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

Good day steemians, am happy to write my first assignment this season 4 and I know that the professors are ready to impact every student of this academy.
I will be write an assignment on The Bid-Ask Spread lectured by professor @awesononso

1. Properly explain the Bid-Ask Spread.

Before explain I what bid-Ask price is,I will like to explain bid price and ask price, bid price is the highest price buyers are will to buy an asset or commodity while Ask price is the lowest price in which sellers are willing to sellers are willing to sell a commodity or asset.
Bid- Ask price is the difference between bid price and ask price, when there's a very high liquidity in the market asset we are bound to have a very Small spread,meaning there's a large trading volume and its also vise versa on the other hand, when there's a large spread it indicate that there's low liquidity meaning low trading volume.

Bid-ask price = (Ask price)-(bid price)

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

Bid ask price is very important in
trading our commodity market because it allows traders to know the current state of the market whether it is volatile or not.

bid ask price allow us to know the liquidity of the market and the trading volume, it also gives a trader an edge over the market on when to enter the market because if the trading volume is low the market will be illiquid and this might lead to lost of funds.

And when the trading volume is very high,the liquidity will be very high and this will amount to a very small spread which indicate that we have so many people trading at that particular moment and this a hood opportunity for traders either to long or short the market depending on the technical analysis.

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

(a). Calculate the bid-ask spread

Let X = ask price-bid price
Bid price = $5
Ask spread = $5.20
X =$5.20 - $5
Bid -ask spread = $0.20

(b). Calculate the Bid-Ask spread in percentage.

spread = $0.20
Ask spread = $5.20
%Spread = (Spread/Ask price) x 100
%spread= ($0.20/$5.20) ×100
0.0384615 × 100
%spread= $3.84615

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

a.) Calculate the Bid-Ask spread.
Let Y = ask price-bid price
Let ask price = $8.80,
bid price = $8.40
Bid-Ask Spread = Ask price - Bid price
Bid-Ask Spread = $8.8 - $8.4
Bid-Ask Spread = $0.4

b.) Calculate the Bid-Ask spread in percentage.
Let ask price = $8.80,
Bid-Ask Spread = $0.4
%Spread = (Spread/Ask Price) x 100
%Spread = ($0.4/$8,80) x 100
%Spread = $4.54

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

According to the statement X=0.4 and Y = 4.54 , mere looking at the two figures we can see that X has the lowest spread which means that X has the highest liquidity because X is lower that Y in in figure of spreads.

6. Explain Slippage.

Slippage occur when a different order is placed contrary to the intended market price, slippage is what we experience in our everyday trading because slippage occurs when there's a wide bid-ask meaning that there's low liquidity and low trading volume.

As traders we need to watchout for spillage because, when the market commodity is illiquid, the market is bound to have has high spread and we can lose our fund with this.

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

• positive slippage positive slippage occur when an order is taken at a more lower price instead of the intended price, taking a buy order and taking a sell order for a positive slippage is when the order taken is higher than the given price.

For example, If a trade placed for crypto X to be bought at $12 and the trade was executed at $10 before the original order means the trader is at profit.
The Positive slippage is equal to

$12 - $10 = $2.

And if an order is placed at Crypto X was bought at $10 and the order was executed at $11, the positive slippage is :

$11-$10=$1

• Negative slippage negative slippage is the opposite of the positive slippage, for a buy order, a negative slippage occurs when the order placed is very high than than intended order and for a sell order the order is placed lower than the intended price.

For example, crypto Y is bought at $50 and the main entry started At $50.03, meaning it is a negative slippage

$50.03-$50=$0.3

CONCLUSION

On a final note, bid-ask priceis very Important in our daily trading as crypto trader, because if the market is illiquid the movement in the market will be so small and without much movement traders will not have much profit.

Cc @awesononso