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QESTION NO:1 Properly explain the Bid-Ask Spread.
Bid- Ask Spread:
(The Bid-Spread), Basically the difference between Ask (OFFER/SELL) price and Bid (PURCHASE/BUY) price of a security. Ask price is the worth point that a seller ready to sell and a Bid price is worth point that a buyer is ready to buy. When the two value point equal in marketplace.
If a buyer and seller both agreed with there demands. A dealing take place, These price are set in the presence of two Market Forces --- insistence and supply, and the slot between these two forces determined the spread between buy-sell prices. the larger slot, the greater the spread! The bid-ask spread can be defined as well as in #percentage terms.
The bid-ask spread works to the lead of the market maker. Ongoing with the above example, who is retell a price $10.40/ $10.45 for ABC stock showing wish to buy A at $10.40 (the bid price) and sell it at $10.45 (the ask price). The spreads shows the market maker's profit.
The bid-ask spread is open out immediately during periods of illiquidity and market confusion. being trader not willing to pay demanding price beyond a certain level.
Contrarily if provide outstrips demand, drift downwards. the bid and asks prices set on the overall level of trading activity in the security. with higher activity to command narrow bid ask spread and vice versa.
QUESTION NO:2 Why is a bid-ask spread is important in a market?
IMPORTANCE OF BID-ASK SPREAD:
The bid-ask spread is very important in market place. Because this is the difference between the buyer's and the seller prices, What the buyer is minded to pay for something, and what the seller is minded to get in order to sell it.
It is an dominant or important, barometer of the liquidity of any commodities. Commonly, more liquid the goods, more actively it switch hands and delicate a value. exceptionally highly liquid goods, that are part of effective and equivalent, have very low bid-ask spread as they are adequate liquids.
Assets that are backed by a dependability takes giant, type at one time illiquid and straight-held assets and creating them offer to a wide vary capitalist. these shares reduces risk and lower prices as a result of the merging of assets is supposed to form the asset backed large enough to be economical and lot of assorted. The great importance about spread is that, its aware the trader of the distinctions between bid and ask. It helps trader to make a best decision in the course of conciliation.
QUESTION NO:3 If Crypto X has a bid price of $5 and ask price of $5.20.
a) calculate the bid-ask spread.
= ask price-bid price
$5-$2.20=0.20
b) calculate bid-ask spread in percentage.
Spread= (Spread/Ask Price) x 100
Spread=(0.20/5.20) x 100= 3.85%.
QUESTION NO:4 If Crypto Y has a bid price $8.40 and an ask price $8.80,
a) Calculate the bid-ask spread
Bid-Ask spread= Ask Price - Bid Price
Bid -Ask spread= $8.80-$8.4
Bid-Ask Spread= $0.4.
b) Calculate the bid-ask spread in percentage.
Spread=(Spread/Ask Price) x 100
Spread=($0.4/$8.80) x 100
Spread = $5.55.
QUESTION NO:5
Crypto X, shows the higher liquidity, due to the smaller bid-ask spread. Smaller spread specify higher liquidity because buying and selling prices are close together, so the crypto X has higher liquidity.
QUESTION NO:6 Explanation of Slippage.
SLIPPAGE:
In Slippage there many other's investors run into and when they starts, its liable to upset them. In Crypto What is Slippage? In short the difference in what you're paying to receive crypto and actual vale you pay. No its not rip and off. its the result of high demand. extreme erratic and generally, unstable asset class. if you willing to place a market order in crypto exchange. you're awaiting to have that order filled at the decided Bid rate. sadly it took some time to receive market order, that the rate have been changed. the negotiator will fill up the market order on the latest price, which can decrease or increase your purchased power of your start up order.
When slippage happened, the orders can be effected at next best price. when the cases of large crypto orders, this could mean receiving at a variety of different prices. During high rates inn market suppose you placed an order of 5000 units at he rate of 10$ you will set up the trade by paying 10$ for X and 10.2$ for Y and respectively 10.5$ for Z. Thus it is understood that higher the volatility of assets might more the spillage can be found.
Slippage occurs if the that your order is executed does not match the price at which it was demanded. it mostly happens when fast moving, highly volatile markets which are liable to quick and sudden turn in certain trend.
QUESTION NO:7 EXPLAIN POSITIVE SLIPPAGE AND NEGATIVE SLIPPAGE.
POSITIVE SLIPPAGE:
A positive slippage in which the order is executed in complimentary price to the trader. it means that a seller will sell at higher price then the expect price: and a buyer will buy at lower price then the expect price or order price.
example,
A seller wants to sell a Facebook at a price of 100.00 and click to closed his current position. the price time of execution when the trade fall down 99.00 though, in this case the trader loses by one point of value.
NEGATIVE SLIPPAGE:
In negative slippage, the ask price increased in long trade and bid price decreased in short trade. Market contributors can protects themselves by placing limits order and keep away from market orders.
example,
A trader wants to trade Lenovo Brand, at a price of 250.00. and the price is closed enough 275.00, its mean the trader get benefited from 25 points.
CONCLUSION:
In this academy i learn very important knowledge about Bid-Ask Spread. which we are learned by our Professor @awesononso for giving this great knowledge.
By, Bid-Ask spread we learn about how we have making decision for buying and selling goods in market. however it comes with our own risk because slippage suddenly the slippage occur, and during trade you have to pass some loss, by Bid-Ask Spread its helps you to avoid some big loss. By liquidity, sometimes it effected prices by level of order, its most important in trading we have to understood slippage.