We meet again on homework for the 1st week in this 4th season of Steemit Crypto Academy. This time I will make a post for the homework of @awesononso. The task this time is to answer several questions that have been given by the professor about The Bid-ASk Spread.

Explaining The Bid-Ask Spread

1. What is Bid-Ask Spread

In any exchange market spread is the different between ask price and bid price, which ask is the price that can be trade for buying and bid is the price that can be trade for selling.

2. Calculating The Spread

To calculating spread in crypto market we can use the formula below

• Calculate the spread

SPREAD = ASK PRICE - BID PRICE

• Calculate the spread in precentage

%SPREAD = (SPREAD / ASK PRICE) X 100

Why Bid-Ask Spread Important To The Market

The bid ask spread for a market is important because the bid ask spread is affected by liquidity in that market, markets with high liquidity are better to trade than markets with low liquidity.

When a market has high liquidity then the bid ask spread will be thinner which will give us a better price to trade, while for a market that has low liquidity it will cause a wide spread and of course the price in the market is not good enough to trade.

Two Example Calculating Spread In Cryptocurrency

• First Example Is From BITCOIN(BTC)

as shown in the picture, BTC on 09 september 2021 at 03:53 UTC +7, the bid price for BTC is $46020.98 and the ask price is $46082.66, then the spread is:

• Calculating Spread

Spread = Ask price - Bid Price
Spread = $46082.66 - $46020.98
Spread = $61.68

• Calculating Spread in Precentage

%Spread = (Spread/Ask Price) x 100
%Spread = (61.68/46082.66) x 100
%Spread = 0.0013 x 100
%Spread = 0.13%

• Second Example Is From ETHEREUM(ETH)

ETH on 09 September 2021 at 03:57 UTC +7, the bid price for ETH is $3472.05 and the ask price is $3473.53, then the spread is:

• Calculating Spread

Spread = Ask price - Bid Price
Spread = $3473.53 - $3472.05
Spread = $1.48

• Calculating Spread in Precentage

%Spread = (Spread/Ask Price) x 100
%Spread = (1.48/3473.53) x 100
%Spread = 0.0004 x 100
%Spread = 0.04%

From the calculation results of the two cryptocurrencies above, it can be concluded that on September 9th, 2021 ETHEREUM has higher liquidity than BITCOIN due to thinner spreads.

Slippage

Slippage is a price that differs from the price that was requested at the time of order execution, this can occur in any type of exchange market. In the crypto market, slippage can occur even more frequently because the movement of cryptocurrencies and values is very volatile, there are two types of slippage positive slippage and negative slippage.

Positive and Negative Slippage

Positive slippage is more profitable slippage while negative slippage is detrimental slippage.

1. Positive Slippage

• Positive slippage onbuy orders

The requested buy order for crypto BTC was at a price of $46082.66 but the order was executed at a price of $46080.15, so the slippage positive was $46082.66 - $46080.15 = $2.51.

• Positive slippage on sell orders

A sell order was requested for crypto BTC at a price of $46020.98 but the order was executed at a price of $46024.98, hence a positive slippage of $46024.57 - $46020.98 = $3.59.

1. Negative Slippage

• Negative slippage on buy orders

The requested buy order for crypto BTC was at $46082.66 but the order was executed at $46085.78, so the slippage positive was $46085.78 - $46082.66 = $3.12.

• Negative slippage on sell orders

The requested sell order for crypto BTC was at $46020.98 but the order was executed at $46019.01, hence the positive slippage was $46020.98 - $46019.01 = $1.97.

Conclusion

Bid-Ask spreads and slippages are important things to know when trading in the exchange market, knowing that spreads and slippage have a huge impact when we trade in the exchange market.

CC: @awesononso