may feel otherwise when players like Vladimir Guerrero Jr., Carter Kieboom, and Jesus Sanchez – all of whom I dealt cheaply for present value – are tearing up the league.

Further, a focus on present value adheres to my personal strengths as an owner. I don’t have patience developing prospects – the timing on my Guerrero trade was particularly unfortunate. I tend to view most fantasy relevant prospects – i.e. prospects 15 to 350 – as roughly the same asset class. Prospect 15 is costly and valuable. Prospect 215 is free. Since I see them as the same, I prefer to convert the touted names into major league production. If you disagree that most prospects are exactly the same, then you’re going to have a very different approach.