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

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Welcome everyone to the 4th Season of the Steemit Crypto Academy. Every season, the academy evolves to meet the needs of the community.This season is no different. The goal in the end is to impact as much as possible and make the experience better for the whole community.

I am excited starting this season and I hope you all are too. This week, I will be handling the topic The Bid-Ask Spread. We will get to understand some simple concepts before getting into some very simple calculations. I hope you learn something new.

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The Bid-Ask Spread

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In a market, there is normally a Bid price and an Ask price. The Bid price of a commodity is the highest price that a buyer is willing to pay for that commodity while the ask price is the lowest price that a seller is willing to sell the commodity for. The Bid-Ask Spread is just the difference between those two prices.

To write is out clearly, the Bid-Ask Spread is the difference between the Bid and the Ask price of a commodity.
Mathematically;

Bid-Ask Spread = Ask price - Bid price

It is also simply called The Spread. This Spread is important and is used widely in markets to determine liquidity.

What is Liquidity?

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The forces of demand and supply are always in play in any market. The supply of a commodity is how available the commodity is in a market at a given time. The demand of a commodity is the willingness of people to purchase that commodity at a particular price during a given period of time. A proper balance between these two forces would mean that trades would be executed quickly and so the market would be liquid.

Liquidity, in simple terms, is how easy commodities or assets can be traded. A liquid market is one where there are enough sellers and buyers and trades get executed easily. It is one where the buyers readily want to buy what the sellers are seling. Considering this, it would mean that the bid price would be close to the ask price and so the difference (the bid-ask spread) would be small.

So basically, a small spread means the market is liquid and so we expect that the trading volume to be high as well. On the other hand, a larger spread means the market is illiquid and so the trading volume would be significantly smaller.

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Bid-Ask Spread in Cryptocurrencies

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The Bid-Ask spread concept is frequently used in the crypto market. Market makers exist in any market and on exchanges, they initiate Limit Orders. These market makers define the price they want to buy or sell an asset with these limit orders. A market maker that places a limit order to buy a coin gives the bid price for that trade. Conversely, a market maker that places a limit order to sell a coin gives the ask price of that trade. The difference between the these Limit orders is the spread.

Below is the Spread for BTC/BUSD;


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Screenshot from Binance


From the image, the Bid side is the green wave while the Ask side is the Red wave. We can see that the gap between them is very small. That gap is the Bid-Ask Spread.

This means that for BTC/BUSD, there are a good number of Limit orders from both buyers and sellers and so more bid and ask prices. This causes a high trading volume and so a very liquid market.



Below is the Spread for BTT/TRX;


TRX.png

Screenshot from Binance


From the image, we can see that the gap between the Bid side and the Ask side is somewhat wide. This is what a wider Spread looks like. This means that there are fewer Limit Orders initiated by buyers and/or sellers and so less bid and/or ask prices. This market would not be as liquid as the BTC/BUSD market.

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Calculating the Bid-Ask Spread

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To recap, the formula for calculating the Spread is;

Spread = Ask price - Bid price

The Spread can also be expressed in percentage as follows;

%Spread = (Spread/Ask Price) x 100

That said, let us take an example.

Example:

If the Bid price of crypto A is $50 and the ask price is $50.5, a)what would be the Bid-Ask spread? b)Calculate the Spread in percentage.

Solution:
a) The Bid Price = $50
The Ask Price = $50.5
Bid-Ask Spread = Ask price - Bid price
= $50.5 - $50 = $0.5.

b) %Spread = (Spread/Ask price) x 100
= (0.5/50.5) x 100
= 0.0099 x 100
= 0.99%.

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Slippage

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There is A type of order called a market order where the trader agreees to a trade at an existing price. Even in this type of trade, there is a small window of time between when the order is placed and when it is executed. Anything can happen within this time especially in Crypto Markets.

Cryptocurrencies are highly volatile assets that can undergo major price changes in seconds. This volaitility can cause prices to change between the time a market order is initiated and when it is executed. The order will then be filled at a price different from what the trader intended. This phenomenon is called a Slippage.

Simply, a Slippage happens when an order is executed at a price different from what was intended. Slippages occur more in crypto markets with a wide Bid-Ask Spread. This is because these crypto markets have low liquidity and so orders might not always be matched as expected.

The Slippage is given as the difference between the expected price of a trade and the price it is executed.

Types of Slippage

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(1) Positive Slippage: A positive slippage is when an order is filled at a more favourable price. For a buy order, a positive slippage occurs when an order is filled at a lower price than intended. For a sell order, a positive slippage occurs when an order is filled at a higher price than intended.

For example, If a trade was place for crypto B to be bought at $140 and instead the trade was executed at $138, the Positive slippage would be;
$140 - $138 = $2.

Also, if a trade was placed for crypto B to be sold at $145 and instead the trade was executed at $146, the Positive slippage would be;
$146 - $145 = $1.

(2) Negative Slippage: A negative slippage is when an order is filled at a less favourable price. For a buy order, a negative slippage occurs when an order is filled at a higher price than intended. For a sell order, a negative slippage occurs when an order is filled at a lower price than intended.

For example, if a trade was placed for crypto C to be bought at $100 and instead the trade was executed at $100.50, the negative slippage would be;
$100.50 - $100 = $0.50

Also, if a trade was placed for crypto C to be sold at $90 and instead the trade was executed at $89.8, the negative slippage would be;
$90 - $89.8 = $0.2.

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Conclusion

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In this class, we have learnt about the Bid-Ask Spread. The Spread is a very important concept used even in the stock and financial markets. Traders can learn to leverage the spread to make more successful trades in any market.

We have also talked about slippages in this class. Slippages happen all the time. These slippages can be in favor of the trader or otherwise. Learning the relationship between this and the Spread can also help traders avoid some losses and make the most of their assets.

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Homework

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  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.

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

  6. Explain Slippage.

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

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Rules/Guidelines

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  • This Task will run until 11th September 23:59 UTC.
  • Your article should be at least 300 words long.
  • Please try and understand the topic before performing the task.
  • Make sure you post this assignment in the Steemit Crypto Academy Community.
  • Use the hashtags #awesononso-s4week1 and #cryptoacademy among your first 5 hashtags and tag me @awesononso.
  • Plagiarism and content spinning is not tolerated in the Academy. Repeat offenders will be blacklisted and banned from the academy.
  • All outsourced images should be copyright free and properly referenced.
  • Only students with a minimum of 200SP and a reputation of 55 are eligible to participate. You should also not be powering down.

My Comment section is open for any questions or suggestions.

Thank you.

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Cc:
@steemitblog
@steemcurator01
@steemcurator02

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This Lecture was Great Professor Here is My Homework link

Hello teacher @awesononso! I am writing to remind you that my homework has not yet been posted by you. It has been published for more than three days, please hope you can evaluate it! Thanks
https://steemit.com/hive-108451/@nachomolina2/steemit-crypto-academy-beginners-level-or-season-4-week-1-or-the-bid-ask-spread-or-nachomolina2

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Cc: -
@steemitblog
@steemcurator01
@steemcurator02
@awesononso
@lenonmc21

Hello professor, I am ashutosh kumar and I am here as @ashubaba01

I want to ask you that there @sapwood divided beginners in to two types. Fixed and dynamics. I have 150+ sp and 52 reputation. So can I post my homework task in beginners (fixed).

Please reply.
Thank you.

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Hey.
You can go ahead with the fixed tasks. You qualify.

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Thank you sir for your suggestion.

Hi prof @awesononso, here is my homework task Link.
Thank you.

Hello Prof @awesononso, I submitted my Beginner's course Task 2 some days ago before realizing there was an update in this season. It has not been reviewed, below is the link to my homework post.

https://steemit.com/hive-108451/@lukman1/crypto-academy-season-3-beginners-course-homework-post-for-task-2-blockchain-decentralization-block-explorer-by-lukman1

Hello Prof @awesononso I have written up to Task 5 of the Beginners Level and now my SP is 158+ which one am I to continue with please.

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Your reputation hasn't met the requirements. When you have a rep of atleast 50 then you can start with tasks

hello prof, concerning the negative slippage, this example is not too clear.

Also, if a trade was placed for crypto C to be sold at $90 and instead the trade was executed at $90.2, the negative slippage would be;
$90.2 - $90 = $0.2.

Please i need more clearification because i fell is to the advantage of the seller. so please can you throw more light on it?

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I just changed the values. Please go through it again.
Thanks.

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Hello @simonnwigwe what i can understand here is that it can be happened if trader want to book his loss on crypto C, his loss% will definitely increase. May be my theory is right.

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He has corrected it. That corrections is what i was expecting.

Buen tema para comenzar la temporada, espero sumarme...

Hola profesor @awesononso, aca dejo el link de mi tarea. Anteriormente la publique pero no se porque, pero me equivoque publicando en otra comunidad. Pido disculpas por mi error.

https://steemit.com/hive-108451/@exerjsg/6ntcbb-steemit-crypto-academy-beginners-course-season-4-week-1-the-big-ask-spread

Este si es el link de mi tarea publicada en Crypto Academy

Hello my compatriot Prof @awesononso

Here is the post link to my homework

https://steemit.com/hive-108451/@akcares/crypto-academy-season-4-week-1-homework-post-for-awesononso

The breakdown of the lesson was quite easy to comprehend. Nice one.

I greet you my mentor @utibeoeffiongart

what about me, as a beginner I don't have reputation and steem power, getting it all is very difficult

Hello, professor @awesononso this is the link to my assignment post

Profesor feliz tarde puede orientarme para realizar un powerup desde binance para ser elegible en mis tareas, ya que llevo una gran parte de la semana intentando y no hallo solución espero su respuesta con la mayor brevedad posible @awesononso

My professor @awesononso here is my homework Link

Saludos profesor, aquí mi tarea

¡Gracias!

My home work post Link

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Professor @awsononso, my homework has not been curated yet 😔

Saludos profesor @awesononso le felicito por su extraordinaria clase, fue un placer asistir a su clase, le realizo entrega de mi tarea
https://steemit.com/hive-108451/@emmalucia/steemit-crypto-academy-nivel-principiante-or-temporada-4-semana-1-or-el-diferencial-de-oferta-y-demanda-por-emmalucia

@awesononso this is my entry

Steemit Crypto Academy [Beginners' Level] | Season 4 Week 1 | The Bid-Ask Spread written by @dlioness — Steemit

https://steemit.com/hive-108451/@dlioness/steemit-crypto-academy-beginners-level-or-season-4-week-1-or-the-bid-ask-spread-written-by-dlioness

·

@awesononso @lenonmc21 buen dia profesores, mi tarea aun no ha sido evaluada, ayuda por favor

Hello Professor,
Here is the link to my Home post

Dear Professor @awesononso,

Please find my homework post here.

Thanks🙏.

An interesting lecture sir.
My entry

·

Professor @awesononso sir, kindly check on my homework task for it is yet to be graded sir.
Thank you very much.

Dear Professor, kindly find my assignment for your review

Steemit Crypto Academy [Beginners' Level] | Season 4 Week 1 | The Bid-Ask Spread By @uzoma24

¡Hola profesor @awesononso! Fue para nosotros muy fascinante participar en su curso esta primera semana de la cuarta temporada de cripto academia Aquí nuestra participación.

Hello professor @awesononso, my Steem power is 168 sp, can I write a beginner's level homework post?

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The requirement is 200SP so no you cannot.
You can check out the Introductory courses.

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Hello prof @awesononso, I attempted Season 3 Beginner's fixed homework before it was recently updated to season 4. The homework is yet to be graded. Please hlep me check it out.

https://steemit.com/hive-108451/@jaspichman125/crypto-academy-season-3-beginners-course-task-3-bitcoin-cryptocurrencies-public-chains-or-or-by-jaspichman125

Thank you Prof.

Hello professor, Here is my homework task. I accidentally posted another community. However, i deleted and post again in this community. I hope it will not be a problem

https://steemit.com/hive-108451/@ozenozge/24stwi-steemit-crypto-academy-beginners-level-or-season-4-week-1-or-the-bid-ask-spread-by-ozenozge

An interesting lecture. A good way to start the season 4. I hope to submit mine soon

Prof @awesononso my homework has not been curated by you

Buenos días profesor @lenonmc21 para que porfavor nos apoye con la revisión de esta asignación, ya que la incluí en el tiempo estipulado y aún ha si no ha sido revisada por el otro profesor.

https://steemit.com/hive-108451/@soylola3091/crypto-academy-season-4-week-1-beginners-the-bid-ask-spread-por-soylola3091

Hello teacher @awesononso! I am writing to remind you that my homework has not yet been marked by you. It was published 2 days.

Kindly evaluate it. Thanks

https://steemit.com/hive-108451/@manchochris/steemit-cryptoacademy-season-4-week-1-homework-post-for-professor-awesononso-bid-ask-spread

(I did it within the understood schedule)

Buenas tardes profesor, la semana pasada realice mi tarea de esta clase y olvide dejarle mi link en los comentarios.. agradecería revisara mi tarea, fue publicada dentro de la fecha establecido. Este es el link: https://steemit.com/hive-108451/@advhl/steemit-crypto-academy-beginners-level-or-season-4-week-1-or-the-bid-ask-spread-by-professor-awesononso

Buenas tardes profesor, esta es mi tarea de la semana pasada, link: https://steemit.com/hive-108451/@jesusremaj7/steemit-crypto-academy-beginners-level-or-season-4-week-1-or-the-bid-ask-spread-by-professor-awesononso

Había olvidado dejar el enlace por aquí.

Buen día profesor @awesononso eat tarea ya fue evaluada pero no ha Sido votada por ningún curador. Ayuda por favor. Ya está en el día 6 y va a vencer

Tarea semana 1, temporada 4