1️⃣ Properly explain the Bid-Ask Spread.

A market is made up of sellers and buyers. Goods or assets sold by a seller are purchased by a buyer. Thus there is a maximum price that a buyer is willing to pay for any asset. It is called the bid price of that asset. Similarly, the lowest price at which a seller wishes to sell an asset is the ask price for that asset.

Therefore, Bid - Ask Spread is the difference between the bid price of an asset and the ask price. This can be simply explained by the following equation.

Bid - Ask Spread = Ask price _ Bid price

The following screenshot shows an example of a bid price, Ask price and Spread. I got this screenshot from my steemit wallet. This is related to the Steem and SBD purchases.

Current bid price = $0.080201
Current ask price = $0.081201
%Spread = 1.239%

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2️⃣Why is the Bid-Ask Spread important in a market?

If the forces of demand and supply that are active in a market are in proper balance, then that trade will be active quickly. So there will be liquidity. A liquid market is a place where trading in this way is easy and there are enough buyers and sellers. In such a market the ask price is close to the bid price and therefore the bid - ask spread value will be smaller.

The more liquid a market is, the smaller its bid-ask spread value will be. That is the market volume of a small spread is high so it is a suitable market. If this happens in the opposite it will become inappropriate.

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3️⃣If Crypto X has a bid price of $5 and an ask price of $5.20,

a.) Calculate the Bid-Ask spread.
The ask price = $5.20
The bid price = $5
According to the bid - ask spread = ask price _ bid price equation,
Bid - Ask Spread = $5.20 - $5
= $0.2

b.) Calculate the Bid-Ask spread in percentage.
% Spread = ( Spread ÷ Ask price )× 100
= ( 0.2 ÷ 5.20 ) × 100
= 0.0384 × 100
= 3.84%

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4️⃣If Crypto Y has a bid price of $8.40 and an ask price of $8.80,

a.) Calculate the Bid-Ask spread.
The ask price = $8.8
The bid price = $8.4
Bid - Ask Spread = Ask price _ Bid price
= $8.8 - $8.4
= $0.4

b.) Calculate the Bid-Ask spread in percentage.
% Spread = (Spread ÷ Ask price ) × 100
= ( 0.4 ÷ 8.80 ) × 100
= 0.0454 × 100
= 4.54%

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

The Bid - Ask Spread value of crypto X is 0.2 and value of Y is 0.4 compared to the crypto X and Y above. Therefore the bid-ask spread value of crypto X is smaller than Y. The small spread value indicates that its liquidity is high. Therefore, crypto X has better liquidity than crypto Y.

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6️⃣Explain Slippage.

Such slippage is common in the crypto market. This can be attributed to the fact that the value of cryptocurrencies changes within seconds. When a merchant places an order at a price that exists in the market, those prices vary between the time the order is started and the time it takes to process. Therefore that order is then completed at a different price than the seller expects. This phenomenon that occurs in the crypto market is called slippage. The low liquidity in the crypto market causes such slippage.

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

🔸Positive Slippage🔸

There are two types of slippage and one slippage is a positive slippage. A positive slippage is when an order is filled or completed at a favorable price. (That is at an advantageous price). This is a phenomenon that applies to both buying orders as well as selling orders.

The following is an example of a positive slippage for a sales order.

Suppose you place a $200 order for the sale of Crypto X assets. However, due to the change in the price of cryptocurrencies, the order was made for $202. Therefore the positive slippage is $202 - $200 = $2.
What has happened here is that the order of sale is being filled at a higher price than we expected.

Another example :-

The Crypto X was expected to be bought for $ 120, but due to price fluctuations, the order had to be filled for $ 119. The positive slippage that occurred,
$120-$119 = $1

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🔸Negative Slippage🔸

Negative slippage is the filling of an order at an unfavorable price than expected. This negative slippage occurs as a decrease in price on sale orders and as an increase in price on purchase orders.

Negative slippage for a purchase order,
Crypto Y placed an order to buy for $50. But had to trade at $50.60 due to price fluctuations. This is called a negative slippage because the order was filled at a higher price than expected.
Negative slippage = $50.60 - $50
= $0.60

Negative slippage for a sale order,
Crypto Y placed an order hoping to sell for $100 and had to fill the order for $99 due to price fluctuations.
Negative Slippage = $100 - $99
= $1

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Professor @awesononso's article was very helpful to me in completing this achievement. I wrote this article after studying it well.

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🔮 Thanks for reading 🔮

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