Crypto Academy / Season 4 / Week 1 - Homework Post for @awesononso: THE BID-ASK SPREAD

Hello everyone ,i welcome you all to the new season of the academy!! Hope this met you in excitement .

Carrying on, i will be diving right in into the homework task for the first week of the season lectured by prof @awesononso on the topic: THE BID-ASK SPREAD

With regard to the homework post,have chosen to answer the question in the order:

Properly explain the Bid-Ask Spread.

Why is the Bid-Ask Spread important in a market?

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.

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.

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

Explain Slippage.

Explain Positive Slippage and Negative slippage with price illustrations for each.

Properly explain the Bid-Ask Spread

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In monetary business sectors, A Bid-Ask Spread is the difference between the asking cost and the offering cost of resources. The Bid-Ask Spread is the difference between the most expensive cost the seller will offer (the bid cost) and the least value the purchaser will pay (the asking cost). Regularly, resources with a limited bid-ask spread will have a popularity. Conversely, a resource with a wide bid-ask spread might draw a low volume of interest, thusly affecting more vast errors in its cost.

The Bid-Ask Spread can be viewed as a proportion of the market interest for a specific resource. Since the bid can be said to address interest and the request to address the stockpile for a resource, the facts would demonstrate that when these two costs grow further separated the value activity mirrors an adjustment of the organic market.

For Example;

On the off chance that the bid cost for a stock is $20 and the asking cost for a similar stock is $21, then, at that point, the bid-ask spread for the stock in inquiry is $1. The bid-ask spread can likewise be expressed in rate terms; it is usually determined as a level of the least sell cost or ask cost.
the bid-ask spread in rate terms would be determined as $1 partitioned by $21 (the bid-ask spread separated by the most minimal ask cost) to yield a bid-ask spread from 4.8% ($1/$21 x 100). This spread would close if a potential purchaser presented to buy the stock at a more expensive cost or then again if a potential seller presented to sell the stock at a lower cost.

Why is the Bid-Ask Spread important in a market?

• Bid-ask spread is important in a market in the sense that, Bid-ask spread is an aide on the kind of request to be put. Ordinarily, if the bid-ask spreads are thin you can get the best cost with the market request itself. In any case, if the spreads are more extensive, a cut-off request will be a superior decision.

• Bid-ask spread is a proportion of the exchanging risk of the stock. For instance, the entire thought of executing a purchase or request in the market is to get the stock as near the best cost as could be expected. The higher the bid-ask spread, the higher the danger in exchanging the stock.i.e the spread is important in determining the danger/risk in purchasing the particular asset.

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

crypto X Parameters are;

Bid price =$5
Ask price =$5.20

a.) Bid-Ask spread =Ask price – Bid price
i.e Spread = $5.20 - $5 = $0.20

Therefore, The Bid-Ask Spread for crypto X is $0.20

b.) Spread percentage = (Spread/Ask price) x 100
I.e Spread percentage = ($0.20/$5.20) x 100 = 3.846%

Therefore, The Spread percentage for crypto X is 3.846%

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.

crypto Y Parameters are;

Bid price =$8.40
Ask price =$8.80

a.) Bid-Ask spread =Ask price – Bid price
i.e Spread = $8.80 - $8 40 = $0.40

Therefore, The Bid-Ask Spread for crypto Y is $0.40

b.) Spread percentage = (Spread/Ask price) x 100
I.e Spread percentage = ($0.40/$8.80) x 100 = 4.545%

Therefore, The Spread percentage for crypto Y is 4.545%

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

Crypto X has higher liquidity than Crypto Y

Why?

Because the Bid-Ask spread of crypto X is smaller ($0.20) compared to that of crypto Y which has $0.40 Bid-Ask spread.

Explain Slippage.

In monetary exchanging, Slippage is a term that implies the contrast between an exchange's normal cost and the genuine cost at which the exchange is executed. It is a wonder that happens when market orders are put during times of raised fluctuation, just as when enormous orders are set when there is a lacking purchasing revenue in a resource for keeping up with the normal exchange cost.

One of the more normal ways that slippage happens is because of a sudden change in the bid/ask spread. A market request might get executed at a less or more ideal cost than initially planned when this occurs.

Explain Positive Slippage and Negative slippage with price illustrations for each

• Positive Slippage

Positive slippage happens when a request is executed at a preferred cost over expected,in a feeling that the ask has diminished in a long exchange or the bid has expanded in a short exchange .

For example, in a case that you are purchasing a resource at $1.25 however the request is executed at $1.20, then, at that point, you have a value that is better by $0.05.

• Negative Slippage

Negative slippage happens when a request is executed at a more regrettable cost than expected, which often occurs when the ask has expanded in a long exchange or the bid has diminished in a short exchange.

For example, in a case that you are purchasing resources at $1.40 however the request is filled at $1.45, you have a value that is more regrettable by $0.05.

Conclusion

On this particular topic have learnt the Bid-Ask spread, its occurance, and the importance of the spread .As it is to be greatly considered before diving into a resources in the market business.

On the other hand we also learnt about slippage which depends on the fluctuations of market order as at the time,where we also have positive slippage (in favor of traders) and negative slippage(not in favor).

Thanks to prof @awesononso ,the lecture made it more easier to navigate through the homework.

Thank You!! for reading up...see you next time!!!