I'm super excited to be a part of this lesson in this new season. Thanks to the steemit team and all the professors. Thank you professor @awesononso for this special lesson. Now to my homework task..

Introduction

In any marketplace both traditional and digital, buyers would always want to bid down the prices if commodities and sellers will always want to have their way in determining prices. These differences often create a gap between the opinions of both the buyers and the sellers. However, a consensus is often reached but this depends on how far apart the opinions of the buyer is from that of the seller. Bid-Ask spread is an important term that needs to be examined to determine how liquid and illiquid a market can be.

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In every market place there is always a difference in the amount which sellers want to sell and the amount buyers want to buy. Sellers often want to sell at the highest possible price while buyers would want to buy at the lowest possible price as well.

The highest price for which a buyer is willing to pay for a commodity is known as Bid price, while the lowest price with which a seller is willing to give out his or her commodities is known as "Ask price" The difference between the bid and ask price is what is known as "The Spread". In some cases the difference is very minimal while in some the difference is huge.

Just as this is applicable in real life, it is the same thing in cryptocurrency trading. The Bid-ask spread indicates the differences in the opinions of the seller and the buyer. For instance, If a seller wants to sell a coin or token for $13 and the buyer wants to purchase that coin for $12.6, the Bid-ask spread in this case would be $0.4.

Why is The Bid-ask Spread Important In a Market

The bid-ask spread is often useful in determining the liquidity level of a market. Liquidity here means how frequently a commodity can be bought and sold in a market. When the bid-ask spread is very little it signifies a market with high liquidity.

This means that the opinions of the buyer and the sellers are somewhat close. This way, there will be high trading volume in that market which is likely to boost prices. On the other hand, a wide bid-ask spread implies that such market is illiquid with little trading volume.

Traders often use the bid-ask spread to do market analysis to know the kind of market they are going into.

Number Three

If Crypto X has a bid price of $5 and an ask price of $5.20, the Bid-Ask spread would be given as $5.20 – $5 = $0.20.
To find the spread in percentage, ($0.20/$5.20)×100 = 3.85%

Number Four

If Crypto Y has a bid price of $8.40 and an Ask price of $8.80, the Bid-Ask spread would be given as $8.80 –$8.40 = $0.40.
To find the percentage spread; ($0.40/$8.80)×100 = 4.55%.

Number Five

The Crypto with a higher liquidity is one with a smaller spread which in this case is Crypto X.

SLIPPAGE

Slippage can be described a situation where the price of an asset is changed before an order is executed. To further understand this, the cryptocurrency market is very volatile and everybody knows that. A trader who uses market order can place an order for an asset at a prevailing price. But due to the volatility of the market, that price can change before the order us executed. This change in price that occurs between when an order is placed and executed is referred to as Slippage.

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Slippage may be positive or negative depending on the type of change that has taken place. For instance, if a change in price favors a trader, such would be referred to as positive Slippage. This will further be explained in question 7.

Positive and Negative Slippage with Price Illustrations

A positive Slippage is the type of slippage that occur in favor of a trader. It is not debatable that sellers prefer to sell at the highest possible price. If a seller places a sell order at a prevailing price say $6 and such price experiences an increase before execution of that order, say $6.5, the slippage that occur is a positive one ($0.5).

Also, if a buyer places a buy order at an existing price of $13 and prices swing downwards before execution of the trade to $11.5, that would be a positive Slippage of $1.5 for that buyer.

Negative Slippage

This is a kind of slippage that does not favor a trader in anyway. It may even cause the trader to run some losses. If a seller for instance sells at a lower price than what was intended, such a seller is experiencing a negative Slippage.

Example of negative Slippage: If a buyer places a buy order for a token at $50 and the order is executed when price had moved up to $51, a negative slippage of $1 has taken place. In the same instance, if a seller initiates an order to sell at $50 and the order is executed when price had reduced to $49, a negative slippage of $1 has taken place.

Conclusion

It is quite important to understand some terms in the marketplace such as Bid-Ask spread and slippage in order to have a smooth journey in cryptocurrency trading. Liquidity is determined by the gap in the spread. A liquid market is as a result of the similarities in the opinions of the buyers and the sellers. Analysing these will help a trader make good decisions. Also, taking into consideration the existence of slippage will help a trader avert the risks associated with it.

Thank you so much for your time. I appreciate!