(FORTUNE Magazine) – Brock Pierce is comfortable in unreal worlds. As a child actor he landed roles in Hollywood movies. At the peak of the Internet bubble he co-founded a company to deliver entertainment over broadband. When that flopped, he immersed himself in the virtual world of EverQuest, a multiplayer videogame. He got so engrossed, he says, that he played an average of eight hours a day for two years.

Pierce forced himself to quit, but then, he says, "I had to justify the way I'd spent the past two years." So in 2001 he started on what he calls his next game--Internet Gaming Entertainment, now the leading company in the curious, fast-growing business that links virtual economies with the real one.

IGE allows players to sell game assets they accumulate in their imaginary worlds--from currency to characters--for cash or, alternatively, to buy virtual assets they would otherwise have to spend dozens of hours earning in a game. Pierce, 25, estimates that IGE accounts for about 50% of this "secondary market" in the U.S., which he says has about $500 million in annual volume. (One industry analyst thinks the figure could be as low as $50 million.) The company's growth rates for both revenues and earnings are over 100% a year, Pierce says, and its margins top 10%. IGE is closely held and doesn't disclose financials, so it's hard to know how virtual those numbers may be.

IGE, based in Los Angeles (with offices in Hong Kong, Shanghai, and London), employs 200 people to handle trades, mostly through its website, IGE.com. Since 2004 the company has spent more than $25 million to acquire the seven next-biggest sites that arbitrage virtual assets--buying and selling them at prices to maximize the spread--four eBay-style trading platforms, and about 40 fan and content sites. "We're the Wal-Mart, the Sears--we're the Saks Fifth Avenue," Pierce says. "We cover the market."

Pierce has always thought big. His parents started him acting when he was 3. When Disney came to his hometown, Minneapolis, to shoot The Mighty Ducks, he was cast as a young Emilio Estevez. Movie roles took him to Los Angeles, and in 1996 he starred in a Disney film with Sinbad. In 1997 he co-founded an arbitrage business for virtual-trading cards used in an online game similar to Dungeons & Dragons. That lasted nine months, until Pierce decided that the game's 200,000-player market was too limited. He turned to another business he had co-founded, Digital Entertainment Network. Pierce produced shows and helped DEN raise $100 million before he left in 1999; in 2000, DEN evaporated, having yielded almost no revenues. "All the things we did wrong stand out, the biggest of which was to bet on broadband's rollout," he says. He also learned to avoid investors; he has funded IGE using his own savings and cash flow.

In 1999 one of Pierce's virtual card-trading partners suggested he try EverQuest. "I was astonished. I saw it as the next killer application," Pierce says. "I was thinking about secondary markets, but I'd be lying if I said that was why I was playing." Today some 200,000 gamers trade assets from more than 15 games through IGE. The company profits from the spread between its purchase price (it gets most of its assets from about 1,000 sellers) and the price it fetches through its website.

Some game manufacturers--and some gamers--protest that this corrupts the purity of play. But Pierce insists that the secondary market is crucial to the continued success of multiplayer games. "It's like how a robust secondary market for homes drives a strong primary market," he says. "We allow the players to feel their activities have value."

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