The Bid Ask Spread (Part II)- Steemit Crypto Academy- S4W3- Homework Post for @awesononso
INTRODUCTION
Hello Steemians am @joelmaxwell and am very happy that cryptoacademy is back and I hope to do my very best. This week lecture is about the Bid-Ask spread but the higher part of it and I will be answering questions.
Question 1
Define the Order Book and explain its components with Screenshots from Binance
Answer
The order book can be defined as the listing or registering of buy and sell order in the market, it may be manually or electronically.
It is book that helps traders with trading information and will bring improvement to the market because it is open for all traders.
It is not a constant book,it is updated every second
When going through the book we will see the highest bid price and the lowest bid price. It is also a very important indicator in the market because through it the trader will know when to enter the market and maximize profit.
It has 2 main part which are the bid price and the ask price, the bid price is the highest price a trader can pay for an assets while the ask price is the lowest amount a seller can sell an assets.
The order book has 3 components that are ask price, bid price and the market price.
The market price is current price in which assets are being sold in the market. The market taker are people that will buy at the market price while the market markers will always dispute the market price.
The bid price are the highest price that a trader is able to pay for an asset, it is the red color part of the screenshot and it is arranged from the highest bid price a trader place in the market to the lowest bid price that another trader will place in that same market.
The ask price is the lowest price that a seller will be willing to sell an asset, it is the green color part of the screenshot and arrange according to the price.
Question 2
Who are Market Makers and Market Takers?
Answer
Market markers are people that make decisions about the bid-ask price and exist in all market,the also dispute the current price of assets in the market
The make profit from both the bid price and ask price and without them in the market investment activities will be slow because the help in making transaction sufficient in the market and brings about reduction in liquidity in the market.
There are also compensated in the market because of the risk the face when assets price decline after the might have purchase it and must also work under the country rule and regulations for example rule of the security and exchange commission.
Market Takers
This are people that initiate the market order, the enter the market without disputing the price of assets. By this I mean the come into the market and purchase asset with the market current price. The buy at ask price and sell at the bid price.
What is a Market Order and a Limit order?
Answer
Market order
Market order is an order that is being initiated by market takers, this are orders that the market taker comes in to the market in order to buy and sell with the current market price. It primary goal is marketing immediately and is preferable for larger stock buying and it is mostly used by online brokers, it is not preferable to less stock.
Here the price is not control by trader.
Limit order
This are order that deals with bid price(highest price a buyer can pay for asset) and ask price(lowest price a seller can sell an asset). It is an order that is gotten for future purpose.
Here,if the trader is not comfortable with the price , he or she will have to wait till when the bid ask price is favourable.
The traders are in control of assets price.
It is initiated by market marker.
Question 4
Explain how Market Makers and Market Takers relate with the two order types and liquidity in a market.
Answer
Market markers are those that makes decision about the bid ask price in the market, there are the one that takes provides liquidity. The are also people that help other trader or small and upcoming investor to know when to enter the market and maximize profit the give investors signal and operate under a given law in the market or society such as exchange law.
while
Market takers are those that enter the market and trade immediately without disputing the price the trade with the market current price and are initiators of market order, the don't have control in the market, they are always those that takes liquidity in the market that is being provided by market markers that controls the assets price.
Question 5
Place an order of at lease 1 SBD for Steem on the Steemit Market place by
a) accepting the Lowest ask. Was it instant? Why?
b) changing the lowest ask. Explain what happens.
(Make sure you are logged in to your wallet).
Answer
Step 1
You will login steemitwallet and click on the drop down arrow then market.
Step 2
After opening the market, I will place a buy entry of 1sbd for 12.213steem and I accept the lowest ask price of 0.081882.
Step 3
After accepting the lowest ask price,it was at instant when I confirm the order I observed it was fast due to the fact that I accepted the order without change in price.
B) I will first enter steemitwallet
Step 1
You will login steemitwallet and click on the drop down arrow then market.
Step 2
I will make a buy entry of 1sbd for 12.171steem at my price of $0.082175.
Step 3
I created an order but because it was below the ask price. The order was not executed. It only registered but I will have to wait for the lowest price to decrease.
In my open order I observed the price was lower than my price by $0.000003
Question 6
Place a TRX/USDT Buy Limit order on the Binance exchange for at least $15. Explain your steps and explain the impact of your order in the market. (Give Screenshots).
Answer
Step 1
I will first of all open the binance application in my phone after downloading and verification and click on market
Step 2
After clicking on market,I will see a space to search since am working with TRX I will type and search for it.
Step 3
TRX/USDT will open
Step 4
I placed the limit order at 0.08728 which was less than the market price of 0.09840 with $15.63184.
Step 5
Due to the fact that it is less than the market price it will take time to be filled
THE IMPACT OF MY ORDER
After selecting the pair TRX/USD, I placed order which was lower than the market price and it wasn't fulfill immediately I will have to wait for the price to drop before the order will be filled
And by this if the order keep increasing I will not be able to execute mine thereby missing out.
QUESTION 7
Place a trx/usdt buy market order on the binance exchange for at least $15, explain your steps and explain the impact of your order in the market
Answer
Step 1
After open the application and searching for TRX and I selected TRC/USDT as I did previously.
And I placed the market order without disputing the price.
Step 2
It was filled immediately
impact of my order in the market
I was the market taker in this case,after I bought Trx at the market price without disputing the price after I place order in no time it was filled
It is in the market order that I will take the liquidity that is being provided by the market markets in the market.
Question 8
Take a Screenshot of the order book of ADA/USDT pair from Binance on the day you are performing this task. Take note of the highest bid and Lowest ask prices:
a) Calculate the Bid-Ask.
b) Calculate the Mid-Market Price
Answer
From the image above,
a)Ask = 2.259
Bid = 2.258
Spread = Bid - Ask = 2.259 - 2.258
Spread = 0.001
b)Mid-market price = (Bid + Ask)/2
Mid-market price = (2.259 + 2.258) / 2
Mid-market price = 4.517/2 = 2.2585USDT
CONCLUSION
The lecture was really an interesting one as I learn about what order book is all about, I must say that am grateful because in the process of doing this home work I open a binance account which will be helpful.
I also learn about the market markers that they are traders that select asset price unlike the market takers that will buy assets with current market price without disputing the price.
Cc: @awesononso