STEEMIT CRYPTO ACADEMY [BEGINNERS’ LEVEL] SEASON4 WEEK1/ THE BID-ASK SPREAD.

Greetings @awesononso professor. Thank you for the lecture on the Bid-Ask Spread. My entry is below

Explain the Bid-Ask Spread
Bid-Ask Spread is the amount in a market situation where the ask price exceeds the bid price of an asset. In every market, there are two players who are the seller and the buyer. The bid is said to represent demand while the ask is said to represent the supply of an asset. So when there is a change in the prices of an asset, the price action then reflects a change in its demand and supply.

Elements of the Bid-Ask Spread
• High liquidity; in order for an asset to to ensure an exit point do as to make profits, the liquidity must be high.
• Demand and supply; there should be a friction in the supply and demand of an asset so that a spread is created.

Why is the Bid-Ask Spread important in the market?
The bid ask spread is a very important aspect in the market because;
• It measures the level of liquidity of an asset. It can measure whether the liquidity is high or low.

• It also measure the risks involved in trading an asset by executing an order to the market to make the asset closer to the best price.

• It guides traders and buyers on what market orders to place. For example if the bid ask spread is narrow, then one can get a good price with the market order but if the spread is wide, the a limit order is the best solution here.

If crypto X has a bid price of $5 and an ask price of $5.20, calculate the bid-ask spread

Spread = Ask price - Bid price
Ask price =$5.20
Bid price=$5
$5.20 - $5 = $0.20
therefore, the spread is $0.20

Calculate the Bid-Ask Spread in percentage
(Spread/ Ask price) X100
Spread = $0.20
Ask price = $5.20
($0.20/5.20)X100 = $3.85%
therefore the percentage bid ask spread is $3.85%

If crypto Y has a bid price of $8.40 and an ask price of $8.80, calculate the Bid-Ask Spread

Spread = Ask price - Bid price
Ask price = $8.80
Bid price = $8.40
$8.80 - $8.40 = $0.40
therefore, the Bid ask spread is $0.4

Calculate the Bid-Ask Spread in percentage
(Spread/ Ask price) X100
Spread = $0.4
Ask price = $8.80
(0.4/ 8.80) X100 = $4.55%
therefore, the percentage of bid ask spread is $4.55%

Which of the above assets has a higher liquidity and why?
Liquidity in this matter is initiated by the trader who demands for it and then the supplier suppliers the liquidity.
The liquidity of crypto X is higher than that of crypto Y because the Bid- Ask Spread for crypto X is narrower than that of crypto Y.

Explain Slippage

S
Slippage is defined as a market condition where participants get different trade execution prices than the intended prices.
When an order is executed, the asset is bought or sold at the most favorable price hence producing good results but when the market prices change, this allows slippage to occur. Slippage is both positive and negative.

Explain positive slippage and illustrate
Positive slippage occurs when an order is filled at a better price than it was expected. It is the most common form of slippage in most markets because many traders are executed at their intended prices.
For example if you are purchasing a coin at 1.3050 but the order is executed at 1.3045, then you have a price better by 5.

Negative Slippage
Negative slippage occurs when an order is filled at a worse price than expected. For example if you are purchasing a coin at 1.5050 but the order is filled at 5055, then the price is worse by 5 which is called the negative slippage.

Conclusion
In Conclusion, the Bid-Ask Spread has some importance ms as noted above but also has effects. It can be high due to liquidity or even unknown securities.

Slippage also is not bad because it also affects the market in a positive form. This yields more profits because the intended price is executed.

Cc. @awesononso