More About Trade
Trade is essential for satisfaction of human wants, Trade is conducted not only for the sake of earning profit; it also provides service to the consumers. Trade is an important social activity because the society needs uninterrupted supply of goods forever increasing and ever changing but never ending human wants. Trade has taken birth with the beginning of human life and shall continue as long as human life exists on the earth. It enhances the standard of living of consumers. Thus we can say that trade is a very important social activity.
The principles of trading
The term “trading” simply means “exchanging one item for another”. We usually understand this to be the exchanging of goods for money or in other words, simply buying something.
When we talk about trading in the financial markets, it is the same principle. Think about someone who trades shares. What they are actually doing is buying shares (or a small part) of a company. If the value of those shares increases, then they make money by selling them again at a higher price. This is trading. You buy something for one price and sell it again for another — hopefully at a higher price, thus making a profit and vice versa.
But why would the value of the shares go up? The answer is simple: the value changes due to supply and demand – the more demand there is for something, the more people are willing to pay for it.
Different Types of Trade
Trade can be divided into following two types
1. Internal Trade
Internal trade is also known as Home trade. It is conducted within the political and geographical boundaries of a country. It can be at local level, regional level or national level. Hence trade carried on among traders of Karachi, Lahore, etc. is called home trade.
Internal trade can be further sub-divided into two groups
It involves buying in large quantities from producers or manufacturers and selling in lots to retailers for resale to consumers. The wholesaler is a link between manufacturer and retailer. A wholesaler occupies prominent position since manufacturers as well as retailers both are dependent upon him. Wholesaler act as a intermediary between producers and retailers.
It involves buying in smaller lots from the wholesalers and selling in very small quantities to the consumers for personal use. The retailer is the last link in the chain of distribution. He establishes a link between wholesalers and consumers. There are different types of retailers small as well as large. Small scale retailers include hawkers, peddlers, general shops, etc.
2. External Trade
External trade also called as Foreign trade. It refers to buying and selling between two or more countries. For instance, If Mr.X who is a trader from Karachi, sells his goods to Mr.Y another trader from New York then this is an example of foreign trade.
External trade can be further sub-divided into three groups
When a trader from home country sells his goods to a trader located in another country, it is called export trade. For e.g. a trader from Pakistan sells his goods to a trader located in China.
When a trader in home country obtains or purchase goods from a trader located in another country, it is called import trade. For e.g. a trader from Pakistan purchase goods from a trader located in China.
When goods are imported from one country and then re-exported after doing some processing, it is called entrepot trade. In brief, it can be also called as re-export of processed imported goods. For e.g. an Pakistani trader (from Pakistan) purchase some raw material or spare parts from a Japanese trader (from Japan), then assembles it i.e. convert into finished goods and then re-export to an American trader (in U.S.A).
Importance of Foreign/External Trade
Thanks to the specializations, the line consisting of unproductive resources can be traded with to another country to get rid of that resource wastage along with ripening fruit. Channelizing of resources ensures that only highest return causing product remain on the list. Well! Once in trade, that waste product is not a “waste”, not anymore, since it’s filling up the country’s coffers and that’s what the economists want.
Global level trading leads a country to specialization and labor division. Since some countries know how to carve out raw resources while others know how to carve out a diamond from each out of them. This leads to a situation where the country with resources exports those raw materials trades with the country which is specialized in handling a certain type of product, thus benefiting the both.
Once a product gets out to be traded internationally, its prices are dependent on the supply and demand ratio. But once it holds its footsteps in that steep stepping point, the struggle takes the shape of standardization of the product everywhere along with its price. Furthermore, standardized prices further lead to a more stabilized ratio in supply and demand chain.
The international trade is extremely competitive one where there might be more than a dozen other brands promoting the same kind of product, says a true but bitter truth. Therefore, for maintaining the market of the product, a country that’s honest with its economy would really prefer quality over quantity.
Foreign trade lets the customers gain advantage from the competitive environment since to keep with the expectations of their loyal customers and getting even more, each country would try to devise a solution that’s perfect for consumers. So in other words, consumers get a huge variety to choose from.
Increased labor and resource mobility leads to an even higher demand for new employees, especially the import sector is what which is going to need most of it. And this not ends here just at imports. In fact, it does affect other sectors of the economy also like industries for putting the imported products to good use or service sectors that help in easing the reach of the products to the public.
Living standards of the inhabitants of a country greatly improve if they are let to lay their hands on awesome imports. Since people have got a choice and that’s of choosing what’s good for them and because of better quality imports, this choice of theirs become even more meaningful.
A country’s economy is highly facilitated by imports and exports. That’s because the imports provide that nation with better and more advanced technologies as well as capital goods with the help of which economy’s all sectors get more chances to grow and increase their influence while decreasing their dependencies on each other. On the other hand, exports can provide you huge income that can either be used to power up a national level project or something else.
Although, the human is weak and is unable to stop natural calamities but that doesn’t mean he’s unable to minimize its disastrous effects. Natural calamities like famine, floods, earthquakes, etc. lead to the shortage of goods that are essential to sustain life. That’s where foreign trade comes in as a savior and lets the affected country exchange the resources for the foods and medicines to recover from the effects as quickly as possible.
During the trade, the country has to keep the payment processing in quite a balance. Or better said, keeping imports as low as possible and putting most of its extra resources as export. The main reason behind that concept is obvious since the greater number of imports causes a huge drain on country’s economy. If its imports grow out than it can handle, then the economy of the country collapses, and that’s not a good thing for sure.
While on the other side, exports bring back money to the treasury of the nation. The more a country makes exports, the greater it has to earn in the international market. Even though, it looks good to make as much export as possible but going beyond the demand is not going to do anything good for you.
Which Trading Style to Choose?
Let’s learn the basics about the popular trading styles first:
As an intraday trader you hold positions for a short time (from minutes to hours), make many trades a day, and usually enter and close your trades on the same day.
Swing trading is similar to intraday trading, but it has a longer trading horizon between hours to a few days.
This means that you hold positions for a long time (from weeks to years). It’s the opposite of intraday trading because you are more interested in long-term investment than in short-term price changes.
Scalping is very short-term trading. You try to make many small profits during a single trading day.
Key Elements of Successful Trading
✓ An efficient trading system
✓ Sound money management
✓ Proper mental approach
Build your Trading System in Six Steps
Define your time frame
Identify the position of the market
Find support and resistance levels
Find your entry levels
Find your exit levels
Use multiple time frame analysis