Steemit Crypto Academy [Beginners' Level] Season 4 Week 1 | The Bid-Ask Spread
Have a good day to all Crypto lovers! 🎀
I first came across the words Bid and Ask when marketing SBD in a Steemit wallet. That knowledge and Professor @awesononso's article helped me a lot to prepare this article.
✨️Homework✨️
1.Properly explain the Bid-Ask Spread.
2.Why is the Bid-Ask Spread important in a market?
3.If Crypto X has a bid price of $ 5 and an ask price of $ 5.20,
a).Calculate the Bid-Ask Spread.
b).Calculate the Bid-Ask Spread in percentage.
4.If crypto Y has a bid price of $ 8.40 and an ask price of $ 8.80,
a).Calculate the Bid-Ask Spread.
b).Calculate the Bid-Ask Spread in percentage.
5.In one statement, which of the assets above has the higher liquidity and why?
6.Explain slippage.
7.Explain Positive Slippage and Negative Slippage with price illustrations for each.
1️⃣Properly explain the Bid-Ask Spread.
Reference:- https://en.m.wikipedia.org/wiki/Bid%E2%80%93ask_spread
When trading wholesale in the stock market, the price / volume screen shows the bid price and the ask price. The bid price indicates the best price at which the other parties are willing to buy the shares, and it is the best and highest price at which the stock can be sold to the dealer on the screen.
The ask price indicates the other party's best selling price and the on-screen seller's best and lowest price at which the stock can be purchased. The Bid-Ask Spread is the amount of ask price on the screen that is higher than the bid price. The screenshot I have uploaded above shows the distribution of Bid-Ask Spread.
Bid price is the highest price that new investments are willing to pay per unit, and this indirectly contributes to the fund's trade costs when investing new funds. Therefore, investors in the trade can be protected. The demand price is the lowest price at which a unit seller would like to sell a unit. Accordingly, Bid-Ask Spread is the quantity over which the market price of an asset exceeds the bid price. That is, the difference between the bid price of an asset and the ask price.
This can be mathematically presented as follows.
2️⃣Why is the Bid-Ask Spread important in a market?
Bid-Ask Spread is very important when buying and selling shares in the stock market.
♦️This can be considered as an important measure of the liquidity of any stock. This is usually done in such a way that the stock is liquid and the pricing is done.
♦️When there is a very low bid demand for highly liquid stocks, they expand.
3️⃣If Crypto X has a bid price of $ 5 and an ask price of $ 5.20,
a).Calculate the Bid-Ask Spread.
b).Calculate the Bid-Ask Spread in percentage.
🔮Answer
a).According to the above data,
The Bid Price=💲5
The Ask Price=💲5.20
Bid-Ask Spread=💲5.20-5 = 💲0.2
Accordingly, the value of the Bid-Ask Spread = 💲0.20
b).% Spread= (Spread/Ask Price)×100 =(0.2/5.20)×100= 0.0384×100 = 3.84%
Accordingly, the value of the Bid-Ask Spread in percentage= 3.84%
4️⃣If Crypto Y has a bid price of $ 8.40 and an ask price of $ 8.80,
a).Calculate the Bid-Ask Spread.
b).Calculate the Bid-Ask Spread in percentage.
🔮Answer
a).According to the above data,
The Bid Price=💲8.80
The Ask Price=💲8.40
Bid-Ask Spread=💲8.80-8.40 = 💲0.4
Accordingly, the value of the Bid-Ask Spread = 💲0.4
b).% Spread= (Spread/Ask Price)×100 =(0.4/8.80)×100= 0.4545 = 4.545%
Accordingly, the value of the Bid-Ask Spread in percentage = 4.545%
5️⃣In one statement, which of the assets above has the higher liquidity and why?
If the gap between bid-Ask-Spread is small, there are order quantities with good limits from buyers and sellers. This is a very high liquidity market with a high trading volume. Thus, Crypto X is an asset with more liquidity than Crypto Y.
If the gap in the bid-Ask Spread shows a wide distribution, it means that the orders of buyers or sellers are limited. So bids or prices are low. This is a not-so-liquid market. From the above calculations the non-liquid market is the Crypto Y market.
6️⃣Explain slippage.
Sliding is the difference between the expected price of a trade and the price at which the trade is activated. In this case, the market participant always gets a different activation price than the expected volume.
❇️ This can happen at any time in the Bid-Ask Spread in the crypto market. But this kind of slippage is more common during times when there is more volatility when using market orders.
❇️This happens when the bid / ask spread changes between the market demand period and the exchange or other merchandise execution order.
❇️ This can happen even when executing a large order, but this is due to the fact that there is not enough volume at the selected price to maintain the spread of bid demand.
Orders filled during that period when market liquidity is low do not always match expectations. That is, slippage occurs in such cases.
7️⃣Explain Positive Slippage and Negative Slippage with price illustrations for each.
🌟Positive Slippage🌟
The bid-Ask Spread screen that appears in the seller's eyes is a positive slippage when the price opens or sells at a higher value than expected. This happens when the order is filled at a price higher than the expected value.
For example, if an order of 12 Steem is placed for the sale of 1 SBD and 15 Steem of 1 SBD are sold when the order is executed,
The positive slippage would be,
If 1 SBD sells for 15 Steem and sells for 14.5 Steem when the order is executed,
The positive slippage would be,
🌟Negative Slippage🌟
The bid-Ask Spread screen that appears in the seller's eyes has a negative slip when it opens or sells at a lower-than-expected price. This happens when the order is filled to a value lower than the expected value.
When placing a trade order for $ 130, if the trade order is executed for $ 138,
The negative slippage would be,
Similarly, if a trade order is sold for $ 130 and a trade order is sold for $ 125 instead,
The negative slippage would be,
♦️Conclusion
Stock market investors need to know about the spread of bid or ask. By gaining a better understanding of the scope of bidding, losses can be avoided and maximum value can be gained from the assets ordered. When selling or buying using the Bid-Ask Spread, it affects its assets and can affect the overall return on investors.
Today is the end of the first week's homework task for Season 4, which I prepared. Thank you so much for staying with my article!