Some important terms being used in FOREX trading are precisely defined below:
Ask Price:
Sometimes also known as Offer Price. It is the market rate for traders to purchase currencies. These are displayed on the extreme right side of a quote like EUR/USD 1.8899/ 78 which means that one euro can be purchased for 1.1965 USD.
Bar Chart:
A variety of chart which is used in Technical analysis. Every time partition on the chart is viewed as a vertical bar which means the following information: – the extreme top bar is the maximum rate, the below bar is the lowest rate, the horizontal bar displays the opening price and horizontal line on the right is the closing rate.
Base Currency:
It is the very first currency in a pair and the quote demonstrates how much of the base currency prices in the quote of other currency. Like in the quote – USD/JPY 122.90 – USD is the base currency worth 1 USD being rated as 122.90 Yen.
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A collar is a name given to an investment strategy that uses options in order to limit the range of possible positive or negative returns on an investment in an asset to a specific range. For having this done, an investor by whom an asset is owned simultaneously buys a put option and sells (writes) a call option on the same asset. It is needed that the strike price on the call should be above the strike price for the put, and the expiration dates should be the same.
After that the investor has established the portfolio in this manner, the market value of the portfolio will be between the strike price on the call and the strike price on the put. Thus doing this possible gains and losses (the value of the portfolio minus the cost of acquiring it) are confined within a specified range.
Example
Let us consider an investor by whom one share of a stock is owned with a current price of $5. A collar could be constructed by an investor by buying one put with a strike price of $3 and selling one call with a strike price of $7. It will be ensured by the collar that the gain on the portfolio will be no higher than $2 and the loss will be no worse than $2 (before deducting the net cost of the put option, i.e., the cost of the put option minus what is received for selling the call option).
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