Silk Road forums
Discussion => Silk Road discussion => Topic started by: squidShepherd on August 18, 2012, 03:06 pm
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I'm sure any of you who've had a hedged order cancelled were surprised (or at least annoyed) to find that some of the dollar value was missing. This is widely attributed to a basic fee for hedging, but this is rather misleading and perhaps makes SR appear just a little greedy, pouncing on 4% the moment you place an order.
When you place a hedged order, the thing you must recognize is that your BTC must be virtually converted to USD for your escrow to be stable in terms of USD. Of course, since they're not actually converted, when the order is closed the virtual USD must be converted back to BTC.
If you perform this conversion anywhere else, you will naturally lose the bid-ask spread, and you will not be surprised nor particularly annoyed, because that's just how it works.
And that's all that's happening here.
Thank you to Neuro for coming up with the logical reason for losing that spread instantly!
If a vendor puts up a listing for $10, pegged to the USD and hedged, they are intending to receive $10 minus commission.
If a buyer places an order for that listing when the BTC is worth $2, they put 5 BTC in escrow.
Now imagine the vendor is on the next day and the BTC has plummeted to $1.
As things are, the vendor has 10 BTC minus commission in escrow. This is good.
If the virtual conversion took place after shipping, the vendor would be receiving $5 minus commission. That's a broken system.
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Why do you lose money when you cancel an unhedged order?
If your account is viewed as dollars, and the BTC fell while the order was in escrow, fewer dollars' worth of BTC would be returned than were put in, though it's the same number of BTC.
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Why do you lose money when you cancel an unhedged order?
Say you make a 40$ order and bitcoins are 10 bucks a pop. That's 4 bitcoins.
Now, you cancel that order after a couple days. During those couple days the price of BTC falls to 5$.
You would be returned the same amount of coins (4) but only 20$ would appear on your screen.
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I placed an order on Friday that is hedged against the $. Since then the price of the item in ฿s has risen by 10%! I'm a bit concerned as the order most likely won't go to 'in transit' until Monday, and the ฿ value may have dropped even further by then. Is this any reason for my order to be canceled? As it's hedged against the $ at the moment, would my vendor lose any of the price because the ฿ value has dropped? Does the hedging system make up the whole difference for the vendor in such a situation?
I'll be gutted if he does cancel my order, because I won't be able to get the extra ฿s until sometime around next Friday. :'(
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I don't understand why it isn't just returned unhedged with no fees.
Just return the exact amount of BTC that was paid.
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I don't understand why it isn't just returned unhedged with no fees.
Just return the exact amount of BTC that was paid.
That's how unhedged orders work, dude.
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I understand that. I just think that cancelled orders should be returned as if they were unhedged. It's unfair for SR to take a loss or gain when no transaction takes place. If you never actually had a transaction take place then you should just get your BTC back.
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I understand that. I just think that cancelled orders should be returned as if they were unhedged. It's unfair for SR to take a loss or gain when no transaction takes place. If you never actually had a transaction take place then you should just get your BTC back.
But placing an order initiates the transaction. Ideally, if it's going to be cancelled, shouldn't it not get past the cart? Generally, communicating with vendors and being sure of your order will take care of that.
Besides that, like squid said, it's virtual conversion, so go ahead and act like it's real conversion. When you place the order, it converts.
Actually, imagine a scenario.
The order is pegged to the USD and hedged, priced at $10. A customer places the order when the BTC is 2:1, paying 5 BTC into escrow.
The BTC drops to 1:1 before the vendor can ship, and suddenly they're getting $5 despite doing everything to ensure $10.
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I placed an order on Friday that is hedged against the $. Since then the price of the item in ฿s has risen by 10%! I'm a bit concerned as the order most likely won't go to 'in transit' until Monday, and the ฿ value may have dropped even further by then. Is this any reason for my order to be canceled? As it's hedged against the $ at the moment, would my vendor lose any of the price because the ฿ value has dropped? Does the hedging system make up the whole difference for the vendor in such a situation?
I'll be gutted if he does cancel my order, because I won't be able to get the extra ฿s until sometime around next Friday. :'(
The order is hedged to ensure the vendor gets the same dollar amount. Hedging means the dollar amount you put in will go to the vendor, minus spread and commission. In fact, hedged is preferable only when the BTC is dropping.
Thank you Neuro, I've added your scenario to the first post.
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Thank you Neuro, I've added your scenario to the first post.
Glad to be of assistance, I knew there had to be a good reason it just took me a while to think of it. I like puzzles, so I enjoyed figuring it out.
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I understand that. I just think that cancelled orders should be returned as if they were unhedged. It's unfair for SR to take a loss or gain when no transaction takes place. If you never actually had a transaction take place then you should just get your BTC back.
But placing an order initiates the transaction. Ideally, if it's going to be cancelled, shouldn't it not get past the cart? Generally, communicating with vendors and being sure of your order will take care of that.
Besides that, like squid said, it's virtual conversion, so go ahead and act like it's real conversion. When you place the order, it converts.
Actually, imagine a scenario.
The order is pegged to the USD and hedged, priced at $10. A customer places the order when the BTC is 2:1, paying 5 BTC into escrow.
The BTC drops to 1:1 before the vendor can ship, and suddenly they're getting $5 despite doing everything to ensure $10.
That has to do with order cancellation. That's just simply the risk of unhedged transactions. Lots of vendors don't hedge their transactions, including me. The fact that the general trend for BTC:USD has been going up is enough to make that deicison. I just can't understand why SR doesn't just return the BTC and pretend like the transaction never took place. Why does a "virtual conversion" cost anything? It's still just BTC in SR's wallet. Actually I can understand it. It's so that SR can take the 4% and whatever else is left over after the change in BTC (usually up).
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So what does a vendor have to gain from not hedging an item?
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We're hoping that the BTC:USD ratio increases. That way we end up with more BTC for our sales. Also, the 4% fee is pretty hefty.
So basically we can take a guaranteed 96% of our sale price or just risk it. Generally BTC has been going up so the chances are if you go unhedged you will get higher than 100%.
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That has to do with order cancellation. That's just simply the risk of unhedged transactions. Lots of vendors don't hedge their transactions, including me. The fact that the general trend for BTC:USD has been going up is enough to make that deicison. I just can't understand why SR doesn't just return the BTC and pretend like the transaction never took place. Why does a "virtual conversion" cost anything? It's still just BTC in SR's wallet. Actually I can understand it. It's so that SR can take the 4% and whatever else is left over after the change in BTC (usually up).
That's why there's an "unhedged" option. I don't personally understand why it seems so many vendors hedge.
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So let me get this straight:
Hedged = price of item locked to USD until finalization. 4% fee to vendor. Beneficial to vendor if USD:BTC ratio drops more than 4% from order processing to finalization.
Non-hedged = price of item locked to BTC. No fee to vendor. No fee to vendor. Beneficial to vendor is USD:BTC ratio stays the same or rises from order processing to finalization.
Is this correct?
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So let me get this straight:
Hedged = price of item locked to USD until finalization. 4% fee to vendor. Beneficial to vendor if USD:BTC ratio drops more than 4% from order processing to finalization.
Non-hedged = price of item locked to BTC. No fee to vendor. No fee to vendor. Beneficial to vendor is USD:BTC ratio stays the same or rises from order processing to finalization.
Is this correct?
Yes. Unhedged, no virtual conversion, it's just BTC passing through escrow.
Hedged, virtual conversion costs bid-ask spread.
I actually understand why someone would feel compelled to hedge. If you don't like to think in BTC, you like to just have your account in dollars, your escrow in dollars, peg to the USD and hedge are comforting tools.
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Well, when I started here vending, btc = $30 each. Lets just say a couple days after I sold (no hedge available) the price was at $15 each. I lost easily 50% on more than a handful of orders in one month, that was great. :)
But yes, I currently do not hedge, although I was thinking about it at 15, now not so much back at 11. In a BTC uptrend it isn't that smart to hedge because you could potentially lose out on a lot. But you could also lose if BTC goes the other way. For anyone that has been in bitcoins for greater than 1 year will understand this.
It also depends on what the final sale price is. I would leave my $50 orders unhedged, but I might think twice before I leave a $5000 order unhedged.
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That's why there's an "unhedged" option. I don't personally understand why it seems so many vendors hedge.
Because it's the default. Also, because it doesn't say anywhere on SR that they take a 4% hedging fee. I've been a vendor for 3 months now and I didn't even know about the 4% fee until a few weeks ago. I think if more people knew that they would go unhedged.
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So if a person makes an order for a hedged item for 10btc then 0.40btc goes to SR for the hedge instantly. At this time 10usd = 1 btc. Three days later the order is cancelled and the value of bitcoins has fallen to 1usd = 1btc. The buyer gets back 9.60btc. Is this correct?
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The buyer would get back 96 BTC because the transaction was hedged. You get back what you paid (in dollars, minus 4%)
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The buyer would get back 96 BTC because the transaction was hedged. You get back what you paid (in dollars, minus 4%)
Ah ha. Yes. 96btc. Thanks.
Anyways, that sounds fair as shit.
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Hedged means USD
Unhedged means BTC
Let's say 1 BTC=$10 USD
Order $40 item @ $10 per BTC.
Hedge in USD, pay 4 BTC.
Price goes down to $5 per BTC at time of finalization
seller still gets their $40, which equals 8 BTC now.
Silk Road recoupes losses and pays out the 8BTC -4% fees. (?)
Arsy versy,
Price goes up to $20 per Bitcoin,
seller receives the same $40 which is now only 2 bitcoin,
SR service keeps the 2 BTC.
Unhedged:
$40 item, unhedged (in BTC)
$10 per BTC when order is placed.
Unhedged, 4 BTC goes into escrow service.
Price goes up to $20 per BTC, those 4 are now worth $80 when finalized,
seller gets the profit.
Price goes down to$5 per BTC and those 4 are now worth only $20,
seller takes loss.
Is that about right? Don't know if it's the sudden access to so many mind altering substances, but it has taken me a minute to grasp this concept fully.
When we finalize, if it's unhedged, we should be kind to the seller and try to finalize when BTC is high, correct?
And when hedged, we want to keep the final price as close to the purchase price as possible(a slight rise would be good to help cover the 4%). B/c as a buyer, we will never have to worry about producing more $, nor will we receive any profits from teh market fluctuating, right?
This way it's win/win/win for E1?
Hope I'm not displaying too much of my ignorance here, just want to make sure I got it.
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bad move squid. if you wanted to understand how the hedging system works so you could tell others, you should've come to me, the person who designed it. As it is, you are making up terms like virtual conversion and making it more complicated than it is. There is an explanation in the buyer's guide for this exact thing. If anything is unclear, that is what should be discussed.