Trade

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What is a 'Trade'

Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. The most common medium of exchange for these transactions is money, but trade may also be executed with the exchange of goods or services between both parties, referred to as a barter, or payment with virtual currency, the most popular of which is bitcoin. In financial markets, trading refers to the buying and selling of securities, such as the purchase of stock on the floor of the New York Stock Exchange (NYSE).

BREAKING DOWN 'Trade'

Trade refers to transactions ranging in complexity from the exchange of baseball cards between collectors to multinational policies setting protocols for imports and exports between countries. Regardless of the complexity of the transaction, trading is facilitated through three primary types of exchanges. Trades are executed with the payment of sovereign currency, the exchange of goods and services, or payment with a virtual currency.

Currency as a Medium of Exchange

Money, which also functions as a unit of account and a store of value, is the most common medium of exchange, providing a variety of methods for fund transfers between buyers and sellers, including cash, ACH transfers, credit cards and wired funds. Money’s attribute as a store of value also provides assurance that funds received by sellers as payment for goods or services can be used to make purchases of equivalent value in the future.

Barter Transactions

Cashless trades involving the exchange of goods or services between parties are referred to as barter transactions. While barter is often associated with primitive or undeveloped societies, these transactions are also used by large corporations and individuals as a means of gaining goods in exchange for excess, underutilized or unwanted assets. For example, in the 1970s, PepsiCo Inc. set up a barter agreement with the Russian government to trade cola syrup for Stolichnaya vodka. In 1990, the deal was expanded to $3 billion dollars and included 10 Russian-built ships, which PepsiCo leased or sold in the years following the agreement.

Virtual Currencies

As the newest medium of exchange, virtual currencies do not expose holders to foreign exchange risks, provide anonymity between trading partners if desired and avoid the often-significant processing fee for credit cards. The most popular virtual currency is bitcoin, which was introduced in 2009. Bitcoins are held in virtual wallets and can be used with a growing number of merchants, including WordPress.com and Overstock.com. The virtual currency is also popular with small businesses, due in part to the lack of processing fees.