INTRODUCTION

Hello steemians I am happy for the successful completion of season 3 edition and also glad that the season 4 has also commence.
I hope to learn more about crytpto this season and I believe the professor can make my wish come true🤗
Anyway,here is my home work for professor @awesononso on Bid-Ask Spread

QUESTIONS

1 Properly explain the Bid-Ask Spread.

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

3 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.

4 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.

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

5 Explain Slippage.

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

1•Properly explain the Bid-Ask Spread.

Before explaining what Bid-Ask Spread really is,there are some components that need to be elucidated first,which are:
Bid price & Ask price,without this two things,there would be nothing like Bid-Ask spread.

•Bid price:- Bid price of a commodity is simply the highest price that a buyer is willing to pay in order to purchase a quantity of commodity or a point in which the buyer is prepared to purchase a commodity.

while

•Ask price:- this is the lowest prices that a seller is willing to sell a quantity of commodity for.

And now that brings us to the main thing which is Bid-Ask Spread

•Bid Ask Spread is explained as the difference between the bid price and the ask price of a commodity.

We can also say that spread is the difference between demand and supply of a commodity,since both "bid" and "ask" are synonymous to "demand" and "supply" respectively

To determine the Bid-Ask Spread,you need to ascertain the difference between the bid and ask price; Ask price - Bid price=Bid-Ask Spread

it is "Ask price" minus "Bid price" because all things being equal,the ask price should always be greater than the bid price.
reason being,the bid price is the point where both the buyer and seller agree or meet in the middle.

Bid-Ask Spread most time is always affected by liquidity and volatility.

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

Recall I said Bid Ask Spread is the difference between the Bid and Ask price.it has alot of important role it play in the market system.

•firstly it help in striking the balance between the selling price and purchase price of commodity by indicate the bid and ask price (demand & supply)and help both parties to make effective and reasonable decision during transaction.

• Bid Ask Spread is very important and used widely in market to determine liquidity and even illiquidity also.
liquidity which involves demand and supply is interpreted as how easy a commodity or asset can be traded.

A small spread means or indicate that the market is liquid and so we expect the trading volume to be high and when the spread is large,it indicate that the market is illiquid and so the trading volume is smaller.

3•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.

•(a) Calculating bid ask Spread??
formula is:
spread=Ask price - bid price

variables:
Ask price=$5.20
Bid price=$5
Bid-Ask spread=??

from the formula above,we can input this variables.
spread=$5.20-$5.00
spread=$0.2.

•(b) Calculate Bid-Ask spread in percentage??
formula: %spread(spread/Ask)×100

since we have ascertained our "spread" from the calculation above,it is very easy to know the percentage.

from above our spread=0.2
%spread=(0.2/5.20)×100
%spread=(0.03846)×100
%spread=3.846

4•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.

•(a)calculate the Bid-ask spread

solution

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

•(b)calculate Bid-ask spread in percentage

formulae: %spread=(spread/ask)×100
%spread=(0.4/8.80)×100
%spread=(0.04545)×100
%spread=4.545.

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

Crypto X ($0.2) has the higher liquidity since the a small spread indicates the market is liquid and the trading volume is expected to be high as well.
it also serves as a fair price for both parties because the buyer and seller's price is still close to each other.

5•Explain Slippage.

Slippage is a phenomenon that occurs more in the crytpto market with a wide Bid-ask spread.

It happens when an order is executed at a price different from what was intended.
This happen frequently in the crytpto market because crypto currencies are highly volatile asset that can undergo major price changes in seconds.

To make it more clear and practical,this volatility can cause a price to change from $5 when a market order was initiated to $7 when the order is executed.
You can say "it is the difference between the expected price of a trade and price it is executed"

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

Having understand what slippage is,we should also know that this slippage is divided into two types.
• Positive slippage
• Negative slippage

•positive slippage:-This type of slippage occurs in two ways or forms depending on the side you fall,either buyer's side or seller's side
positive slippage is a kind of slippage that occurs when an order is filled at a more favourable price.
whichever way,it is a win/win for both the buyer and seller.
Because for a buyer,a positive slippage occurs when an order is filled at a lower price than intended likewise for the seller,it occurs when an order is filled at higher price than intended.

E.g(i) Buyer's order
if a buyer place an order for a crypto B at $20 and instead the trade was executed at $18,it is in favour of the buyer..
the positive slippage will be
(expected price -executed price=slippage)
$20-$18=$2

(ii)seller's order
if a seller fill in an order for $20 and instead the trade was executed at $23,it is in favour of the seller.The positive slippage is:
$23-20=$3
Positive slippage is favourable to traders

• Negative slippage:-This when an order is filled at a less favourable price.it also affect the buyer and seller.
it can be said to be the opposite of positive slippage.
The condition isn't favourable when comparing with positive slippage.

Eg-if a trade was placed for crytpo M to be bought at $30 and instead the trade was executed at $30.4 the negative slippage is

$30.4-$30=$0.4
it is not really lucrative and favourable.

Also if another trade was placed for a crypto W to be sold at $50 and instead executed at 49.8,the negative slippage is
$50 - $49.8=$0.2.
less favourable.

Conclusion

I wouldn't fail to commend and appreciate the effort of professor @awesononso for putting together this vital and detailed information
to engligthen the student.
Now I have fully understood and comprehend what this lesson is all about.
Thank you professor @awesononso🤗

CC:@awesononso