Steemit Crypto Academy [Beginners' Level] | Season 4 Week 1 | The Bid-Ask Spread | @tocho2

The asset called Crypto X presents higher liquidity because the gap between Bid and Ask is small compared to Crypto Y.

The slippage phenomenon occurs when an order is placed in a market with little liquidity, where the gap between Bid and Ask is very high, so the operations are placed at a desired price but due to the large margin or gap mentioned above, these operations close at a price very different from the one initially requested. In this slippage phenomenon we must consider an aspect of great relevance which is volatility. The “volatility” of monetary assets and crypto assets is what generates sudden and rapid changes in the prices of these assets, so we will always find a margin of difference between the offer price and the final purchase or closing price, and This is what we know as "slippage".

The Slippage is determined taking into account the expected prices for the purchase and sale operations, because it is measured based on the initial price of an operation (buy or sale) and the final price at which this operation has closed, and in this we can say that there are two types of Slippage

• Case of Positive Slippage: this is observed when the buy transaction closes at a significantly lower price than the expected initial price. And the sale operation closes at a higher price than the one foreseen for this operation.

• Case of Negative Slippage case: we can anticipate that this is the opposite of the previous case, because if it is a buy operation, it closes at a higher amount than expected, which is unfavorable. And in the case of a sale operation, it closes at a price much lower than the amount initially planned for this operation, which is also unfavorable.

• Examples:

.- Imagine that you place a buy operation for an asset called "LemonTree" and you have placed it at a price of 10 USD, but the final closing price is 5.25 USD, it is observed that the closing price is significantly lower than the price expected initial, so this is a Positive Slippage. 10 USD - 5.25 USD = 4.75 USD positive Slippage.

Now, let's consider the same asset "LemonTree" and a buy order is placed for the same 10 USD, but the final closing amount is 12 USD well above the initially expected amount; now we are facing a case of Negative Slippage, where 12 USD - 10 USD = 2 USD of negative Slippage.

.- Now let's consider a sale operation of an asset called "GreenApple" for an amount of 8 USD and the final closing amount of this operation is 9.15 USD, given that the closing has been done for a higher amount, we would be talking about a Positive Slippage of 1.15 USD.

And if we take this same asset "GreenApple" for a sale operation equal to 8 USD, and the closing price of said operation is 6.30 USD, we would be facing a Negative Slippage of 1.70 USD, an amount a little lower than the expected.