Homework | Steemit Crypto Academy [Beginners' Level] | Season 4 Week 1 | The Bid-Ask Spread

Hello everyone. This lecture is about the Bid-Ask spread. This is the most interesting and informative lecture by the respected professor @awesononso. This topic is so easy to understand. So let's begin

^Source

When we go to buy something from the market, there always the difference in the prices which the buyer want to buy the product and the price at which the seller want to sell the product. The seller always demand the amount which is greater than the amount at which the buyer want to purchase that commodity. The seller want to sell his product at highest price and buyer want to buy that product at lowest price.

The highest price at which the seller want to sell his price is known as the Ask price.

And the lowest price at which the buyer want to buy the product is known as the Bid price.

The Ask price is usually the large amount as compare to the bid price. Now let's move toward what the Bid-Ask Spread is. The Bid-Ask Spread is the difference between the Bid-price and Ask price. When you minus the Ask price from Bid price, you get the Ask-Bid spread value.

We cannot invest in the market without doing any analysis. Otherwise, we will face the lose. The market is so uncertain that we cannot trust any moment. We should do analysis and proper research before making an investment in the exchange world. The Bid-Ask Spread is also helpful for the trader to make the trading decisions.

If we see the high liquidity in the market, this mean that the market is versatile. In such markets, the price keep changing. The price of the assets get effected by the universal principal supply-demand rule. In such highly liquidate markets, Bid-Ask Spread is small at that spot. When the Bid-Ask Spread is small, the more trader will invest there and trading volume will be raised. In the result, the demand will increase and the price too.

But if there is no much liquidity in the market, this mean that the Bid-Ask Spread will be large here. When Bid-Ask spread is large, the trading volume will not be high. The people will not invest in such market and supply will increase. The price will decrease which result in downtrend.

So in both cases, we see that having knowledge of Bid-Ask Spread, we can get profit and safe from loss. The highly versatile and liquidity in market is always good to invest because in such markets, the trading volume is high. When the Bid-Ask spread is large, such markets are not highly liquidate. The trading volume will not be so high so in such cases by investing, we may have lose.

a.) Calculate the Bid-Ask spread.

Bid-Ask Spread = Ask Price - Bid Price

The Ask Price= $5.20

The Bid Price= $5

Bid-Ask Spread = $5.20 - $5

Bid-Ask Spread = $0.2

So we have the Bid-Ask Spread price 0.2$

b.) Calculate the Bid-Ask spread in percentage.

The below is the formula to calculate the Bis-Ask Spread in percentage

%Bid-Ask Spread = (Spread/Ask Price)100

The Ask Price= 5.20$

The Ask-Bid Spread price= 0.2

%Bid-Ask Spread = ($0.2/$5.20)100

%Bid-Ask Spread = 3.846%

So we have the Bid-Ask Spread price in percentage= 3.846

a.) Calculate the Bid-Ask spread.

The below is the formula to calculate the Bit-Ask Spread

Bid-Ask Spread = Ask Price - Bid Price

The Ask Price= $8.80

The Bid Price= $8.40

Bid-Ask Spread = $8.8 - $8.4

Bid-Ask Spread = $0.4

So we have the Bid-Ask Spread price 0.4$



b.) Calculate the Bid-Ask spread in percentage.


The below is the formula to calculate the Bid-Ask Spread in percentage

%Bid-Ask Spread = Spread/Ask Price)100

The Ask Price= $8.8

The Bid-Ask price= $0.4

%Bid-Ask Spread = ($0.4/$8.8)100

%Bid-Ask Spread = 4.545

So we have the %Bid-Ask Spread in percentage= 4.545.

We have studied above that when the Bid-Ask Spread is high, the liquidity will be low and when the Bid-Ask Spread is low, the liquidity will be high. In above case we see that the Bid-Ask Spread for Crypto X is less than the Bid-Ask spread of crypto Y. So liquidity of Crypto X will be high as compare to Liquidity of Crypto Y.

• Low Bid-Ask Spread=High Liquidity

• High Bid-Ask Spread=Low Liquidity

Crypto X Bid Ask Spread= 0.2$

Crypto Y Bid Ask Spread= 0.4$

So Crypto X will have the high liquidity

We have mentioned above how much uncertain the exchange world is. Because of this uncertainty and versatility, the values of the coins keep moving upward or downward every time. Sometime, what we are expecting doesn't happen and the market start moving in another direction. In such cases, we may have lose of money.

When our order execute at the price which is not same to the expected price, it is known as the Slippage. In Slippage, the order execute at different price. That price is not expected. This usually happen in the markets where the Bid-Ask Spread is high. Suppose we invest in a coin in 1$ as expecting to sell it at 2$. But Suppose the market start moving downward and now the order executed in 0.8$. You will have lose here. There Are usually Two Types of the Slippage in the market

• Positive Slippage
• Negative Slippage

The Positive Slippage always result in term of profit. You do not face lose of money in Positive slippage. In Buy or sell cases, the positive slippage always earn the money which is not usually expected.

Positive Slippage In Buy Order

When you are expecting to buy the coin at a certain price but order execute at the price which is low than your expected price, you will have benefit. This is the Positive Slippage in Buy Order

Positive Slippage in Sell Order

When you are expecting to sell yor coins at a certain price but order execute at the price which is higher than your expected price, you will have profit. This is the Positive Slippage in Sell Order.

This is not in the favor of the traders. In such slippage cases, the traders face loses in both buy and sell orders.

Negative Slippage In Buy Order

When you are expecting to buy the coin at a certain price but order execute at the price which is high than your expected price, you will face lose. This is the Negative Slippage in Buy Order

Negative Slippage in Sell Order

When you are expecting to sell your coins at a certain price but order execute at the price which is Lower than your expected price, you will Face lose. This is the Negative Slippage in Sell Order.

The Bid-Ask Spread is the difference between the price at which seller want to sell his products and the price at which the buyer want to buy the products. The Seller want to sell his products at the high amount and buyer want to buy the product at the low price. The Bid-Ask Spread help the traders in market very much.

The Slippage is the case when your orders execute at the price which was not expecting. In positive Slippage the people have profit and in negative slippage the people face lose.

Cc: @awesononso