The Bid Ask Spread (Part II)- Steemit Crypto Academy- S4W3- Homework Post for professor @awesononso
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Today, i will be expressing my knowledge on this topic Bid-Ask spread through the homework task questions below.
Homework Question
Define the Order Book and explain its components with Screenshots from Binance.
Who are Market Makers and Market Takers?
What is a Market Order and a Limit order?
Explain how Market Makers and Market Takers relate with the two order types and liquidity in a market.
Place an order of at lease 1 SBD for Steem on the Steemit Market place by
a) accepting the Lowest ask. Was it instant? Why?
b) changing the lowest ask. Explain what happens.
(Make sure you are logged in to your wallet).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).
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).
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:
a) Calculate the Bid-Ask.
b) Calculate the Mid-Market Price.
Define the Order Book and explain its components with Screenshots from Binance.
An orderbook is an electronic record of buy and sale orders for a particular asset on a stock exchange or marketplace. The order book brings about transparency,which it will provide information about the price of an asset, the availability of an asset,the depth of trade and who is involved in the transaction.
As seen below the buy order(Bid) is coloured green While the sell order(Ask) is coloured red
screenshoted by me from binance
As seen above, the order book consist of the
Bid price:- looking at the binance order book above you will see a range of number written with green color there are the bid price. There are the highest price in which a market maker is ready to buy a particular asset. It is arranged in a way that the highest bid is always on top.
Bid side:-looking at the binance order book,above the first two column from the left side are the bid side. It contains the purchase price order and information related to them including the quality offered and a propose sell price.
bid Quality:-looking at the binance order book the bid quality is located at the left opposite the bid side. It a range of number written in black color and there are the quality of bid offers.
Ask side:-looking at the binance order book above,the second two column from the left side of the order book is the ask side.
It contain the sell order price. The lowest ask price is always situated at the top of the order book.Ask price:-looking at the binance order book above you will see a range of numbers written with red color that is the ask price. The ask price is the minimum price a seller is ready to take for a particular asset.
Ask quality:-looking at the binance order book above the ask quality is located at the right of the ask side. It a range of number written in black color and there are the quality of buy order or ask offered.
Who are Market Makers and Market Takers?
Any thriving market place and a successful trade has two types of traders, this traders has different functions and duties as far as the crypto market is concern and the are very important to the crypto market.
This traders are called the market marker and the market taker.
Market marker:- market markers are crypto traders who place an order( buy order and sell order) at their convenient bid or ask price respectively. The generally, quote their price in the crypto market and the place the limit order.
Market taker:- market takers are crypto traders who buy and sell asset into an existing order,the accept the place order to execute the buy and sell at a convenient bid. The simply fill the order created by the market marker.
Lastly,the market takers place the market order.
What is a Market Order and a Limit order?
When a trader places an order in the market place, either it an order to buy or sell asset.there are two primary principles that is always executed. There are the market order and the limit order.
Market order:-A market order is an order in the marketplace to buy or sell an asset immediately and at a current price. In otherwords, the are transactions that are meant to execute as soon as possible at the current price. This market order allows you to trade an asset for a going price.The order are usually place by the market takers.
Limit order:- A limit order is an order in the market place to buy and sell an asset at a specific price or a better price.
This limit order usually set the maximum price at which the traders are willing to complete transaction,not minding whether it a buy or sell.
The order are usually place by the market makers.
Explain how Market Makers and Market Takers relate with the two order types and liquidity in a market.
As i wrote earlier that the crypto market is made of the market maker and market taker which are related in one way or the other as far as trading is concern.
This market makers create buying or selling order(limit order) which are placed above and below the market price, this order are not carried out immediately by this it create liquidity, that is to say it will be easier for the maker taker with their market order to instantly buy or sell the asset when the condition is met, therefore the market taker fill the order created by the market marker and also take up the liquidity provided by the market marker.
In general,market makers create the liquidity while the market taker take up the liquidity in the market.
Place an order of atlease 1 SBD for Steem on the Steemit Market place by
a) accepting the Lowest ask. Was it instant? Why?
b) changing the lowest ask. Explain what happens.
(Make sure you are logged in to your wallet).
To place an order of 1SBD for steem on steemmarket place.
- Firstly,I login to my steem wallet
- immediately my wallet was open I scroll down to were I saw SBD,I click on the arrow beside the digit,then click on market, to open the market place as seen below
- After opening the market i place a buy entry of 1SBD for 12.239STEEM, which i accept the lowest price 0.081707 and then proceed to clicking on Buy steem which a page will pop up requesting for confirmation.
- After comfirming the transaction i notice the transaction was very fast, i think that was due to the fact that i didn't change the price while accepting the order and my order had match a limit order price at that time.
Below is the registered, open order.
- I make another buy entry of 1 SBD to 12.237STEEM. It was certainly below the market price.
- Because it was place below the market price it took some minutes for the order to be executed or I can still say it took some time for the market taker to accept my order price
Below is the registered,open order.
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).
Step1
Firstly, i will log on to my binance app, immediately it open I will proceed to clicking on market at the bottom side of the app. As indicated below.
step2
After click on market a search box will pop up were you can input the name of the asset you need. Since am about using TRX/USDT
I will input TRX then a list of TRX couple with other asset will show up, I then proceed by clicking TRX/USDT.
step3
After clicking on TRX/USDT, a page showing trading information of TRX/USDT will open. then i place a limit order of 0.08728 which is less compared to the market price of 0.09840 with $15.63184.
Step4
It will take some time for transaction to filled because it was less than the market price.
Impact of my order in the market
By placing this order trade can only be executed if the market place reach my limit order.
My order was not fulfil immediately due to the fact that my order was lower than the market price, so by this i have to wait for a further drop in price. Lastly,I just added liquidity to TRX/USDT.
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).
Step1
After follow the same steps in the previous question to derive TRX/USDT
I now select the market order instead of limit order as indicated below.
Step2
After clicking on the market as seen above i now place the market order with the same price.
Step3
And finally my order was fulfill immediately.
impact of my order in the market
After placing the market order of TRX/USDT,my order executed trade immediately at the highest available price. My order also reduce liquidity provided by the market marker in the market.
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:
a) Calculate the Bid-Ask.
b) Calculate the Mid-Market Price
From the AAVE/BNB order book above.
To calculate the Bid-Ask
Ask=0.8162
Bid=0.8150
Spread=Ask-Bid
Spread= 0.8162-0.8150 = 0.0012
Spread = 0.0012
To calculate the mid-market price
Mid-market price = (Bid+Ask)/2
Mid-market price = (0.8150+0.8162)/2
Mid-market price = 1.6312/2 = 0.8156
Mid-market price = 0.8156.
Conclusion
An orderbook is an important tool to the crypto traders and trade as a whole. An important aspect of this orderbook is that it shows the buy and sell price on a constant update, by this it helps the market traders to understand market trend over time.
Thank you prof.@awesononso for the well explanatory lecture post, indeed have learnt alot from your lecture post.
Looking forward to a positive response pertaining to my post.
Thanks.
