Crypto Academy /Season 4 / Week 1 - Homework Post for Professor @awesononso

4개월 전

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Properly explain the Bid-Ask Spread

Bid
The Bid is the price at which a buyer is willing to purchase a commodity or Cryptocurrency. The buyer usually wants to buy a commodity for the lowest price possible, hence the bid price is always lower than the ask price. The bid is the current demand for a given commodity.

Ask
This is the price at which the holder or owner of a commodity or Cryptocurrency wishes to sell it. The seller's pricing level is almost usually higher than the bid price. The supply of a certain product at any given time is known as the ask.

Bid-Ask Spread

When the bid and ask prices are equal. This is because both buyers and sellers want the market to trade with their unique convenient prices. The bid-ask spread is the price gap that exists Differences between the bid and ask prices. The price value that makes the lowest ask price bigger than the highest bid price is known as the bid-ask spread. If there is no spread, the bid and ask prices are equal. If the spread must be removed, either side in the deal must accept the other party's pricing.

Formula for to find Bid-ask spread

Bid-ask spread= Ask price - Bid price

Formula for to find Bid-ask spread%

Bid-ask spread% = (spread price ÷ ask price) × 100

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

Bid-Ask spread represents the price at which buyers and sellers wish to acquire and sell their assets. If a spread is tight or narrow, meaning the spread value is little or negligible, it signifies that the asset has a lot of liquidity, which will benefit any trader who wants to take a position in the commodity since his buy or sell price level will be fulfilled in no time.In addition, if the Spread is large. That is to say, if the spread value is large, it simply means that there aren't many eager buyers or sellers of that commodity, and hence trades in that commodity will be delayed. In essence, the spread aids in determining a commodity's or cryptocurrency's market liquidity. The spread is also important since it informs the trader of the difference between the bid and ask prices. During a negotiation, the spread allows a trader to make the best decision possible.The trader knows that he should never buy (moving from right to left) above the mid point of the spread and that he should never sell (going from right to left) above the mid point of the spread if he knows the fair value. This is done to keep the market's various players at a competitive advantage.

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If Crypto X has a bid price of $5 and an ask price of $5.20

a.) Calculate the Bid-Ask spread.

Given data :

Bid price of Crypto X = $5
Ask price of Crypto X = $5.20

By using formula

Bid-ask spread= Ask price - Bid price

Putting values in given data .

$5.20 - $5 = $0.20

The Bid-ask spread value is $0.20.

b.) Calculate the Bid-Ask spread in percentage.

Given data :

Bid price of Crypto X = $5
Ask price of Crypto X = $5.20

By using formula :

Bid-ask spread% = (spread price ÷ ask price) × 100

Putting values in given data:

0.20 ÷ 5.20 × 100 = 3.846%

Now the Bid-ask spread% is = 3.846%

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If Crypto Y has a bid price of $8.40 and an ask price of $8.80

a.) Calculate the Bid-Ask spread.

Given data :

Bid price of Crypto Y= $8.40
Ask price of Crypto Y = $8.80

By using formula.

Bid-ask spread= Ask price - Bid price

Putting values in given data .

$8.40 - $8.80 = $0.40

The Bid-ask spread value is $0.40.

b.) Calculate the Bid-Ask spread in percentage.

Given data :

Bid price of Crypto Y= $8.40
Ask price of Crypto Y = $8.80

By using formula .

Bid-ask spread% = (spread price ÷ ask price) × 100

Putting values in given data.

(0.40 ÷ 8.80) × 100 = 4.545%

Now the Bid-ask spread% is = 4.545%

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

We know that Crypto X has a narrow bid-ask spread, we may deduce that it has a higher liquidity than Crypto Y based on our estimates.
So as it , Crypto X has a narrower spread, it has more liquidity. This signals more trading volumes, which means orders will be filled more quickly.

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Explain Slippage

Slippage is a term used in cryptocurrency trading to describe when an order is executed at a different price than the one requested. This is more likely to happen in fast-moving, highly volatile markets. Such markets are prone to abrupt changes in trend, which frequently result in market orders not being filled at the desired prices. The asset's slippage could be zero, negative or positive. It depends on a number of factors, including the asset's price movement, whether the order is for closing or opening a position, and if it is a sell or buy order. It usually happens when there isn't enough traffic, particularly with large market orders, to keep the bid-ask spread at the requested price.

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Explain Positive Slippage and Negative slippage with price illustrations for each

Positive Slippage

A positive slippage is a price difference that favours or maintains the buyer or seller ahead at advantage.

Consider the case of a trader who wished to acquire STEEM token for $0.845 via a market order. When a slippage causes the highest bid price of STEEM to drop to $0.834, it is considered a positive slippage since it lowers the price at which the trader would have purchased the coin, allowing him to buy more of it for the same amount of money.

On the ask side, if a trader desires to sell his STEEM coin at $0.845 via a market order, and a slippage causes the price to rise to $0.86, it is a positive slippage for the trader since he would make more money from the same quantity of coins sold.

Negative Slippage:

Negative slippage occurs when the market price diverges in a way that does not benefit the trader or puts the trader at a disadvantage.

Assume the current TRX market price is $0.14. If a trader wishes to purchase TRX using a market order and his order is filled at $0.143, this price difference is referred to as negative slippage because the buyer has just lost money.

If the market price of TRX is set at $0.14 and the market price is sold at $0.12, this can be deemed a negative slippage on the part of the seller because the seller has suffered a loss or is disadvantaged by the abrupt price change.

Thanks for your time

Mention

@awesononso

Regard by

@ghulamabbassss

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Hello @ghulamabbassss,
Thank you for taking interest in this class. Your grades are as follows:

CriteriaCalculation
Presentation/Use of Markdowns1.3/2
Compliance with Topic1.8/2
Quality of Analysis & Calculations1.3/2
Clarity of Language1.3/2
Originality & Expression1.2/2
Total6.9/10

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Feedback and Suggestions
  • You really should work on your arrangement and markdown use.

  • You should also work on your expression. The answer to question 2 was unclear.

  • I noticed that you paraphrased some parts from other sources.

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Thanks again as we anticipate your participation in the next class.