The Bid Ask Spread (Part II) | Steemit Crypto Academy | S4W3- Homework Post for @awesononso
Homework - The Bid Ask Spread ( Part 2 )
1️⃣ Define the Order Book and explain its components with Screenshots from Binance.
An order book is a list of sell orders and buy orders price that apply to any trading pair. The order book represents the expectations of buyers and sellers related to an asset. Almost every exchange has an order book for different trading pairs and the screenshot below shows the order book for the BTC / USDT trading pair. I got it from a binance exchange.
Example for order book
The order book is constantly updated according to the price changes in cryptocurrencies, which provides traders with accurate information to make better trading decisions. As shown in the screenshot above, the order book is in red and green. The green area shows the list of relevant buy orders. The red list shows the data values for the sell orders.
The order book has several key components and all of which are shown in the screenshot above. They are,
Side of buy order
The Purchase / buy Order section is shown in green, which indicates the bid price at which buyers expect to purchase the asset. This is also known as the bidding side.
Price of buy
This section sets out the relevant pricing for purchase / buy orders. The maximum bid is at the top of the list and the minimum bid price is at the bottom of the list. I have illustrated those two prices in the screenshot above.
Side of sell orders
Data values related to the selling segment are shown in red and this segment represents the sellers' expectations of selling the asset. This is also known as the ask side.
Price of sell
This represents the price list for the order part of the sale. The maximum price you can ask for an asset is at the bottom of the list and the minimum price list is at the top. I have marked those two prices in the screenshot above.
Amounts of buy orders and sell orders
(Screenshot taken from binance exchange)
As shown in the screenshot above, the bid amounts is located on the left side of the bidding side and the ask amounts is displayed on the right side of the ask side.
2️⃣ Who are Market Makers and Market Takers?
You already know that the order book is used when transactions with cryptocurrencies. So the people who use this order book in the market can be classified as market makers and market takers. Let me first explain who these market makers are.
Market Makers
The current prices for buying and selling an asset in the crypto market are stated in the order book and sellers and buyers who place a limit order at a price of their choice without those existing prices are called market makers. The order is complete when the bid and ask price placed by them arrive.
Market Takers
Market Takers are people who place orders at current market prices. That is, the ask price placed by a seller for an asset is at the market price at the time and so the order will be completed in a few seconds. Also, the bid price placed by a buyer on the purchase of an asset is such that the order is completed quickly.
3️⃣ What is a Market Order and a Limit order?
From what I have already presented, you can get an idea of what a market order and a limit order are.
Market order
A market order is an order placed for an asset at the current price in the crypto market. The bid price or ask price for an asset by a buyer or seller is placed at the current market price and is completed quickly.
Limit order
A limit order is an order placed by market makers (buyers and sellers) at a price that is different from the current market price, that is a future price for an asset. Buyers and sellers place an order at a price they like, which is different from the current market price. Such a limit order is completed when the placed bid price or ask price is received. It is not an order that takes effect in a matter of seconds.
4️⃣ Explain how Market Makers and Market Takers relate with the two order types and liquidity in a market.
I have previously given a brief introduction to market makers and market takers. In addition, I have explain both the limit order and the market order. So you already know that these are interrelated. What I am going to explain here is how liquidity relates to market makers and market takers.
Market makers set limit orders and market takers set market orders. Thus market makers place orders based on their negotiated prices, which causes the market to move up or down. Limit order takes time to process. Therefore, it is considered that there is less liquidity in the market due to this.
But the process of market takers is different. Because they place market orders at current prices, those orders are completed very quickly. The order is filled quickly because the market is moving very well. Hence there is good liquidity in the market
5️⃣ Place an order of at lease 1 SBD for Steem on the Steemit Market place by,
• First login to the steemit wallet and select the market under SBD.
• Then give the lowest price to buy Steem in the internal market and click 'Buy steem'.
• Then you have to enter the active key to confirm the order.
My order is complete
a) accepting the Lowest ask. Was it instant? Why?
I have given the lowest price in the current market so my order was completed in a few seconds. Also, this is a market order and will be activated immediately.
b) changing the lowest ask. Explain what happens.
(Make sure you are logged in to your wallet).
As shown in this screenshot, I placed a limit order of less than the lowest price for 28 SBD. I have placed the bid price at 0.052573.
This is the order I placed. It is not yet complete.
And then what happens...? 🤔
I created an order to sell SBD for less than the current lowest price. I have created an order like this before and sold SBD. This order is completed when the price I placed comes. Until then my order is in the steemit market. I can also cancel the order at any time if I wish. Limit order does not take effect immediately. There is a time limit for the limit order that we place, so if our order is not completed within that time it will be automatically canceled and the SBD or Steem will be added back to our steemit wallet. This way, if we place an order at a different price than the lowest price it will take time to complete.
6️⃣ 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).
Step 01 :-
First go to the binance account and select the 'trades' at the bottom of the first page that appears.
Step 02 :-
Then select TRX / USDT and select its limit tab.
Step 03 :-
Then place a limit order for $15.9 and touch a 'Buy TRX' botton.
This is I have given a limit order for the liquidity given for TRX / USDT. The price of that limit order was 0.08202. I placed the bid price at a lower price than the current buy price for Trx and so my order will be complete if there is a price drop in the market.
7️⃣ 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. (Give Screenshots of the completed order).
As above, I went to the my binance account and placed a market order for TRX / USDT.
I chose the market component to execute this order.
Then I placed a buy order for $15.9.
The order I placed was immediately fulfilled as it was open in the market.
After clicking Buy TRX my order was completed. For $15.9 I was able to buy 172.52 trx. It is as follows.
The order I placed was an open market order and in a few seconds the order price was the same as the current market price. So the order was completed instantly.
Also like a limit order, do not have to wait for the order to complete.
8️⃣ 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:
Date :- 25.09.2021
Highest Bid price = 2.362 USDT
Lowest Ask price = 2.363 USDT
a)Calculate the Bid-Ask.
Bid price = 2.362 USDT
Ask price = 2.363 USDT
Bid - Ask Spread = Ask price _ Bid price
= 2.363 _ 2.362
= 0.001 USDT
b) Calculate the Mid-Market Price.
Bid price = 2.362 USDT
Ask price = 2.363 USDT
Mid - Market Price = ( Bid price + Ask price ) ÷ 2
= ( 2.362 + 2.363 ) ÷ 2
= 4.725 ÷ 2
= 2.3625
(All the screenshots used above are from my binance account and steemit account.)
Professor @awesononso's article was very helpful to me in completing this achievement. I wrote this article after studying it well.