Steemit Crypto Academy [Beginners' Level] | Season 4 Week 1 | The Bid-Ask Spread by@lordhojay

(Question 1) Properly explain the Bid-Ask Spread

The bid and ask prices are simply the best purchase and sell prices that a trader is ready to accept. The bid price for a crypto assest is the maximum price a buyer is willing to pay, whereas the ask price is the lowest amount a seller would take. The bid-ask spread is a term used to describe the difference between the bid and ask prices.

The difference between an asset's bid and ask price is the bid-ask spread, often known as The Spread. To get the bid-ask spread, use the following formula.

Bid-Ask Spread = Ask Price – Bid Price

_{A screenshot of TLM/USD from binance
Bid price is $0.2202 with an Ask Price of $0.2204 which spread is $0.0002 (0.05%)}

(Question 2) Why is the Bid-Ask Spread important in a market

The bid-ask spread is critical for traders and investors to make decisions. When we can examine this assest, deciding what to buy and when to buy it becomes much easier.

Keeping a watch on the bid-ask spread might help traders predict how the asset's price will change in the future. This will prevent traders from entering trades at inopportune times.

Traders can minimize losses and increase profits by studying the bid-ask spread.

(Question 3)
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 for Crypto X

The bidding price is $5.
The asking price is $5.20

a) Bid-ask spread =ask price – bid price
We'll get $5.20 - $5 = $0.20
As a result, for coin X, the bid-ask spread is $0.20.

b) (spread/ask price) x 100 Equals percentage spread
This gives us a percentage of ($0.20/$5.20) x 100 = 3.846%.
As a result, the crypto X percentage spread is 3.846%.

(Question 4)
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.

Solution for Crypto Y
The price of the bid is $8.40.
The asking price is $8.80

a) Bid-ask spread = ask price – bid price
We'll get $8.80 - $8.40 = $0.40
As a result, for coin Y, the bid-ask spread is $0.40.

b) (spread/ask price) x 100 Equals percentage spread
This gives us a percentage of ($0.40/$8.80) x 100 = 4.545%
As a result, the crypto Y percentage spread is 4.545%.

(Question 5)In one statement, which of the assets above has the higher liquidity and why?

Because the bid-ask spread for crypto X is less ($0.20), it has greater liquidity than crypto Y, which has a $0.40 bid-ask spread.

(Question 6) Explain Slippage

The discrepancy between a trade's projected price and the price at which it is completed is referred to as slippage. Slippage can happen at any time, but it's more common when market orders are utilized during moments of increased volatility. It can also happen when a large order is executed but not enough volume is available at the selected price to keep the existing bid/ask spread.
The buyer or seller profits from the positive volatility in this circumstance.

(Question 7) Explain Positive Slippage and Negative slippage with price illustrations for each.

Possibility of Positive Slippage
When a request is completed at a lower cost than expected, positive slippage occurs, giving the impression that the ask has shrunk in a long exchange or the bid has extended in a short exchange.

For example, if you buy a resource for $5.35 but the request is completed for $5.20, you have a value that is $0.15 higher.

Slippage in the Negative
Negative slippage occurs when a request is carried out at a higher-than-expected cost, which frequently occurs when the ask has grown in a long exchange or the bid has shrunk in a short exchange.

For example, if you purchase resources for $5.20 but the request is completed at $5.35, you have a value that is $0.15 less than you expected.

Conclusion

On this specific topic, I learned about the Bid-Ask spread, how it occurs,
and how important it is.
As such, it should be carefully evaluated before investing in market resources.

Thank you prof @awesononso, for the class