Hello fellow Steemians and welcome to my home work task submitted to Prof @awesononso in this week the Prof talked about the Bid-Ask Spread. Without wasting much of your time, let's dive into my task.

• Properly explain the Bid-Ask Spread

Before looking at Bid-Ask Spread, we have to first of all talk about the two components that make up the Bid-Ask Spread, these components are;

• Bid Price and
• Ask Price

Bid Price of any commodity can be said to be the highest price a buyer is willing to pay in other to purchase the said commodity.

Example; I want to buy a mobile device from a store, before I even leave my house I know the amount I will be willing to pay for that device ( let's say 10 Steem) and anything above that 10 Steem that I have in mind, I will not purchase it. This 10 Steem is known as Bid Price.

While Ask Price can be said to be the lowest Price in which a seller is willing to sell his commodity.

To elaborate more on this, let's continue my mobile device example (which I had 10 Steem to purchase a device) So on getting to the shop, I ask the dealer how much for a particular device and he tells me 15 Steem but after much bargaining, he says he will be selling it for 11 Steem.

So from the above illustration, 11 Steem is the Ask Price of the seller.

So now to the question of the day, Bid-Ask Spread can be said to be the difference between Ask Price and Bid Price. To find out Bid-Ask Spread, we subtract Bid Price from the Ask Price

Bid-Ask Spread = Ask Price - Bid Price

So from our illustration of me buying a mobile, the Bid-Ask Spread will be;

Bid-Ask Spread = Ask Price - Bid Price
= 11 Steem - 10 Steem
= 1 Steem

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

The Bid-Ask Spread is important because it helps both buyers and sellers know which commodity or asset can be easily traded. Once a trader sees that the Spread is smaller, he will know that the market is liquid and the trading volume is high.

The arrow shows the Bid-Ask Spread
So as a buyer, from my above pictures of the Spread for STEEM/SBD and STEEM/TRX I will choose to trade STEEM/SBD since it's Spread is not as wide as STEEM/TRX.

• If Crypto X has a bid price of $5 and an ask price of $5.20, Calculate the Bid-Ask spread. Calculate the Bid-Ask spread in percentage.

In calculating Bid-Ask Spread for Crypto X,
Recall that;

Bid-Ask Spread = Ask Price - Bid Price

Where;
Ask Price=$5.20
Bid Price=$5

Therefore,
Bid-Ask Spread = $5.20 - $5
=$0.20

In calculating the Spread we can also recall that;
%Spread = (Spread/Ask Price) x 100

Where;
Spread =$0.20
Ask Price= $5.20

%Spread = ($0.2/$5.20) x 100
= 0.03846 x 100
=3.846%

%Spread = 3.846%

• If Crypto Y has a bid price of $8.40 and an ask price of $8.80, Calculate the Bid-Ask spread. Calculate the Bid-Ask spread in percentage.

In calculating the Bid-Ask Spread for Crypto Y;

Bid-Ask Spread = Ask Price - Bid Price

Where;
Ask Price=$8.80
Bid Price=$8.40

Therefore,
Bid-Ask Spread = $8.80 - $8.40
=$0.40

In calculating the Spread we can also recall that;
%Spread = (Spread/Ask Price) x 100

Where;
Spread =$0.40
Ask Price= $8.80

%Spread = ($0.40/$8.80) x 100
= 0.04545 x 100
=4.545%

%Spread = 4.545%

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

Crypto X has a higher liquidity.

Crypto X with a Spread of $0.2 has a higher liquidity compared to Crypto Y with a Spread of $0.4

Crypto X with a smaller Spread indicates that the market is liquid and the trading volume is high as well.

• Explain Slippage.

This simply is the changed Price traders have to settle for after placing an order.

Example I placed an order for a commodity at the price of 40 Steem but due to the volatility of the market, the order was achieved at 40.1 Steem, this change in price is what is known as Slippage.

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

Positive Slippage: This can be referred to a change in price that is favourable to the trader. This is often a gain/profit made in the Crypto market that was not budgeted for.

For a buyer, a positive Slippage is when an order is achieved at a price lower than the buyer ordered .
For instance, I want to buy Steem at $40 and instead the trade achieved at $38, my Positive slippage will be; $2
$40 - $38 = $2.

For a seller, a positive Slippage is when an order is achieved at a price higher than the seller ordered.
For instance, I want to sell Steem at $38 and instead the trade achieved at $40, my positive Slippage is $2
$40-$38=$2

Negative Slippage this is the direct opposite of positive Slippage, this can be referred to the change in Price that is not favourable to the trader. It is a loss that is made in the market that the trader doesn't budget for.

For a buyer, a negative Slippage is when an order is achieved at a price higher than the buyer ordered.
For instance, I want to buy Steem at $40 and instead the trade achieved at $41, my Negative slippage will be; $1
$41 - $40 = $1

For a seller, a Negative Slippage is when an order is achieved at a price lower than the seller ordered.
For instance, I want to sell Steem at $38 and instead the trade achieved at $37, my Negative Slippage is $1
$38-$37=$1

CONCLUSION

I will like to appreciate the Prof @awesononso I must admit as a beginner in this Crypto Market, I have learnt a lot. I can now tell which market is liquid simply by looking at the chart.