# Steemit Crypto Academy Season 4 Week 1 | Homework Post for Professor @awesononso - The Bid-Ask Spread

by: Akbar Sanjani

Good morning everyone, steemians, blogers, readers, and crypto lovers. I will start a positive activity today because life must always be productive and today I will write a post about cryptocurrency on my blog to participate in the Steemit Crypto Academy Season 4. This is the first week of Season 4 and the first class that I will enter in this season is professor @awesononso's class. In this class, we will learn and share knowledge about “The Bid-Ask Spread” based on the following questions.

Question 1:

Source

In simple terms, the Bid-Ask spread or also called the spread is the price difference between the Bid price and the Ask price, the Bid price is the highest price that buyers are willing to buy while the Ask price is the lowest price that sellers are willing to sell, and Limit orders play an important role in creating Bid-Ask spreads in each market.

Formula:

Question 2:

Question 3:

If Crypto X has a bid price of \$5 and an ask price of \$5.20

Percentage Spread = (\$0.2 / \$5.20) x 100%

Question 4:

If Crypto Y has a bid price of \$8.40 and an ask price of \$8.80

Percentage Spread = (\$0.40 / \$8.80) x 100%

Question 5:

In one statement, which of the assets above has the higher liquidity and why?

Based on the philosophy, the lower the bid-ask spread, the higher the liquidity, and vice versa. From these two cases, I can say that Crypto X has higher liquidity than Crypto Y because Crypto X has a lower bid-ask spread than Crypto Y, Crypto X's bid-ask spread is \$0.2 while Crypto Y's bid-ask spread is \$0.4. This also indicates that the trading volume of Crypto X tends to be more than the trading volume of Crypto Y.

Question 6:

Explain Slippage

Source

Slippage is a phenomenon of price changes in a very very short time span that causes a market order to be executed at a price that does not match the market price when the order is placed by a trader and this usually occurs in markets that have large bid-ask spreads with low level of liquidity.

Question 7:

Explain Positive Slippage and Negative slippage with price illustration

a.) Positive Slippage with price ilustration

In this case, the market order placed by the trader will be executed at a more favorable price, both on Buy orders and Sell orders.

The market order was placed at a price of \$2 but it turned out that the order was executed at a price of \$1.9 so that the trader experienced a positive slippage phenomenon of \$0.1 (\$2 - \$1.9 = \$0.1) which made the trader get more profit, of course.

Sell order example:
The market order was placed at a price of \$2 but it turned out that the order was executed at a price of \$2.1 so that the trader experienced a positive slippage phenomenon of \$0.1 (\$2.1 - \$2 = \$0.1) which made the trader get more profit, of course.

b.) Negative Slippage with price ilustration

In this case, the market order placed by the trader will be executed at an unfavorable price, either on a Buy order or a Sell order.

The market order was placed at a price of \$2 but it turned out that the order was executed at a price of \$2.1 so that the trader experienced a negative slippage phenomenon of \$0.1 (\$2.1 - \$2 = \$0.1) which made the trader not get more profit, of course.

Sell order example:
The market order was placed at a price of \$2 but it turned out that the order was executed at a price of \$1.9 so that the trader experienced a negative slippage phenomenon of \$0.1 (\$2 - \$1.9 = \$0.1) which made the trader not get more profit, of course.

Conclusions