Introduction.

It's a pleasure to be back once again for the fourth season of steemit crypto academy. This week's lecture on bid spread has been vey informative.

What Is the Bid-Ask Spread.

Bid price.
Bid in normal English terms means the highest amount a buyer is willing to pay for a product. Hence bid price in cryptocurrency means the highest amount a buyer of a cryptocurrency is willing to pay for that cryptocurrency.

Ask price.
Also known as the ask, Ask price is the Lowest minimum amount a seller of a cryptocurrency asset is willing to sell his assets.

Taking these two definitions into consideration, Bid-ask spread is defined as the difference between the Ask price and Bid price.

i.e Bid-ask spread = Ask price - Bid price
Let’s say a trader set his ask price for 1ETH at $3000 and a buyer’s bid price is $2950, then
Bid-spread price = $3000 - $2950
= $ 50

Hence the Bid-ask spread is $50. The Bid-ask spread is also known as the spread. It forms an very key part in the crypto market. We will be exploring more about in the subsequent questions.

Why The Bid-Ask Spread Is important In A Market?

The Bid-Ask spread is the liquidity provider of the crypto market. A low Bid-Ask spread results in a higher liquidity of the market. Trades and orders placed are executed very quickly in this type of market.

This is so because both the buyers and sellers are in consensus with regards to the price, hence it is a win win situation for both parties since the prices are favorable for both of them.

In another scenario, a high Bid-ask spread would result in a very low liquidity market. Orders and trades in this type of market would take weeks or even months to complete. It occurs when the two parties fail to come to consensus concerning the price, when sellers set very high ask prices or buyers set very low bid prices.

Hence one party gains whiles the other would lose, therefore prices favor only one party in this regard.

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.

Bid price = $5
Ask price = $5.20

Bid-Ask spread = Bid-price - Ask-price
= $5.20 - $ 5
= $0.2

The Spread is $0.2

b. %Spread = (Spread/Ask price) x 100
= (0.2/5.2)x 100
= 0.0384 x 100
= 3.84%

The percentage spread is 3.84%

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. Bid price = $8.40
Ask price = $8.80

Bid-Ask spread = Bid-price - Ask-price
= $8.80 - $8.40
= $0.4

The Spread is $0.4

b. %Spread = (Spread/Ask price) x 100
= (0.4/8.8)x 100
= 0.0454x 100
= 4.545%

The percentage spread is 4.454%

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

The asset with the lowest spread (i.e $0.2 ) has a higher liquidity compared to the other spread. This is because trade orders and transactions would be executed and completed very quickly on this market compared to the market with the
higher spread of $0.4.

What Is Slippage.

Slippage is a market phenomenon whereby trades or orders are completed with a different amount other than what a trader expected or intended. This is usually due to the high volatility of the cryptocurrency market.
For example A Trader could place an order of 1 SBD for 13 steem on the steemit market. Hence the amount of steem expected after the order is completed is 13 steem. The order can however complete with the trader getting 15 steem or even 10 steem. When this happens we refer to it as slippage.

Positive Slippage and Negative slippage with price illustrations for each.

Positive Slippage

This occurs when a trader makes or gains more than what he expected in on order or transaction. It occurs when an order is completed at a much suitable price. For a sell order, positive slippage occurs when the sell order is executed at a higher price other than the price the trader expected.
For a buy order, position slippage occurs when the buy order is filled at a lower price than the one the buyer expected.

For example if a buyer places an order for 10 Steem with 1 SBD on the steemit market, and at that time the lowest ask was 0.08400, if the buy order executes at a time where the lowest ask is 0.07400, the trader tends to get more Steem with the 1 SBD order he placed since the order executed at a low ask price.

Also if a seller could set his ask price of 1BTC for $50000. If the sell order executed at a price of $50,100 then a positive slippage of $100 has occurred.

Negative Slippage

This occurs when a trader does not get up to what was expected on an order he placed. In this regard, the order is completed at a very unsuitable price. For a sell order, negative slippage occurs when the order is executed at a lower price different from what the trader expected. For a buy order, negative slippage occurs when the buy order is executed at a relatively higher ask price other than what was intended.

For example if a buyer places 1 SBD for 13 steem in the steemit market with an initial ask of 0.6500, if the buy order is executed when the ask-price is 0.8600, the buyer would get 10 steem or less. Hence negative slippage has occurred.

Also if a seller places a sell order on 1 BTC for $53,000 and the sell order executes at the time where 1BTC is $50,000, a negative slippage of $3000 has occurred on the path of the trader.

Conclusion.

In conclusion the spread is very key part of the Crypto market it determines the liquidity of the market. We as learners and investors in the crypto world should learn and make good use of the spread. This assignment has really been very educating to me.
Greetings to professor for his great lecture. My regards to all the professors and members of this great community.

Thank you.

Steemit Crypto Academy Homework Post for @awesononso