What the Heck are Bids and Asks? And, me trading my STEEM for HIVE

Why should you care?

If you're actually not interested in trading, don't have exchange accounts, and are focused mostly on creating content and engaging with people who value your content, this post is mostly for you, especially the first part. The second part might be more interesting to people who like math, and fixing bugs.

Preserve the monetary value you've built up, however much or little that is, by exchanging your STEEM tokens for HIVE, and continuing to create your content on Hive.

@libertycrypto27 has a very nice post, for which I'm personally grateful. He shows you how to determine whether it's better - at any given time - to trade your STEEM for HIVE on Steem Engine or Hive Engine.

I didn't know Steem Engine or Hive Engine even existed, let alone how to use them.

I needed a way to make the calculations more quickly, because the Power Down of my tiny stake is still ongoing, and I'll need to do this again. I made a small spreadsheet to help me make the calculations he discusses in his post. I'll figure out how best to share that spreadsheet, if anyone here expresses any interest in using it.

Or, perhaps I should make it an interactive web page instead?

I discuss here only enough background to get to the two items he describes as absolutely important in making your decision on which platform to change out your STEEM for HIVE. My aim is to keep is simple, straightforward, and not condescending.

First: Things!

We have things. Sometimes, we need more of them. Sometimes, we need less of them.

I have A. I don't want as much A any more. I want some B, instead. How do I exchange some of my A for B?

In our case, we're talking about STEEM and HIVE.

The "Market"

We go to the market to exchange one thing for another thing. The market is - hopefully - full of:

buyers of the things we want to sell, and
sellers of the things we want to buy

Our potential markets are Steem Engine and Hive Engine.

Buying things with Bids

If you want to buy something, you bid a price for it. This is the price you are willing to pay for the thing you want. You hope a willing seller likes your bid price. When you are looking at a market, bid prices are listed under a column of Buy Orders waiting to be filled, and the orders at the Highest Bid are likely to be filled soonest. The best prices for potential sellers (the highest bid prices) are listed at the top.

                 Buy Orders
 Total HIVE      HIVE   SWAP.STEEM (Qty)  Price
   49.07268    49.07268    67.22285000  0.73000
  473.70657   424.63389   598.00010000  0.71009
  828.74657   355.04000   500.00000000  0.71008
1,183.77657   355.03000   500.00000000  0.71006
1,538.79657   355.02000   500.00000000  0.71004
2,958.83657 1,420.04000 2,000.00000000  0.71002
2,959.51676     0.68019     1.00000000  0.68019

Selling things with Asks

If you want to sell something, you ask a price for it. This is the price you are willing to receive for the thing you want. You hope a willing buyer likes your asking price. When you are looking at a market, ask prices are listed under a column of Sell Orders waiting to be filled, and the orders at the Lowest Ask are likely to be filled soonest. The best prices for potential buyers (the lowest ask prices) are listed at the top.

                 Sell Orders
Price   SWAP.STEEM (Qty)     HIVE   Total HIVE
0.73500    16.70199874    12.27597    12.27597
0.73999    18.19199999    13.46190    83.13470
0.74000   101.00000000    74.74000   157.87470
0.74000 2,000.00000000 1,480.00000 1,637.87470
0.74800    11.32065000     8.46785 1,588.94571
0.74998 1,000.00000000   749.98000 2,338.92571
0.75000   100.00000000    75.00000 2,413.92571

You'll notice the prices for Buy Orders are listed in the rightmost column, while the prices for Sell Orders are listed in the leftmost column. The tables are normally displayed next to each other, and the column ordering makes it easy to see the prices next to each other:

                              Buy Orders | Sell Orders
Total HIVE   HIVE    SWAP.STEEM   Price  | Price   SWAP.STEEM   HIVE  Total HIVE
                       (Qty)                          (Qty)
 49.07268  49.07268  67.22285000 0.73000 | 0.73500  16.70199874 12.27597  12.27597
473.70657 424.63389 598.00010000 0.71009 | 0.73999  18.19199999 13.46190  83.13470
828.74657 355.04000 500.00000000 0.71008 | 0.74000 101.00000000 74.74000 157.87470

What is a Fair Price?

Ask prices are higher than bid prices. If you have some B and want to sell it, you're willing to part with it for at least your asking price. If someone is willing to pay more for it than you're asking, that's great! They must really want some of that B! But you're not willing to sell for less that your asking price.

If you want to buy some B, you're not willing to pay more than your bid price. If someone is willing to sell it to you for less than what you said you're willing to pay, they must really want to get rid of that B.

Getting an order filled for a price more favorable to you than you expected can happen, but don't count on it. What is a fair price? A fair price is the price that a willing buyer and a willing seller make a trade at, at the moment they make the trade. It's really not "fair," and it's not "unfair." The price you pay might seem like a great deal in a few weeks or months when the item is trading for more, or it might seem expensive as it trades lower and lower.

Why you're buying or selling the thing you are, at the time you're doing so, at the price you're going after, is very important for you to know.

The "Spread" and What it Tells You

The spread is the difference between the Lowest Ask and the Highest Bid; it's the amount of "room" between:

lowest price someone is currently willing to receive when selling, and
highest price someone is currently willing to pay when buying

The spread is the gap that someone has to be willing to cross in order for a trade to be made. Looking back to the Buy and Sell Orders we saw above, we see:

                              Buy Orders | Sell Orders
Total HIVE   HIVE    SWAP.STEEM   Price  | Price   SWAP.STEEM   HIVE  Total HIVE
                       (Qty)                          (Qty)
 49.07268  49.07268  67.22285000 0.73000 | 0.73500  16.70199874 12.27597  12.27597

The spread is the lowest ask minus the highest bid; in this case, 0.73500 - 0.73000 = 0.00500

In a highly liquid market, there are plenty of buyers and sellers and higher trading volume, and the spread becomes narrow, as more people are available to cross the gap to complete a trade. In an illiqud market, there aren't many buyers and sellers, and the spread widens, as fewer people are willing to cross that gap, and wait for a price that suits them better (sellers want to see higher bids from the other side; buyers want to see lower asks from the other side).

Please Stop; I'm BORED!

That's okay, because we just covered all you need to understand a bit of the "why" behind the instructions from @libertycrypto27. He calls your attention to the Lowest Ask and Highest Bid. They're all you're really interested in, when you're ready to trade your STEEM for HIVE (and the spread comes from the market conditions at the time you decide to make your move).

You'll look for these five things:

SWAP.STEEM Highest Bid on Hive Engine,
HIVEP Lowest Ask on Steem Engine
price of STEEM in USD
price of HIVE in USD
and of course, the amount of STEEM you wish to convert

I traded STEEM for HIVE yesterday. How? And what happened?

the Highest Bid for SWAP.STEEM on Hive Engine was 0.71548
the Lowest Ask for HIVEP on Steem Engine was 1.31000
the price of 1 STEEM in USD was 0.201548
the price of 1 HIVE in USD was 0.280746
17.995 STEEM (I know. Not much.)

I entered all of the above into my spreadsheet, which told me it was better - at that moment - to Buy HIVEP on Steem Engine.

It also calculated for me how much HIVEP to buy, in order to zero out the SWAP.STEEM.

Direct Conversion (no fees) of 17.995 STEEM, using USD as the common unit to price STEEM and HIVE, would yield 12.91863 HIVE
Converting on Steem Engine - given the ask price above - would yield, after fees, 13.46324 HIVE
Converting on Hive Engine - given the bid price above - would yield, after fees, 12.61881 HIVE

The cost difference and percentage costs were:

Steem Engine: -0.5446, or -2.31025%
Hive Engine: 0.2998, 2.32873%

We want low transaction costs, and costs so low as to be negative(?!) made Steem Engine the better choice at that time.

Percentage of what, exactly?

For some, this could be getting into the weeds a bit. For others, it will help gain perspective (and even critical thinking). For me, it helped find a error in my spreadsheet. If you like, read on.

Costs

The costs here are three:

cost of depositing from Steem wallet (STEEM) to Steem Engine (SWAP.STEEM)
crossing the spread from the last traded price to transact with a willing participant on the other side of your trade (SWAP.STEEM to HIVEP)
cost of withdrawal from Steem Engine (HIVEP) to Hive Wallet (HIVE)

A negative value implies a "profit," but I'm hesitant to use that term.

From the previous section,

Steem Engine Costs = Direct Conversion - Conversion on Steem Engine
                   = 12.91863 - 13.46324
                   = -0.54461

Hive Engine Costs  = Direct Conversion - Conversion on Hive Engine
                   = 12.91863 - 12.61881
                   =  0.29983

Determining the cost relative to a no-fee conversion looks like this: Cost divided by a No-Fee Conversion.

No-Fee Conversion

We determined the no-fee conversion to HIVE like this, using USD as the common reference for the value of STEEM and HIVE:

No-Fees = Quantity of STEEM * USD/STEEM * HIVE/USD
        = 17.995 STEEM * 0.201548 USD/STEEM * (1 / 0.280746 USD/HIVE)
        = 17.995 STEEM * 0.201548 USD/STEEM * 3.561938549 HIVE/USD
        = 17.995 * 0.201548 * 3.561938549 HIVE
        = 17.995 * 0.201548 * 3.561938549 HIVE
        = 12.91864 HIVE

Percentage Costs (and ... BOOM!)

Now we can determine the transaction costs relative to a no-fee transaction:

Steem Engine: -0.54461 / 12.91864 = −0.042156 = −4.216%
Hive Engine: 0.29983 / 12.91864 = 0.023209099 =  2.321%

Notice the percentage costs are not the same as what I said in a previous section. Earlier, I said they were -2.31025% for Steem Engine, and 2.32873% for Hive Engine.

Aha! I'd copied the results from my spreadsheet, but writing this post forced me to explain the calculations, and in doing so, I found something that didn't make sense. The result of a mistake in a spreadsheet formula. I believe the numbers in this section to be correct.

I had calculated the Steem Engine fees relative to the amount of HIVE I'd have to buy at the lowest asking price on Steem Engine, using the full amount of STEEM I started with (that is, buy as much HIVE as I can with x amount of STEEM).

Similarly, I'd calculated the Hive Engine fees relative to the amount of STEEM I had available to sell at the highest bid price on Hive Engine, using the full amount of STEEM I started with (that is, sell as much STEEM as I can to buy HIVE).

Which make sense. But, that's not the calculation I talked about earlier, which used USD as the common reference for the value of STEEM and HIVE. Which means there is a choice in how you price a no-fee transaction.

Do you use the best prices on the exchange you're on, or the Current prices as reported by another source?

Current Prices

Negative cost is a profit. Highly unusual. So unusual that I think we can't really use that number. What is the current price of STEEM and HIVE?

I used CoinGecko to get the current prices, but would those have agreed exactly with prices from other sources? The price changed as I was collecting values for the spreadsheet; making corrections to the formulas took time, too, and I didn't check back enough to ensure I had the current prices (in USD).

I thought the problem was that the calculations included too many decimal places. I saw somewhere (I know, I know...) that STEEM uses eight decimals, so I displayed eight decimals in the sheet. But when I entered the calculated number of HIVEP to purchase at the lowest ask, Steem Engine said I didn't have enough SWAP.STEEM to do it.

I needed to subtract out 0.00005 from the balance of SWAP.STEEM in the formula to make it work. Was I carrying too much precision in the displayed values? We most often see five decimals. After the transaction, I had 1.11737818 SWAP.STEEM in the Steem Engine wallet. Eight decimals. But why was it not zero, since I was trying to sell all the STEEM I have access to? Somehow, I hadn't bought enough HIVEP to zero it out.

I actually bought 12.74627620 HIVEP, not the 13.46324 the formula said Steem Engine would yield. About that profit...

Double check formulas

Using the spreadsheet and @libertycrypto27's example calculations, I can only match up the results so far.

The (corrected, unless I've still got errors, which is possible) spreadsheet shows:

                               Steem Engine    
STEEM | Direct conversion | (using lowest ask  | Difference | Cost %
                              of 1.38989000)   |
1.000 |      0.8607       |      0.70516       |   0.15554  | 18.07%


                               Hive Engine    
STEEM | Direct conversion | (using highest bid | Difference | Cost %
                               of 0.6503100)
1.000 |      0.8607       |      0.64381       |   0.22331  | 25.95%

@libertycrypto27's article shows:

STEEM | Direct conversion |    Steem Engine    | Difference | Cost %
1.000 |      0.8607       |       0.7056       |   0.1551   | 18.02%


STEEM | Direct conversion |    Hive Engine     | Difference | Cost %
1.000 |      0.8607       |       0.8821       |   0.0214   | -2.49%

Perhaps the bid and ask prices in the blog post are from different times, after the markets had moved. That would explain a discrepancy. Do I have a formula error I haven't found yet? Possible. Does @libertycrypto27 have an error? Possible.

Regardless, at this moment, I can't reconcile the two. I'll work out what I can, hopefully exchange thoughts with other people, and follow up with another post.

Conclusion and Next Steps

I hope the background information is useful, before the journey into the weeds began!

I'm thinking:

scrub the spreadsheet for any remaining errors
perhaps the highest bid and lowest ask prices should be used for the current prices of STEEM and HIVE, instead of prices in a common currency (for example: USD) from an exchange?
share the sheet with others to find problems - either with the sheet, or with the assumptions that drive the calcuations
consider building an interactive web page so people can have a alternative to downloading a spreadsheet (once it all definitely works correctly)
use pictures and diagrams when writing stuff like this! Wall of text = boring!

Thanks, and feedback is most welcome

If you have any questions, comments, complaints, or suggestions, please share them! Thanks for sticking with it this far. And thanks go to @libertycrypto27, for showing me a way to sell my STEEM in a way that made sense.

All the Best!

Clark