# Steemit Crypto Academy Season 4 Week 1 - Homework Post For @awesononso

in SteemitCryptoAcademy5 months ago (edited)

Hello everybody.

Hopefully, all of you will be good and happy with the time. Today I am very happy to make the first lecture post of season 4 of Steemit Crypto Academy. I am going to make the homework post for dear professor @awesononso. I have read the whole of the lecture post and he has explained it in a very great manner. So, without any wastage of time, let's start our task.

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There are some questions that are asked by the professor as the assignment for this task. So, I will describe the possible answers to these questions in the given order.

## (01)

As our today's topic of discussion is Bid-Ask Spread so it is necessary for all of us to know about the meanings of Bid-Ask Hybrid. The term 'Bid Spread' means the maximum price that a buyer is willing to pay for that item. It is the price of the item which is considered to be reasonable for the buyer of that item.

While on the other hand, the Ask Spread, as referred to by the name, is the minimum price of the item that is fixed in the mind of the seller of that item. It is the price of the item which is considered to be reasonable for the seller. Below this price, the seller felt a loss.

The Bid-Ask Spread is actually the difference between these prices (Bid Price and Ask Price). It can be expressed mathematically as,

Daily Life Example:

Suppose John is a fruit shopkeeper and he wants to sell his bananas at 2\$ at least per dozen then 2\$ will be the Ask Price of a dozen bananas. Suppose, Thomas went to John's shop and wants to buy a dozen of bananas at 1.5\$ then this will be the Bid Price of a dozen of bananas.

The Bid-Ask Spread, in this case, can be calculated as,

So, the difference between the maximum bought price (Bid Price) and the minimum sale price (Ask Price) is 0.5\$ which is called the Bid-Ask Spread, in this case.

Crypto World Example:

You can see the Bid-Ask Spread in the screenshot below, which is taken from Binance. Have a look at it.

Screenshot Taken From Binance

This screenshot is taken from the STEEM/BTC chart. The green area/wave at the left side of the chart shows the Ask Price while the red area/wave at the left side of the graph shows the Bid Price. As you can see that, there is a minor distance between the Ask and the Bid Price so this shows that the Bid-Ask Spread is very low for this pair.

## (02)

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

As we know that the market of cryptocurrencies is so volatile that it is very necessary for all the traders to study the trend or the nature of the market in which he is going to trade. Bid-Ask Spread strategy helps the users to study/determine the liquidity of a particular market. Here, liquidity means the working of the crypto asset in the market of cryptocurrencies. The liquidity of a market is high when the number of sellers and the number of buyers are more.

Here, the Bid-Ask Spread strategy is also helpful to determine the liquidity of the market. The more will be the Spread, the less will be the liquidity of that market. The liquidity of a market will be high if the difference between the Ask Price and the Bid Price(Bid-Ask Spread) is low, and vice versa.

So, now I will discuss some examples from different crypto pairs.

• TRX/USDT:

Screenshot Taken from Binance

• BTT/USDT:

Screenshot Taken From Binance

Comparison

In the above two screenshots, the first one is of the TRX/USDT and the second one is the BTT/USDT pair. The Spread of the TRX/USDT is very low as compared to the BTT/USDT pair. So, it is cleared that the liquidity of TRX/USDT is higher than that of the BTT/USDT. The order that is placed in the TRX/USDT pair is executed in less time as compared to that of the order which is placed in the BTT/USDT pair. So, the traders prefer the TRX/USDT pair due to its higher liquidity.

## (03)

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

• Given Data:

Bid Price of Crypto X = \$5
Ask Price of Crypto X = \$5.20

• To Find:

• Solution:

= Ask Price - Bid Price
= \$5.20-\$5
= \$0.20

= (\$0.20/\$5.20) x 100
= (0.384) x 100
= 3.84%

• Results:
\$0.203.84%

## (04)

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

• Given Data:

Bid Price of Crypto Y = \$8.40
Ask Price of Crypto Y = \$8.80

• To Find:

• Solution:

= Ask Price - Bid Price
= \$8.80 - \$8.40
= \$0.40

= (\$0.40/\$8.80) x 100
= 0.4545 x 100
= 4.54%

• Results:
\$0.404.54%

## (05)

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

From the above two assets, Crypto X has higher liquidity than Crypto Y because the Bid-Ask Spread(Difference between the Ask Price and Bid Price) of Crypto X is smaller than that of Crypto Y.

## (06)

### Explain Slippage

Slippage is a phenomenon which is sometimes happened in the market of cryptocurrencies due to the volatility of crypto assets. Slippage, as referred to by the name, is the alternation of the prices of the crypto assets when an order is placed in the market.

Slippage may occur even in the Market Order. Market Order means that an order is placed in a market at the present price of that asset. Market Order is executed in few seconds but due to the high volatility of the crypto markets, the price of the assets may change in these seconds. So, this change of prices is called "Slippage".

For Instance, A buyer of STEEM token placed a buy order at 0.83\$ which was the market price at the time. Due to the volatility of the STEEM prices, the order may be executed at 0.86\$. This change in the price of STEEM is Slippage.

Slippage is inversely proportional to the liquidity of the market and directly proportional to the Spread of the market. The more will be the Spread, the lesser will be the liquidity, and hence, more will be the Slippage chances in this market and vice versa.

## (07)

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

There are two possible types of Slippages. These types are described below.

#### Positive Slippage

As I have described above that Slippage is the change of the price of an asset during the time of placement of order and time of execution of the order. So, this change could be in the favor or loss of the trader. If the change is in the favour of the price then it is called Positive Slippage.

Slippage is positive for the buyers when the price of the asset lowers during the execution of the order. For example, if a buyer placed an order at \$5.67 and the order is executed at \$5.60, then the Slippage will be positive for the buyer. The positive slippage can be calculated for this case, as,

\$5.57-\$5.60 = \$0.07(Positive Slippage)

Slippage is positive for the seller when the price of the asset increases during the execution of the order. For example, if a seller placed a sell order at \$9.20 and the order is executed at \$9.28, then the Slippage will be positive for the seller. This positive slippage can be calculated as,

\$9.28-\$9.20 = \$0.08(positive Slippage)

#### Negative Slippage

Sometimes, the change in the price of the assets during the time of placement of the order and the time of execution of the order is in the loss of the trader. Such change is called Negative Slippage.

Slippage is negative for the buyer when the price of the asset increases during the execution of the order. For example, a buyer placed an order at \$4.93, and this order is executed at \$4.96, then the Slippage will be negative for the buyer. This negative slippage can be calculated as,

\$4.96-\$4.93 = \$0.03 (Negative Slippage)

Slippage is negative for the seller if the price of the asset decreases during the execution of the order. Suppose, a seller placed a sell order at \$6.96, and this order is executed at \$6.90, then this will be the negative slippage for the seller of the asset. This negative slippage can be calculated as,

\$6.96-\$6.90 = \$0.06 (Negative Slippage)

## Conclusions

Ask Price is the minimum price at which a seller is willing to sell his item. Bid Price is the maximum price at which a buyer is ready to buy the item. The difference between these two prices is called Bid-Ask Spread or simply, Spread. Slippage of the change of the price of the assets during the time of placement of the order and the time of execution of the order. If the Slippage is in the favor of the trader then this will be positive and if the Slippage is in the loss of the trader then it will be negative.

Thanks a lot all of you for stopping by...

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