Crypto Academy /Season 4 / Week 1 - Homework Post for Professor [@awesononso] || Bid- Ask Spread
Good day my professor @awesononso is my pleasure to do your assignment on Bid-Ask Spread, i welcome everyone
(1) Properly explain the Bid-Ask Spread
I can start by explaining the meaning of Bid price and Ask price.
Bid price can be considered as a measure of supply which can eiher be a commodity, asset or exchange as concerning cryptocurrency. Bid price is defined as the the largest price that a buyer is ready to pay for an exchange. The bid price is set by the buyer and is the maximum amount that they are willing to pay for an exchange. Example if a steemit user wants to sell a steem he or she would need to determine how much another steemit user is willing to pay for it.
Ask price can be considered as a measure of demand which can be either be a commodity or exchange. Ask price can be defined as the smallest price that a seller is willing to get or purchase for commodity or exchange. Example a cryptocurrency(steem) is trading with an ask price of $20 then a person wishing to buy the cryptocurrency would need to offer at least $20 in order to purchase it.
Bid- ask spread can be said to be the measure of the supply and demand for a particular exchange or stock it is the difference between the ask price and bid price. When ever there is spread increase this actually shows that there is a change in the supply and demand for an exchange. In bid- ask spread we have market makers and the price takers. In bid-ask spread the market makers creates the estimated price of an exchange for bid price and ask price while the price takers trades on the estimated price of an exchange created by the market makers for bid price and ask price.
(2) Why is the Bid-Ask spread important in a market?
Bid- ask spread helps to know on the type of order to placed that is its gives guide on the measure of supply and demand of an exchange or cryptocurrency. Bid- ask spread gives an indication on the direction of the market movement there by avoiding risk on trade or exchange.
Another important is that Bid-Ask spread helps to balance the measure of supply(ask price) and the measure of supply(ask price) thereby maintaining market liquidity of a commodity or exchange.
(3) if crypto X has a bid price of $5 and an ask price of $5.20:
(a) Calculate the Bid-Ask spread
The mathematical formular for bid-ask spread is ask price-bid price and bid- ask spread can be called spread, therefore spread=ask price-bid price
Spread =$5.20-$5
Spread=$0.20
(b) Calculate the Bid-Ask spread in percentage.
The mathematical formular for bid-ask spread in percentage is (spread÷ask price)×100
%Spread=(0.20÷5.20)$×100
%Spread=3.846%
(4) If crypto y has a bid price of $8.40 and an ask price of $8.80:
(a) Calculate the Bid-Ask spread.
The mathematical formular for spread is ask price-bid price.
Spread=$8.80-$8.40
Spread=$0.40
(b) Calculate the Bid-Ask spread in percentage.
The mathematical formular for bid-ask spread in percentage is (spread÷ask price)×100
%Spread=(0.40÷8.80)$×100
%Spread= 4.545%
(5) In one statement which of the assets abov has the higher liquidity and why?
From the above statement we have that the Spread of crypto Y is $0.40 and its percentage is 4.545% is higher than Spread of crypto X which is $0.20 and its percentage is 3.846% with these assets one can say that crypto Y has the maximum liquidity than crypto X.
(6) Explain slippage.
Slippage can be set to when the bid-ask spread move between the time a price requester demands a market order and the time a market demanded executes the market order. Slippage is simply describe as that targeted price of a trade and that of the price at which the trade is deal with. In slippage we have the positive slippage and negative Slippage. In positive slippage the price of the exchange falls below the expected price in the market order while in negative slippage the price of exchange increases above the expected price in the market order.
(7) Explain Positive Slippage and Negative Slippage with price illustration for each.
Positive slippage happens when the price of an exchange falls below the expected price in the market order. Example if a steemit user wants buys 10 steems at $50,the market order may fill at $40 resulting in the decrease below the expected price in market order.
Negative Slippage happens when the price of an exchange increases above the expected price in the market order. Example if a steemit user wants to buy 10 seems at $50,the market order may fill at $60 resulting to increase above the expected price in the market order.
Am @kingworldline
Thanks to professor @awesononso