Hello Everyone!

This is Sami Zuberi , hope you all are well. I am exceptionally hope set aside a few minutes for perusing my homework post for @awesononso and valued it. Here i am going to impart my views on " The Bid-Ask Spread". So how about we begin

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Question 1.

Properly explain the Bid-Ask Spread.

First, let me define Bid price. Bid price refers to the maximum price a buyer is prepared to pay for a product. It is generally the exchange's purchase price. On the other hand the lowest minimal price at which a seller is ready to sell his product is known as the "Ask price."

Now what exactly is the bid-ask spread? The difference between these two prices of bid and ask is known as the bid-ask spread, and it may be computed as :

Bid-Ask Spread = Ask Price - Bid Price

Question 2.

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

The Bid-Ask Spread is a term that is utilized to determine the term of market liquidity. The bid-ask spread is an essential indicator of liquidity. Ever more liquid a stock is, the further rapidly it trades and the better the price becomes. It is critical and important in the marketplace since it distinguishes between consumers and sellers prepared to pay for a commodity. When it comes to buying and selling your goods, the bid-ask spread will help you make an informed selection. The bid-ask spread serves as a reference for determining the sort of order to be admitted. Unless the bid-ask spreads are small, you may usually give the highest price via an order book. Whereas if spreads are broader, though, a limit order is a preferable option. Buying and selling become difficult if there will be a wide bid-ask spread.

Question 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

• Calculate the Bid-Ask spread.

Given Bid Price = $5
Given Ask Price = $5.20
So,

The bid-ask spread may be computed using the following formula:

Bid-Ask Spread = Ask Price - Bid Price

Bid-Ask Spread = $5.20 - $5
Bid Ask Spread = $0.2

• Calculate the Bid-Ask spread in percentage

%Spread = (Spread/Ask Price) x 100
%Spread = ($0.2/$5.20) x 100
%Spread = 3.84 %

Question 4.

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.

• Calculate the Bid-Ask spread.

Given Bid Price = $8.40
Given Ask Price = $8.80

So,

The bid-ask spread may be computed using the following formula:

Bid-Ask Spread = Ask Price - Bid Price

Bid-Ask Spread = $8.80 - $8.40
Bid-Ask Spread = $0.4

• Calculate the Bid-Ask spread in percentage.

%Spread = (Spread/Ask Price) x 100
%Spread = ($0.4/$8.80) x 100
%Spread = 4.54 %

Question 5.

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

Because Crypto X has a $0.2 spread and Crypto Y has a $0.4 spread, the liquidity of Crypto X is higher. Because a smaller spread suggests higher liquidity, we may conclude that Crypto X has greater liquidity.

Question 6.

Explain Slippage

Slippage.

A bid/ask spread that is sufficiently volatile that the price changes between the time your market order is placed and the time it is executed is referred to as slippage. This change might be either good or negative. It simply indicates that the intended execution price and the actual price are not the same. Slippage is most likely to occur during periods of low liquidity or strong volatility. Slippage is a possibility in any trade. Trade when the market has low volatility and high liquidity to prevent slippage during peak market hours.

Question 7.

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

Positive Slippage.

In a positive slippage scenario, price fluctuations result in a profitable situation. Rather than the set price, an order to purchase a coin gets implemented at such a lesser price such as ;

I want to buy a coin and I placed an order to buy it and we can say that the coin name is coin XYZ, And I am going to buy at a price of 20$. However, even by moment an order was carried out, it had cost 18 dollars so the positive slippage will be : 20$-18$ = 2$ (positive slippage).

Negative Slippage.

It is the opposite of positive slippage by means of rather than the set price, an order to purchase a coin gets implemented at a higher price such as ;

An order was placed to buy a coin at 15$ and by moment an order was carried out, it had costs 16$ then the negative slippage will be ; 16$-15$ = 1 (negative slippage).

Special mentions to ;
@awesononso