Crypto Academy Season 4 Week 1 [Begginers Level] The Bid-Ask Spread By Prof. @awesononso.

Hello Friends! I'm goodybest from Nigeria, it's my delight to join the Crypto Academy Season 4, this is my first ever Post in this great community and I hope I will be successful in this journey. I would love to attempt the home work question now.

PROPERLY EXPLAIN THE BID-ASK SPREAD.

In the market setting we have what we called the BID-PRICE and the ASK-PRICE.

The Bid-Price: Is the highest price (amount) a buyer is ready or agreed to pay for the purchase of a particular commodity or asset. While The Ask-Price on the other hand is the least price (amount) in which a seller will accept to sell a particular asset or commodity.
The person who wants to sell received the bid-Price while the person who want to buy pays the Ask-Price
For example I want to buy 2018 model Toyota RAV4 and the highest amount I can pay for it is 10 Million Naira👉(the bid price) But other hand the lowest price that Mr Noah the car seller can can accept is 10.5 million Naira 👉 (the ask price)

Bid-Ask Spread is the price difference between the highest amount a buyer has agreed to pay for an asset, and the least amount a seller is consenting to sell a particular asset. Mathematically we can express it this way: Bid-Ask Spread = Ask-Price - Bid price.

From the above illustration Bid-Ask Spread = 10,500,000 - 10,000,000 = 500,000
Therefore the Bid-Ask Spread = 500,000

the difference between the Ask and the Bid-Price is called Spread

screenshot from binance wallet

WHY IS THE BID-ASK SPREAD IMPORTANT IN A MARKET?

Liquidity: the term liquidity simply means the degree to which a commodity can be quickly bought or sold in the market at a competitive amount. It is an extent to which an asset can be easily converted to cash.

• the Bid-Ask Spread is the major determinant of market liquidity. Or the liquidity of the market,
• it measured the supply and the demand for a particular commodity. The Bid-Price price stands for the demand while the Ask-Price stands for the supply when the difference between these two prices are largely apart then we have what is called illiquid market.an illiquid market trading volume is significantly smaller, Meanwhile if the bid-price is close to the asked price and the spread is narrow we have what is called liquid market. meaning the trading volume will definitely be high.
• The Bid-Ask Spread help us to know which assets to invest in or trade on in order to get high rate of turnover, or profits.

my Steemit wallet showing the Ask-Price and the Bid-Price of SBD to Steem
The screenshot above indicate that the market is liquid.

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.

Solution:
a.) The Bid-Ask Spread = Ask-Price - Bid-Price
BAS IS 5.20 - 5 = 0.20
The Bid Ask-Price = 0.20

b.) % Spread = (spread/Ask-Price)100
= 0. 20/5.20=0.384
Then 0.384100 = 3.84%
%Spread = 3.84%

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.

a.) The Bid-Ask Spread for Crypto Y is
8.80 - 8.40 = 0.40
Therefore the BAS = 0.40

b.) % Spread for Crypto Y=
0.40/8.80 = 0.0454
0.0454*100= 4.54
%Spread =4.54%

IN ONE STATEMENT, WHICH OF THE ASSETS ABOVE HAS THE HIGHER LIQUIDITY AND WHY?

Crypto X has a higher liquidity in the market than than Crypto Y, because the spread percentage of Crypto X is not as wide or deep as that of Crypto Y.

EXPLAIN SLIPPAGE.

There's a widow Period between when an order is been made and executed, and anything can happen or change for good or bad during this small period of time. This changes occur more especially in the Crypto currencies market, and these is due to it highly volatility nature. Yes the price of a particular CryptoCurrency can rise very high or reduce drastically within a short period of time.
Slippage: is the the difference between the anticipated Price of a trade and the actual price. slippage is a situation whereby an order is executed at a price differs from the intended.

EXPLAIN POSITIVE SLIPPAGE AND NEGATIVE SLIPPAGE WITH PRICE ILLUSTRATIONS FOR EACH.

POSITIVE SLIPPAGE: To a buyer it is when an order is executed at a price lower than the intended or expected. For example I intended to buy Tron coin at 45(NGN) But I instead ending up buying it at 44(NGN) that will be a positive slippage for me as a buyer. The slippage will be 45 - 44 = 1(NGN)
For a seller slippage occurs when an order is executed at higher price than the intended. For example I intended to sell my Steem coins at 300(NGN) But I end up selling it at 301(NGN) that means I have a positive slippage of 301-300 =1(NGN)

NEGATIVE SLIPPAGE: It's when and order is executed at a less competitive price to a buyer. Or It is when an order is executed at an amount higher than the intended price for a buy. For example I intended to buy Steem at 299(NGN) But I ended up buying it at 300(NGN) Instead 😭 that will be a negative slippage of 300-299=1(NGN) for me.

To a seller it is when an order is filled at a price lower than the intended. For example if I intended to sell my SBD at 4000(NGN) then before I could execute the order the price of SBD Falls to 3998(NGN) so the negative slippage would be 4000-3998 =2(NGN).

Everything I learned from this lecture is new to me, but I'm pleased to learn. Thanks to prof. awesononso who took is time to explain the topic in simplest manner for us. So in a Nutshell I learned what Bid-Ask Spread is, and its important to the Market. I also learned what slippage is, and the types of slippage we have. This basic knowledge will surely help me to make wise decisions in the market, it will help me to avoid losses but instead gain more out of my asset. Thank you Steemitblog for this golden opportunity!

Cc:
@awesononso

HERE GOES MY INTRODUCTORY POST