The Bid Ask Spread (Part II)- Steemit Crypto Academy- S4W3- Homework Post for @awesononso
.jpg)
Hello everyone. How are you doing? This post is my assignment for Professor @awesononso's lecture on the second part of the Bid-Ask Spread topic. The homework was given as below:
Define the Order Book and explain its components with Screenshots from Binance.
Who are Market Makers and Market Takers?
What is a Market Order and a Limit order?
Explain how Market Makers and Market Takers relate with the two order types and liquidity in a market.
Place an order of at lease 1 SBD for Steem on the Steemit Market place by
a) accepting the Lowest ask. Was it instant? Why?
b) changing the lowest ask. Explain what happens.
(Make sure you are logged in to your wallet).Place a TRX/USDT Buy Limit order on the Binance exchange for at least $15. Explain your steps and explain the impact of your order in the market. (Give Screenshots).
Place a TRX/USDT Buy Market order on the Binance exchange for at least $15. Explain your steps and explain the impact of your order in the market. (Give Screenshots of the completed order).
Take a Screenshot of the order book of ADA/USDT pair from Binance on the day you are performing this task. Take note of the highest bid and Lowest ask prices:
a) Calculate the Bid-Ask.
b) Calculate the Mid-Market Price.
Define the Order Book and explain its components with Screenshots from Binance.
An order book is a virtual book or enlistment of placed market offers from various bidders and sellers for an entity like a cryptocurrency on the markets. It generally highlights the price that the bidders are willing to offer and that of the sellers for the same asset. An order Book is of immense essence to traders and investors because it is an effective indicator of the performance of an asset on the market as well as the condition of the market in real-time.
With order books, traders and investors can simply infer how liquid the asset is and also identify the asset's resistance levels based on the condition of the sellers' portion of the order book and support levels based on the condition of the bidders' area of the order book. Order books are also utilized by traders to forecast potential price trends of assets on the market. An order book is categorized into two main fields: the bidder’s section and the seller’s section.
.jpg)
The area for the bidders is regularly assigned green colors, and it represents the volume of buyers with offers for the acquisition of an asset on the market. The price for each bid is shown together with the gross number or fraction of the asset that the buyer wants to purchase.
In the image above, for instance, the highlighted section with predominantly red color is a visual representation of the number of sell orders placed for the TRXUSDT pair on the Binance platform. The amount of TRX being sold with its selling price is arranged in a column form, from the highest to the least selling price.
The section below the Sellers area that is dominated by a green color is the buyer’s or bidder’s section. The area gives a graphical representation of the prices that buyers are will to pay for the asset on the Binance platform for the TRXUSDT pair. The quantity of the asset, as well as its price, are arranged in a form of a column, ranging from the least bid price to the highest bid price.
Who are Market Makers and Market Takers?
Market markers are the traders and investors who place buy or sell orders that are not instantly filled or executed on the market because the price they are asking for has not been met yet. Hence, the order stays pending until its demands are fully met. Market makers, therefore, utilize the Buy limit or Sell limit function for their operations.
Marker takers, on the other hand, are the traders and investors who rather employ the Market Order function in executing their buy or sell orders. The orders are matched to the demands of the market, and so these operations are carried out in an instant manner.
What is a Market Order and a Limit order?
A market order is the type of order that is executed in an instant demeanor at the recent bid or sell price of the asset on the market. The recent price of the asset represents the price that other traders and investors are ready to pay in order to acquire the asset on the market.
A limit order, conversely, is the form of order whereby traders and investors decide a particular buy or sell price for the asset on the market that is different from the current market price. As a result, an impending order is placed, and only gets filled when the transaction price demands are met.
Explain how Market Makers and Market Takers relate with the two order types and liquidity in a market.
As mentioned earlier, market makers use the buy or sell limit orders, whereas market takers simply use market orders. Since market markers decide their individual distinct prices for the asset on the market, these pending orders provide liquidity for the asset. This means that other traders and investors can readily acquire the particular assets as long as they are willing to settle for the quoted prices. Hence, market makers influence the liquidity of an asset on the market. The market takers, on the other hand, absorb the liquidity of the asset on the market because they make purchases according to the available price points of the asset, which are inherently set by market makers.
Place an order of at least 1 SBD for Steem on the Steemit Market place by (a) accepting the Lowest ask. Was it instant? Why? (b) changing the lowest ask. Explain what happens.
- At the Steem market, it can be seen from the highlighted Buy section that the lowest ask price for Steem was 0.082554, and I input that as my bid price. I was willing to exchange 1.1 Steem Backed Dollar for Steem based on this price. The receivable quantity of Steem is 13.337. I clicked on the Buy Steem button to make the purchase.
- I was prompted to log in with my Active key to continue with the process. I complied and clicked the Sign In button.
- The purchase was instant, and the 13.337 Steem added onto the micro amount of Steem I already had in my balance.
The purchase was instant because the market order was filled according to the available price offer from the respective market maker. Due to the liquidity of the market, all the request amount was fully sent at the price selected.
- At the Steem market, it can be seen from the highlighted Buy section that the lowest ask price for Steem was 0.082485. However, I was willing to make a purchase for 13.336 Steem for 1.1 Steem Backed Dollar at the price of 0.082481. I clicked on the buy button to execute the order.
- I confirmed the purchase by clicking the OK button after this prompt showed up.
- Because the purchase did not match the current price point of the asset on the market, the order was in a pending state. It stayed this way for a while before it was filled at the requested price.
- The received amount of Steem in my wallet is shown.
Place a TRX/USDT Buy Limit order on the Binance exchange for at least $15. Explain your steps and explain the impact of your order in the market.
- For this section, I used the Binance Desktop Application. The selected tab is that of the TRXUSDT pair. The current market price for TRX was 0.09184 as highlighted with the minute white box. I, however, executed a Buy Limit order at the price of 0.09179. I committed 14.970949 USDT to the trade, and the receivable quantity of TRX was 163.1. Finally, I clicked on the Buy TRX button to execute the order.
- Since the price I demanded was not the available market price, my order went straight to pending. It stayed in that state until the current price point of the market was matched to the bid price I proposed.
- Eventually, the order was filled. I have highlighted the filled order in the order history below.
Since I used a Buy limit to place a buy order, I could basically be regarded as a Market maker at that particular time. Also, the pending order added to the liquidity of the asset on the market.
Place a TRX/USDT Buy Market order on the Binance exchange for at least $15. Explain your steps and explain the impact of your order in the market.
- For this section, I also used the Binance Desktop Application. The selected tab is that of the TRXUSDT pair. I placed a Market Order of 15.621368 USDT for TRX. I clicked on the Buy button to execute the buy order.
- The market was instantly filled and is shown in the order history, as highlighted.
- The received amount of TRX in my Spot account on Binance is highlighted according.
Since I placed a buy order, I became a Market Taker, and respectively took away from the liquidity of the asset on the market.
Take a Screenshot of the order book of ADA/USDT pair from Binance on the day you are performing this task. Take note of the highest bid and Lowest ask prices: (a) Calculate the Bid-Ask (b) Calculate the Mid-Market Price.
It can be seen from the photo below that the highest bid price for the ADAUSDT pair was 2.242
It can also be seen from the image below that the lowest ask price for the ADAUSDT pair was 2.244
Bid-Ask =
the ask price of the asset - the bid price of the asset
Bid price = 2.242
Ask price = 2.244
Hence, Bid-Ask = 2.244 - 2.242
This gives a value of 0.002
Hence, the Bid-Ask is $0.002
Mid-Market Price =
( the sum of the Bid Price and the Ask Price of the assset ) / 2
Bid price = 2.242
Ask price = 2.244
Hence,Mid-Market Price = ( 2.244 + 2.242 ) / 2
This is evaluated as ( 4.486 ) / 2
This gives a value of 2.243
Hence, the Mid-Market Price is $2.243
Conclusion
Understanding of the Bid-Ask spread and their relative components on the market such as the market order are crucial to the fundamental development of traders and investors. Knowledge of the core components of an order book on the cryptocurrency market can enable traders and investors to assess the liquidity of the asset and make the appropriate financial decisions. It can also help traders to predict the trend of the asset's price with a decent degree of accuracy.
Therefore, I am very appreciative of this lesson from Professor @awesononso. I believe this education will prove valuable in my journey as a cryptocurrency enthusiast.
This is very detailed
Keep it up, nice job