Steemit Crypto Academy [Beginners' Level] | Season 4 Week 1 | The Bid-Ask Spread by professor @awesononso

INTRODUCTION

Hello friends. I am so excited to be back to school in this season, the long short break was highly needed for students like me to cool off a bit. Thank you @CryptoAcademy for coming back with this season 4. I will be participating in the homework task of professor @awesononso. Thank you processors for breaking down the course to my level.

Source

1 Properly explain the Bid-Ask Spread.

@charis20 have an intention to purchase a laptop to enable her run the Crypto Academy adequatel. She in this case is the bidder. On getting to the Steemit Laptop plaza the seller told her of the last price the laptop will go for, assuming she decided that her last price for that laptop is $40SBD and the seller says that his own price is $45SBD

In this case the Bid Price is $40SBD which @charis20 is willing to buy

Ask Price now is the last price the dealer is willing to sell which is $45SBD.

From my steemit wallet

Spread Price
This is the difference that exist between the Bid Price and the Ask price.

According to my explanation above the spread price will be;
Bid price - Ask price

Bid Price = $40SBD
Ask Price = $45SBD

• $40SBD - $45SBD = $5SBD

So in this case the spread price will be $5SBD

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

If a subject matter is not important or necessary there is no sense talking about it. So Bid-Ask Spread is necessary/important for the following reasons;

• In cryptocurrency, it helps in determining the the liquidity of the market
• The Bid-Ask Spread helps to know the last price the seller is will to let his goods out or the last price the buyer is willing to buy.
• It helps the trader to manage risk because when a sale order is initiated and it is going above, the trader will have to cut the market to avoid further loses in the trade.
• The Bid-Ask spread helps the trader to know the kind of order he is going to place.

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.

Crypto X Bid-Ask Spread
To calculate this I will subtract the Bid Price from the Ask Price to get the Spread

Bid Price = $5
Ask Price= $5.20

$5 - $5.20
= $0.20
So the difference is $0.20 which is the Bid-Ask spread.

b. To calculate the percentage, I will say
Spread divided by the Ask price multiplied by 100
0.20/5.20X100
0.20/5.20 = 0.0385
0.0385x100 = 3.85%

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.

Solution
Crypto Y Bid Price = $8.40
Bid Price = $8.80

To calculate the Bid-Ask spread will be;
$8.40-$8.80
=$0.40

The Bid-Ask Spread percentage calculation will be
0.40/8.80
=0.0455
Then
0.0455x100
=4.55%

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

Determining liquidity I can say it is a market that the Bid and Ask Spread are not too much apart from each other if it is too much apart we can say that the market is illiquid.
So according to the X and Y market, the X has a higher liquidity because there difference are not too a part from each order

6 Explain Slippage

Slippage can be said to occur when a price that was initially intended for a community to be sold gets a variance either upward or downward.

For instance, I already made my budget to purchase my laptop at $40SBN and getting to the market I got it at a higher price of $45SBD I can say then there is a slippage.

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

• Positive Slippage
  This can be say that the market is favourable to the trader. Positive slippage can be said to have occurred in trading there is a change in the market that will cause a poseffect to the wallet of the trader.
  For instance; when a crypto trader sets his buy signal at $20 and it buys at the rate of $19 or when he sets his sell signal at $26 and the sell call sold at $27 we can say that a positive Slippage hase occurred.

• Negative Slippage
  In this situation there is a change in the market that has a negative effect in the wallet of the trader. Most traders do not like this situation because it reduces the amount in there wallet. For instance, I set my buy call $20 and it finally buys at the rate of $20.3 or my sell call at $26 and it sold out at $25.6, it is a negative Slippage that has occurred which will cause a negative impact to my wallet.

CONCLUSION

The study of the Bid-Ask Spread is of great importance, any trader that is familiar with this will minimize the level of loses he incues in trade.

Thank you so much Professor @awesononso for this explicit lecture. It is much appreciated by me. Thank you @steemitblog for welcoming this great idea.

Best Regards

@charis20